November Elections: Gas at $2/Gallon Range - What a surprise!

[AndyA]

http://money.cnn.com/2006/08/30/news/economy/gas_prices/index.htm?cnn=yes

Just in time for the November elections, and with an American populace with a short memory span, high gas prices could well be forgotten by the time elections roll around.

Amazingly, demand is way down - seems overnight, huh? Not too long ago I heard a story on CNN about prices staying high because demand hadn't dropped. Now, SUDDENLY, the bottom has dropped out on demand.

Who could have predicted this?

[ima_sinnic]

1. Ignoramuses who vote with their wallets are ruining it for the rest of us

--in that way, "democracy" has a serious drawback: it allows the ill informed and short sighted equal weight with those who think. "Elitist"? whatever.

[bluestateguy]

2. $2 is way too high, and I will not celebrate it

They want to shift the equilibrium. The way you do that is to raise price from 2.50 to 2.70 for awhile, then drop them back to 2.60 for awhile, and hope people are pleased with that. Then juice up the prices to 2.80 for awhile, watch people get mad, then drop 'em back to 2.70 and hope people express relief at the "low" prices. Then jack the prices back up to 2.90, watch people get mad again, and then dial it back to 2.80 and so on.

I know what they are doing.

[radfringe]

4. $2.75 as if this morning in Dallas PA

yeah, not a typo there really is a DALLAS PENNSYLVANIA....

[WinkyDink]

25. Heh. Moscow, too.

[radfringe]

36. big wave to you

I got lost in Moscow a few years back... lol

[BadgerKid]

3. Yup. "Hmm, must be an election coming"

Gas has gone down about 50c over the past few weeks. Not even a pop from tropic storm Ernesto.

[Sydnie]

5. they are shifting the cost to heating oil

and they will say that demand for gas is down because it's the fall and no one is taking long vacation drives in the fall. But, try to heat your house in the cold weather and demand will far exceed the supply, driving the price through the roof.

Bottom line is, they won't miss a penny of profit, but they will make the average driver think he is getting a bargain price when he fills his car tank all the same.

[mainegreen]

6. Gas is going UP here. Not down.

:shrug:

[ProfessorGAC]

7. It Went Up A Dime Yesterday!

In Chicago region. Went from $2.93 to $3.03 overnight.
The Professor

[Gidney N Cloyd]

11. What county?

[ProfessorGAC]

12. Will County

I live in the southwest corner of Will.
The Professor

[mainegreen]

13. Personally, I think it will go up more as fall kicks in.

It always seems to rise in price through labor day.

[WI_DEM]

15. It's gone down about 40 cents per gallon in the last month in Madison, WI

It hit a high of $3.19/gallon for regular and now this morning is $2.79/ gallon.

[LostinVA]

18. It's went down FOUR cents here since June

To $2.84. What a bad joke.

[Junkdrawer]

8. Say...are you suggesting Big Oil controls gas prices....

market forces...just market forces... :sarcasm:

[RB TexLa]

9. had a bumb yesterday, could rally today

http://news.yahoo.com/s/nm/20060830/bs_nm/markets_oil_dc_18


"U.S. crude for October delivery rose 50 cents to $70.21 a barrel by 1100 GMT, while London Brent crude gained 60 cents to $70.46."

[acmejack]

10. We all know it is strictly immutable market forces at work!

Supply & demand, demand & supply, awwk!

[WI_DEM]

14. I was fearful this might happen and you are right the American peoople

vote their pocketbook and now they are conditioned about $3 gas and will consider $2 a bargain.

[okieinpain]

16. so arnold is going to get re-elected in cali, that really sucks.

[TechBear_Seattle]

17. Surprise? Hardly

It is exactly what I was expecting. Prices will skyrocket, come the beginning of the "holiday travel season", just you wait and see.

[bklyncowgirl]

19. They tighten the screws on the consumers and then retreat slightly

It's a classic example of advance and retreat. When the howls of anguish get too loud they let the prices drop just a bit.

The result, everybody is oh so grateful for gas that is 20 cents a gallon higher than it was just three months ago because for the past month it was 40 cents higher.

$2.79 a gallon is a bargain compared with $2.99 a gallon but high compared to $2.59 a gallon. It's all a matter of perspective and they know that very well.

[Spider Jerusalem]

20. Let's see:

school has started in much of the country, which means that far fewer people are taking vacations and driving or flying long distances, which DOES significantly curb demand. I'd say that anyone who was even vaguely familiar with the travel habits of the average American family in summertime could have predicted this. It may be hard to believe, but market fluctuations can and do happen without there being a sinister cause behind them.

[nonews]

26. oil

well said, you are the only SANE person on this thread

[AndyA]

33. Peak driving season/vacation traditionally ends after Labor Day.

I take it from your post that you believe the prices for gas this summer have been reasonable? And you have no problem with the obscene profits that the oil companies have been making the past year or so?

[ComerPerro]

21. supply/demand in an industry like this is a complete lie

supply and demand doesn't set prices in this business.

The whim of the executives does.

[Spider Jerusalem]

22. Really?

How do you explain the fact that the price in dollars for one US gallon of gasoline has remained constant when considered in relation to the price per barrel of crude oil, then? Or the fact that the rise in crude oil prices over the past decade is consistent with an increase in demand that amounts to an additional seventeen million barrels a day, due to growth in India and China? Or the fact that the few sharp price spikes of the past few years have been due to supply disruption at a time when the margin between total production capacity and total demand has been at most a million or so barrels?

[ProfessorGAC]

24. That's The Problem, Spider!

That price/cost relationship shouldn't be as linear as it is. The slope is too steep, because supply and demand has already impacted the raw material price. So, since the cost of refining is a constant, the proportion of retail pricing increases should be less than one. It isn't.

That means the market isn't open and free. It's a fixed price situation and supply & demand curves don't work when the market isn't open.

Think of this: When is the last time a major refiner competed with another on price? And this: Why is gasoline the only commodity sold in which the raw material has already transferred ownership through the same market?
The Professor

[Spider Jerusalem]

29. Yes, refinery costs are fixed (in constant dollars)...

but considering the 2-4% annual inflation rate they've still increased in current dollars; aside from that fixed cost one would expect the cost per gallon of refined gasoline to bear a constant relationship with the cost for a single barrel of crude oil (which it has).

As to why petroleum is the only commodity sold to transfer ownership in the same market, it seems that profit motive is at least part of the reason; if oil were priced according to costs of extraction and refining plus a certain fixed markup for profit margin, the price would probably be easily 25-50% lower...but it seems that there are also a few external forces at work, such as the necessity of major oil companies that are also in the retail fuel business to maintain access to sufficient quantities of crude oil, especially given that many of the world's major oilfields are under the control of state-owned companies like Saudi Aramco and Pemex (and this is something that's not completely addressed through licensing and joint ventures, either).

[ProfessorGAC]

30. It Isn't A Fixed Cost, Spider

That's my point. They operate on a fixed proportion. So, when price of crude goes up, the percentage of price over cost stays the same. The higher the raw, the higher the profit margin in absolute dollars. That's an extraordinary situation. Even food doesn't enjoy that relationship, and it's just as necessary as petro-goods.

So, it is NOT proportional to any change in demand at any point throughout the year. And, if they were to flatten the pricing curve so it would be higher when demand was down, and lower when the demand is high, they would make less money. Hence, they don't smooth the pricing structure for seasonality, like most other industries.

And your description of the oil side, is making my point. All that is already covered once on the market pricing of the commodity. The sale of gasoline on that same market is double dipping.
The Professor

[ComerPerro]

27. If it were truly a free market, prices wouldn't be in lock-step

one company raises prices 5 cents, they all do.

There is no free market here, there is no competition.

They are all in it together.


They are simply trying to perpetuate the illusion of supply and demand, so people won't ask questions

[ProfessorGAC]

31. That Is EXACTLY My Point

Even the people who claim "supply & demand" know it doesn't apply.
The Professor

[ComerPerro]

32. Some people put a lot of faith in the supposed "free market"

[ProfessorGAC]

23. There Are Three Issues That Sting Me

First, there is no reason the finished product has to be sold on the commodities market, just like the raw material.

The reason for this is that the price could be set by "external" forces and the big refiners would never compete with one another on price. Hence, the prices are fixed.

Secondly, while i understand the upward pressure on prices caused by higher raw material costs, the refining industry is the only one in the United States that not only gets to pass on its higher raw material pricing to the customer (immediately, too), but pass more than that on. They operate on a cost-plus, fixed proporational margin model. So, when raw material increases in price, they immediately pass that cost on, plus a higher absolute profit margin.

Lastly, whenever demand increases are "anticipated" (like before Memorial Day), prices bump up almost instantaneously. But, when demand actually begins to fall after Labor Day, prices lag for weeks, before they drop.

So, the whole supply and demand thing burns me up. First of all, S&D only really works in an open and competitive market. This isn't an open market. There is no competitive pricing for goods that are non-unique, and the market doesn't define profitability, the producer does. So, the whole concept falls flat on its face.
The Professor

[ComerPerro]

28. That's what bugs me most

they don't really seem affected by supply and demand.

They work off of perceived supply and demand.

Its an illusion.

[AndyA]

34. Even with gas at $2.00-2.50, that's still considerably higher than when

George Bush, the Oil Man Wannabe took office. Gas averaged around $1.42 then, and Bush himself was complaining about the price being too high. There was considerable criticism toward Clinton because of the high price of gas.

Guess all that's forgotten now...how convenient...

[GreenTea]

35. I love how CNN uses the word "Thanksgiving" instead of "Election" time!

What it's really all about!