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Tuesday, April 25, 2006

There is no price gouging at the pump:

Not really. Sure, there are instances of retailers jacking up the cost. And even the big oil companies are pricing at the upper range (mostly through refining charges). But this is mostly the result of the market. And the market was allowed to develop in the following way:
  • Mergers between oil companies over the last 15 years (under Clinton, remember) that have an inevitable byproduct of stifling competition.
  • Fewer companies and vertical integration meant less interest in constructing refineries (not too long ago Shell tried to shut one down in Bakersfield, California).
  • Failure to impose stricter fuel economy standards on trucks and SUVs.
  • Failure to force the market into new directions (like Brazil did) with hefty incentives to move away from oil.
That's your market. Plus, there is the increasing demand from China et al., and the tensions in the Persian Gulf.

The point is that the market in the U.S. is configured in such a way that it's hard to see how any policy can give quick relief. It took a long time to get this way, and it will take a long time to improve.



2 comments

Yup. Can't kill the law of supply and demand no matter how hard you try.

While I think the current situation is MORE the fault of the Republicans, it's more due to national short-sightedness.

By Blogger Laurie Mann, at 4/26/2006 5:50 PM  

No this is not true. The record profits of the oil companies show that there is indeed "gouging" or profiteering.

There is no reason why oil companies could not compete on price, but they don't have to, so they don't. They've discovered that demand for gasoline is very inelastic - in fact consumption has grown along with the price hikes.

So for an oil exec, the equation is simple; why should oil cos leave money on the table? It's not like they face a hostile regulatory environment.

By Anonymous Anonymous, at 4/30/2006 2:47 AM  

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