Well, it's more common for sudden events to reduce supply rather than the reverse. But prices do in fact fall quickly at times; note the rapid drop as refineries recovered from the hurricanes:
Posted on 05/25/2006 12:05:10 PM PDT by Mr. Silverback
The Democrats and Republicans continued their race to the bottom this week, and for a while they wish to run on the same track. Democrats spouted their annual pretended outrage at gas prices, and this time the GOP joined them, with Senate Leader Frist, Speaker Hastert and President Bush all rushing to call for another fruitless price gouging investigation. While we wait for the Beltway bloviators to call for repeal of the law of supply and demand, let’s look at eight facts they don’t seem willing to discuss.
1. The big oil companies recently posted record profits, but they also recently reported record sales. Funny how those two things go together, isn’t it?
2. Big Oil makes roughly 9 cents per gallon in profit these days. If gas is at $2.75, they’re pulling down a blistering 3.27 % profit margin. Now, ask yourself this: How secure would your job be if your employer had to operate on a 3% profit margin? Would they even stay in business? Would entrepreneurs get out of bed in the morning to make a 3% profit margin running a small business?
I don’t care how much money Big Oil is making, nobody makes 3.3% profit when price gouging.
3. Depending on the state, taxes are somewhere between 26 and 60 cents per gallon. Sure, roads need to be funded and gas taxes are a great way to do that because greater use of roads leads directly to more money for roadwork. Still, consider that a moratorium on Illinois and federal gas taxes would bring us gas somewhere in the area of $2.36 here in Freeport. A graph of Big Oil profits over the last 30 years looks like a roller coaster, while a graph of gas taxes shows a nice, steady climb that well exceeds inflation. Who’s gouging who?
4. Speaking of gouging, why hasn’t the anti-gouging chorus gone after the bottled water industry? Dasani, for example, is currently going for $1.06 per liter. That works out to $4.16 per gallon for something not much different than what comes out of your tap. What do you think the profit margin is on a gallon of Dasani? They’re not the worst, though. Check the per-gallon price on Pepto Bismol, Dom Perignon, Coca-Cola or “inexpensive” Testor model paints. Don’t get me started on the Alclad lacquer I dream of using on my model planes; at $6.96 per ounce the price works out to over $1,000 a gallon.
What could drive these businesses to offer their products at these insane prices? Could it be a little thing called “supply and demand?”
5. Despite Dick Durbin’s recent ludicrous proclamation that there’s “no end in sight” for oil prices, leading Democrats know that crude and pump prices will decline steadily for months before the election. To capitalize on high prices, they have to get the idea that the GOP is aiding and abetting Evil Oil cemented in the minds of voters while prices are still high.
Keep this in mind when the Dems demagogue this issue all summer: According to the April 28 Federalist Digest email newsletter, Senate Minority Leader Harry Reid has voted to raise fuel taxes 12 times and House Minority Leader Nancy Pelosi has voted to raise them 5 times so far.
6. While we’re addressing the Democrats, let’s remember who has opposed new refining facilities in the U.S. for 30 years or so, opposed new nuclear plants for about the same amount of time and been at the forefront of taking up refinery capacity with “boutique” gas mixes for certain major cities.
Each of these things has a consequence at the pump. America’s low refining capacity is a bottleneck that reduces supply and drives prices up, and the boutique fuels exacerbate that problem. Fewer nuclear plants mean more oil-fired plants, which means less crude going to gasoline production, and more pollution.
7. Here’s another good find from the Federalist Digest: Fuel supply coming out of the Gulf Coast is still down almost 20% because of damage from Hurricane Katrina. Gas demagogues aren’t going to tell you that, and they sure won’t be reminding us what happens to prices when demand rises and supply goes down.
8. These days, large American corporations are mainly owned by American wage earners and retirees. Sure, the fat cats in the limos are out there, but the bulk of the shares are owned by pension funds and other investment groups. In other words, Big Oil’s profits are helping Grandma stay retired now and Joe Lunchbox and Jane Teacher look forward to a properly funded retirement in 20 years.
The Beltway demagogues are counting on us to be economically ignorant and easily riled. They surely don’t deserve our help, so let’s not oblige them.
Well, it's more common for sudden events to reduce supply rather than the reverse. But prices do in fact fall quickly at times; note the rapid drop as refineries recovered from the hurricanes:
Incorrect.
Upside HAS no limit, since demand will not decline whatever the price does.
Incorrect.
Since it's all about the money, there is nothing to stop them from doing so. And that is exactly what is happening.
And they just realized they have this kind of power now? Good thing they were apparently run by idiots for the last 50 years.
Ever heard of OPEC? Ever heard of OPEC meeting to discuss the supply and price of crude? If that isn't the definition of price-fixing, what is?
Now you're getting somewhere. OPEC can affect the market far more than Exxon can, but even they aren't omnipotent, or else oil would always have been $50+ a barrel.
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