William Lachance ([info]wlach) wrote,
@ 2007-09-04 14:46:00
Previous Entry  Add to memories!  Tell a Friend!  Next Entry
Entry tags:advogato, economics, energy

Re: More on expensive gasoline
apenwarr: Your bit of economic theory is interesting, but I'm still pretty certain the key driver here is supply and demand, not price optimization. See, for example, the testimony by Paul Sankey before the U.S. congress on the subject: "Gouging is an Idiotic Explanation".

The facts are simple: domestic demand in the U.S. for gasoline (refined crude oil) is about 22 million barrels per day, while supply is only about 17 million barrels per day (the difference is made up with imports from overseas). Most of the blame for this expensive discrepancy can be placed on the difficulties currently experienced by the U.S. refining industry (extended maintenance, tighter product specifications, safety concerns), rather than some kind of deliberate conspiracy by an oil oligopoly to restrict supply and/or fix the price.

The marketplace for energy is simply too complex, with too many stakeholders, for it to be treated as a monopoly. If only they could, I'm sure those U.S. refineries would very much like to be processing and reselling those 5 million barrels of gasoline that are currently being imported (who wouldn't given the current high prices?). Why invoke conspiracy and collusion when an alternative, well-sourced explanation works just as well?


(Post a new comment)

Gouging *at the pump* is an idiotic explanation
(Anonymous)
2007-09-05 07:10 pm UTC (link)
I'm not going to write a whole journal article about this since I don't have new to add to the discussion, just some clarification.

The title of the article you gave above severely misquotes the actual person involved, and it's easy to apply the resulting bias when reading the article itself. The actual quote was: "Anybody who blames record high US gasoline prices on 'gouging' at the pump simply reveals their total ignorance of global oil supply and demand fundamentals."

He's lashing out against the people who think *American* companies, such as the guys running the gas stations, are causing the high prices. Clearly that view would be ridiculous (and popular - people tend to blame people they know). But that doesn't mean *someone* isn't gouging: it's the people responsible for restricting the supply in the first place. The supply from the U.S. has *always* been below demand; they've *always* been a net oil importer. The reason the prices are high now is because the price of imports is high, because more people than ever want to buy and there's no reason for exporters to lower the price. *More* people want to buy *despite* the higher price.

In the diagram I quoted in my posting, the black line is historical U.S. oil production, while the red line is consumption. I said the black line was "irrelevant for our purposes" because I thought it was obvious that the U.S. had always been a net oil importer (and thus this fact can't affect recent oil price changes); perhaps it's relevant to this branch of the discussion after all.

(Digression: I find it odd that you would accuse my posting of being about anything other than supply and demand. Price optimization *is* supply and demand.)

--apenwarr

(Reply to this)(Thread)
Re: Gouging *at the pump* is an idiotic explanation
[info]wlach
2007-09-06 07:36 pm UTC (link)
I think there might be a bit of confusion here between gasoline versus crude oil: they're not the same thing. Specifically, gasoline is a refined version of crude, which requires specialized facilities and equipment to produce. The price of crude oil has risen significantly over the last few years (at least partly for the reasons you mention), but not nearly enough to explain the current price of gasoline.

My claim (and that of the article) is that refined gasoline currently commands a higher price because of the lack of domestic facilities to produce it in the quantities necessary to maintain reasonable inventories. You are right that the U.S. has been a net _oil_ importer for some time (the late 60s), but my understanding from that article (and elsewhere) is that the current situation with regard to _refined_ gasoline is something new. If additional refinery capacity were brought on-line (and there's every incentive to do so right now, with prices so high), then one might expect prices to come down again.

All this isn't to "refute" the main point of your article (which is a good one): if the circumstances are right, it is possible to make more money while producing the same amount of stuff. My disagreement is with the conclusion you draw: that the market is deliberately restricting supply. An oligopoly could easily do this, but the oil industry (that is, the sum total of the companies producing and selling crude and gasoline on the open market),
isn't an oligopoly.

Does that make sense?

(Reply to this)(Parent)

Create an Account
Forgot your login?
Login w/ OpenID
English • Español • Deutsch • Русский…