Gas prices.... Gouging?

[PanTheMan]

Has a SINGLE Oil company Exec EVER been held accoutable for Gouging?...lol.
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WASHINGTON - The U.S. Federal Trade Commission is investigating whether gasoline price profiteering has occurred and if oil companies have constrained refinery capacity to manipulate fuel prices, an agency official said Wednesday.

“A determination that unlawful conduct has occurred will result in aggressive law enforcement activity by the FTC,” John Seesel, an FTC associate general counsel, told a Senate Commerce Committee hearing.

The FTC is responding to language in recently passed energy legislation that requires the agency to probe whether gasoline prices have been manipulated by attempts to reduce refining capacity, Seesel said.


U.S. oil companies have adamantly denied that they have acted to constrain gasoline or crude oil supplies.

The FTC is keeping an eye on gasoline prices, even though they have fallen from their record $3.07 per gallon national average price seen when Hurricane Katrina hit the Gulf Coast, Seesel said.

“The commission is very conscious of the swift and severe price spikes that occurred immediately before and after Katrina made landfall,” Seesel said.

Four major oil refineries remain shut and a large chunk of oil production in the Gulf of Mexico is still offline due to damage from Hurricane Katrina which slammed into Louisiana and Mississippi three weeks ago.

And now with the approach of Hurricane Rita, which has strengthened into a Category 4 storm, oil and gas companies have evacuated thousands of their workers from oil rigs and production platforms in the Gulf. Some refineries are starting to shut down, and Houston’s mayor called for an evacuation of low-lying, flood-prone areas of his city.

Separately, the Government Accountability Office said recent retail gasoline prices have risen faster than crude oil prices.

This goes against the historical trend when major crude oil price swings are generally mirrored by gasoline prices, said Jim Wells, GAO director of natural resources and environment.

Governors urge probe
On Tuesday, eight Democratic governors asked President Bush and congressional leaders to investigate possible gasoline price gouging in the aftermath of Hurricane Katrina.

In a letter, the governors urged an investigation into “excessive profits being made by oil companies who are taking advantage of this national crisis.”

The letter was signed by the governors of Oregon, Wisconsin, Michigan, Illinois, New Mexico, Iowa, Montana and Washington. It also urged Congress to refund any excessive profits to consumers.

The letter cited a study by University of Wisconsin economist Don Nichols that found the hurricane was not entirely to blame for high gas prices.

Historically, Nichols said, the markup between the price of a gallon of crude and a gallon of gasoline is about 85 to 90 cents a gallon, including refining, distribution and taxes.

The study estimated that for pump prices to reach $3 a gallon, the price of crude oil would have to be about $95 a barrel, but crude prices have been holding around $65 a barrel, and Katrina has not caused a surge in crude oil prices.

“The disconnect between gasoline and crude oil prices is quite remarkable,” Nichols said.

Ed Murphy of the Washington-based American Petroleum Institute said refining capacity was tight before Katrina and the storm reduced it further by knocking out some refineries.

“That put upward pressure on petroleum prices,” he said. “It’s a no-brainer.”

[Morrigoon]

That's just stupid. If the local governments didn't make building refineries just a horrible, expensive mess of litigation and permits, it would have been profitable for oil companies to build more refineries before this all happened. They've dug their own hole with regulations, and now they (and sadly, all of us) must lie in it.

[PanTheMan]

The CEO of Chevron was was being interviewed here the other day. He said the Main Reason for High prices here in the Bay Area right now is from Hurricane Katrina. When the interveiwer pointed out to him, that the fully operational Chevron refinery here, gets it's tankers from Alaska and South America, (As Does Shell and Tosco) How could Katrina have any effect on the prices here?

He had No Comment and walked off.

End of September is the end of the 3rd quarter. Wait till you see the record profits. When they make Billions will it still be possible to blame "Enviromental Whack Jobs" not allowing the building on new refineries? End of the second Quarter had Chevron making 26 BILLION. They deserve maybe a few billion, and drop the prices a buck for us...

[Morrigoon]

So.... you're suggesting that they charge us a lower price for gas than they could make by selling it in the affected areas (even after accounting for transportation costs)?

There is greater demand than supply because part of the country can no longer get its gas from the usual places. That means that other places that get and refine gas will be getting additional demand for their products. Increased demand without increased supply cause increased prices until such prices cause demand to drop to a point where it meets up with supply. Lesson One, microeconomics.

[PanTheMan]

I Understand that. however Chevron doesn't Sell in LA., or Miss. I understand competitive pricing as well. But this would be like the HQ of Burger King getting blown up, so BK would have to charge $5 for a Whopper. THEN McDonalds raises the Big Mac to $5. They do it simply because they CAN. not because they are personally being effected.

Like i said, Oct. 1... 3rd quarter profits will be out. It's going to be ugly.

[Morrigoon]

But they ARE being affected, that's what you're missing. Chevron might not sell in LA or Miss, but their competitors DO. That means their competitors are shifting supply in that direction, which in turn reduces supply here. So for every gallon of gas Chevron has here in CA, there is now an increased amount of demand because there are fewer total CA gallons compared to total CA demand. THUS PRICES RISE.

It's basic economics, really.

[Prudence]

I'm curious what deals the states could have made when permitting the refineries that are in place now. The regions that contain the refineries and the pipelines bear the social and environmental burdens that accompany those entities. I imagine it must be some frustration for them to watch a larger percentage of the gas produced in their region head elsewhere, leaving lower supply and higher prices -- and the same social/environmental burdens -- in that region.

(Sometimes a region does protect its interests -- such as when earlier this year northwest senators from both parties killed the proposal to require Bonneville Power Administration to charge market rates in this area.)

[TigerLily]

I person;;y think it's gouging. The oil companie profits are in the billions. The prices were raising before katrina and I can see them going higher after rita. They go up if the power goes out. They go up in the summer and right before holidays. the prices seem to go up if the wind blows just right....

[Morrigoon]

...And we pay it.

[PanTheMan]

Those who can afford pay it. Corporations have lost sight of what is "The greater Good" for society. They now have an "If we can get , we are going to get it" greed mentality. We no longer pay what something is "Worth" but what they feel they can get.

So what happens to those who get left behind and can no longer afford?

Let them eat cake.

[Morrigoon]

PtM: when people can't afford it, they don't buy it. Demand drops. Then price drops, until everything equalizes.

[Name]

to play devils advocate,

The value of gas is the same as the value of anything, it is worth exactly what people will pay for it. The same is true for anything that you have, from a rare coin, to a figurine. If there is literally noone wanting to buy it, it is relatively worthless, as noone will buy it.(you may be able to get a few dollars for said fictional knick knack or coin in a garage sale, but that is beside the point.)

Now, economically speaking, as long as they can increase the price and increase their profits (as it is the most basic economic policy to maximize profits), then they are completely within the statutes of economic law and such(for lack of better terms at the moment, and I don't feel like getting out the economics text at the moment). To those that cannot afford to purchase gas, well, in a pure free economic system, they would have to figure something else out.

But have no fear, we in the good ole USA don't operate under a free economic system(not even the most free in the whole world), so uncle sam will come in and save all those poor souls that would get left behind otherwise.

[Prudence]

Because I'm in class and reading umpteen hypotheticals makes one start thinking like that all the damn time enough already with the damn hypos egads can't I just think like a normal person for 5 minutes?!:

Is there ever a point where a commodity should be regulated? For example: suppose that locally accessible water supplies were contaminated. For the purposes of this hypothetical, assume that all bodies of water and rain water are contaminated and the contamination can not be reversed. Water demand would nonetheless continue. Should water vendors be permitted to charge whatever they want for water, knowing that there are no other options and that humans require water to sustain life? Is the expectation that people should then, in such hypothetical, physically move to areas where water is cheaper or available in nature? And if so, is that an acceptible operation of market force? Or do we want some outer boundaries?

[Name]

Sorry, can't wrap my head around that one, as water is only a two element compound, there are too many ways to make water, and purify water, and strip varies contaminates from water. everything from simply boiling, to reverse osmosis, to name only two.(besides, isn't it robbery enought to charge 3 to 5 dollars for a bottle of water at various events?)

And on another note, right now it is the local govt that handles water delivery(at least here) and would probably be the same in your hypothetical, with the lowest bidder being the main supplier for the local govt.

[Morrigoon]

You know, every time there's a major landslide, or hurricane, or other disaster that takes out (usually rich) people's homes, people complain, saying "why should we help them rebuild when it's so obviously a place people shouldn't live?

Likewise, if the water was unpotable in a certain area, and permanently so, such that a temporary influx of clean water would not be enough to sustain it, then people would either pay what it cost to get water in there, or they would move. And under that logic, they ought to.

I'm not saying gougeing doesn't happen... just that there is economic justification for the behavior, and in order to control prices, you'd have to give pretty good justification why the company doesn't have a right to make as much money as demand will allow.

One good justification would be that without clean water, we'll die. Will we die without gasoline? Not necessarily... we'll just be royally inconvenienced (I know current gas prices inconvenience ME!)

And yet, with all these complaints of pricing, does anyone ever discuss the possibility of getting the government to lighten up on its share of the price problem? NO.

People love to talk about price controls as some sort of utopian rule. Look, price controls only work in this country for the same reason that companies do business with Wal-Mart: we're too big a customer to ignore. Guess what... there are other customers who are growing in importance now. If we go to far controlling things, we'll find companies preferring to do business elsewhere. It may surprise folks to discover that there are places in this world where you cannot automatically expect things to be availible, regardless of your willingness to pay for it. If the profit margins sink too low, supply will just shift to places where they aren't. Companies will always act in their best financial interest, even if that means only doing business abroad.

This same principle applies to why companies keep leaving California and the US. The more we do to control their employment practices, the more sense it makes for them to move their operations abroad. Everything we do to "help" the American worker must be weighed against the possibility that it will end up hurting the American worker because the regulations make it more profitable to do business elsewhere.

Getting back on topic... if California, for example, decides that gas companies are gougeing and put price controls on fuel, those gas companies will prefer to sell gas to all the other states. Taking this to an extreme... why would they sell gas at a $0.02 profit in CA when they could sell it for $1.00 profit in, say, Nevada? So they will sell as much as they possibly can in Nevada, Colorado, Oregon, Washington, Idaho and Utah, and then, if there's anything left, they *might* sell it to California. Imagine how fun a fuel shortage would be!

[Morrigoon]

To add: if nothing else, the limited supply would cause the same "big brother" government to have to control how fuel is used, allocating a certain amount to consumers, and a certain amount to industry. Well, with fuel limited, production (of other products) will be reduced, which means it's both unnecessary and unprofitable to keep all their employees on, so folks will find their hours cut or get laid off, making it even MORE difficult to purchase gas.

Now mind you, I'm not talking short-term price controls (though even short-term ones would negatively affect business decisions about whether to open or move operations to California), because with prices fluctuating for event after event, this would be an almost continual problem. How do you determine what is market forces, what is inflation, and what is gougeing?

[sleepyjeff]

) To those that cannot afford to purchase gas, well, in a pure free economic system, they would have to figure something else out.

But have no fear, we in the good ole USA don't operate under a free economic system(not even the most free in the whole world), so uncle sam will come in and save all those poor souls that would get left behind otherwise.

12 years ago when Universal Health Care was the big issue of the day Rush Limbaugh said "mark my words, if they get this the next thing they will want is Universal food insurance and then gas insurance and on and on"

Rush was(once again) right ;)

[Name]

12 years ago when Universal Health Care was the big issue of the day Rush Limbaugh said "mark my words, if they get this the next thing they will want is Universal food insurance and then gas insurance and on and on"

Rush was(once again) right ;)

:D
Nice,
I was just making a guess based on the past efforts of the government when gas prices were in a similar flux(back in the 70's, not a personal experience, but what I gathered from reading and such)

[Prudence]

I need to learn to write more vague hypotheticals. Clearly I'm not ready for textbook work.

I'm not, at this point, arguing that gas is a necessity. I'm wondering if you (Morigoon) would ever find any type of price control? Imagine the wacky, improbable scenario of your choosing that involves people who are unable to alter their circumstances and are dependent on a vendor to provide them with something necessary to continued life. Is there any point in some "nucular" wasteland imaginary landscape where it's appropriate to set price controls? Or in that case would it be an issue of natural selection at work and if you can't get out/survive then your DNA should be allowed to expire?

(and just so we're clear -- I'm not intending any judgment of answer. I'm mostly just curious. I'm not going to point the quivering finger of doom at you if I don't agree with your answer.)

[Ghoulish Delight]

The problem with just saying "demand will drop if price gets too high" is 1) gas is as close to inelastic a product there is and 2) even assuming its inelastic enough to hit a ceiling, so much of our economy depends on gas that by the time it hits that ceiling and begins to drop, the damage to the economy may be too wide spread. Prices of every single domestic good will be affected as every single domestic good relies on oil and gas. A prolonged spike in gas prices will have long lasting inflationary effects that the market may not be able to absorb.

[scaeagles]

So we better not do anything like drill for our own oil or anything like that. Wouldn't want to risk te certain environmental disasters of doing that.

The only thing that makes oil prices go down is increased supply. OPEC pretty much controls the worldwide supply. Everyone who opposes offshore drilling and ANWR and exploration and drilling in Utah or Nevada or whatever shouldn't complain a bit.

[Name]

And I am not, thanks.. :D

[scaeagles]

Then you have my complete respect, Name. What bugs me is people who whine about the prices but oppose doing anything about it - as in increasing supply.

[Name]

I ride a motorcycle, exclusively, thus doing my part to reduce demand(small and futile as it may be).

[PanTheMan]

The basic point is not about drilling, or OPEC or Supply and Demand, or some rare sea slug habitat off SB...

The point is GOUGING. If an Oil Company reports 26 BILLION in profit for a Quarter (3 MONTHS!) Dont you think they may POSSIBLY be overcharging?

[scaeagles]

Threads start discussion. Discussion moves in a variety of directions. This thread has logically moved into supply and demand issues related to pricing. I'm not sure why there's a problem.

[blueerica]

I love that I'm in an economics class when all this is happening. Too bad I wasn't available during the first parts of this discussion, most of what I would say was said by Morrigoon & sca...

Ultimately, the sacrifices aren't going to be made on a large scale, just not yet. Changes will be small; people are likely to drive less, or (at most) consider a trade-in for a more economical vehicle. I know I've curtailed my own driving habits, and my monthly gas expenditures have gone up (between price hikes and new work-school schedule) well, over $100 a month, which adds up for little part-time-working old me! So I find ways to take it easy. And there will be limits. If prices go beyond my personal threshold, I will drive less, etc etc etc...

[Morrigoon]

The problem with just saying "demand will drop if price gets too high" is 1) gas is as close to inelastic a product there is and 2) even assuming its inelastic enough to hit a ceiling, so much of our economy depends on gas that by the time it hits that ceiling and begins to drop, the damage to the economy may be too wide spread. Prices of every single domestic good will be affected as every single domestic good relies on oil and gas. A prolonged spike in gas prices will have long lasting inflationary effects that the market may not be able to absorb.
Yes! and No.

RIGHT NOW, we're dependent on gasoline. If gas price problems are prolonged or continue to get worse, it will become potentially VERY profitable for companies to come up with alternative fuel options. The more expensive gas gets, the more we suffer, the more likely it is that someone will come up with a viable alternative and the more likely the public will embrace it. In that sense, you could view the fuel price problems as a boon for environmentalists - people are reducing their driving, and industry is encouraged to seek alternative fuel choices.

Now, in the short run. It sucks big hairy donkey balls. Believe me, every time my income goes up, gas prices have jumped to take it all away. I know VERY WELL the pinch of current gas prices. And yes, industry IS affected. Yes, gas prices CAN bring our economy to a grinding halt - in the short term. But seen on a medium- and long-term scale, this is, or at least CAN be, a very good thing.

Remember: right now we're at the mercy of OPEC. The middle east only has about a century worth of gas left anyway, so this was always GOING to happen, it's just happening sooner. If we find alternative fuels, and more importantly, there is widespread adoption of the technology, we can kiss OPEC goodbye. Hopefully we'll find someone that we in America have in abundance, so we're no longer at anyone's mercy.

Innovate or die.

[Ghoulish Delight]

The only thing that makes oil prices go down is increased supply. OPEC pretty much controls the worldwide supply. Everyone who opposes offshore drilling and ANWR and exploration and drilling in Utah or Nevada or whatever shouldn't complain a bit.Hmm, actually, what recent history seems to be showing is that increasing supply ain't gonna do much. Refineries are at or near capacity, so increased supply to the refineries will not equate to incerased supply on the market.

[scaeagles]

Necessity is the mother of invention.

The interesting thing is that there are already viable options available. The problem is not so much viable options as it is infrastructure, and no one wants to spend money on infrastructure to get it done.

The preeminent example of this is in Arizona. There was a huge push 5 years ago or so to convert cars to use CNG (compressed natural gas). Anyone who purchased a car that used it, if structured properly, could get a reimbursement from the government for the price of the vehicle. No joke. However, these cars could run on both CNG or gasoline at the flip of a switch, so there was no requirement that purchasers actually use CNG.

Anyway, one can convert any gasoline engine to use CNG for under $1000. No loss in horse power, no adverse affects whatsoever. The problem exists in that there are only 4 filling stations in the entire metro Phoenix area. That's a bit impractical. The nearest one to me is some 17 miles away. If there were CNG filling stations on every corner, I bet at least half of drivers in AZ would convert, especially if the state offered to pick up the cost of conversion.

I also watched a special on the History Channel on "future tech". They already have vehicles that run on Hydrogen fuel cells. The technology lacks mass production and therefore is incredibly expensive, but it could come down if someone were to invest in it and provide the infrastructure for refueling....or whatever one does with a hydrogen fuel cell.

And based on some research I did yesterday on the USGS site, we have some pretty nice oil reserves of our own in lots of different places. Why not get it?

[scaeagles]

Hmm, actually, what recent history seems to be showing is that increasing supply ain't gonna do much. Refineries are at or near capacity, so increased supply to the refineries will not equate to incerased supply on the market.

I agree with that 100%. We also desperately need to increase refining capacity. As I mentioned earlier or in some other thread, no new refineries have been built in the US since the 70s. That is simply disgusting. I'd love to talk about the reasons, but I suppose this thread isn't the place for my rant on that.

[sleepyjeff]

The basic point is not about drilling, or OPEC or Supply and Demand, or some rare sea slug habitat off SB...

The point is GOUGING. If an Oil Company reports 26 BILLION in profit for a Quarter (3 MONTHS!) Dont you think they may POSSIBLY be overcharging?

The simple solution would be to hedge yourself against high oil prices by buying oil futures :D

[TigerLily]

somehting I found of interest. On the news they said for gas at the pumps to hit $3.00 a gallon the price per barrel should ahve been $95.00, but the price per barrel was only $65.00...seems like gouging to me.