Saturday, June 7, 2008

Gas Prices

Energy Chief, Samuel Bodmen, while attending a summit in Aomori, Japan with ministers from Japan, South Korea, India and China, equated the problem with high oil prices to "flat energy production," claiming that "production has stalled since 2005 at 85M barrels a day." In other words, his explanation for high gas prices is that while demand around the world has increased, production has stalled.

Yet, if you go to "How Stuff Works" (, you can watch a video of John Hofmeister, President of Shell Oil Corp., who says prices are set by gas station owners. He says in the video that owners of individual stations, looking around town and seeing what other stations are charging, set their prices similarly. His logic is that they do this to ensure they can pay the taxes and delivery costs of their next delivery of gasoline.

If that's truly how it works, then I wish the news media would begin publicizing the wholesale costs of gasoline so we can see what's really going on and just exactly who is gouging the public. From one gas delivery to another, gas stations will typically raise their prices several times. Excuse me, but what's with that? Have they been told by the supplier that their delivery price will rise upon their next purchase, or are they just charging more because they think they can?

The petroleum industry is the only industry that routinely raises the cost to consumers, and multiple times I might add, on inventory they've already purchased. For example, let's say a station gets a delivery of gasoline on Tuesday and doesn't get it's next delivery for two weeks. In that two week time, they're raising their prices 2-3 times per week. No other industry I'm aware of is guilty of such price gouging practices. In any other industry, the longer they hold a product in inventory, the lower the price becomes until the inventory is depleted. But that doesn't hold true for the petroleum industry. It appears the longer they hold gasoline in their tanks, the more they're inclined to charge more for it (just because others around town might have increased their prices).

So ... is it really a function of what station owners are seeing other charge and thus raising their price ... or is it big oil telling the station owners what to charge so they can maintain their outrageous profits as we curtail our usage?

No comments: