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Searching for the meaning in gas prices: he said, she said, blah-blah

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Trying to determine what's behind the big run-up in gasoline prices is much like a hamster on a revolving wheel — one gets nowhere fast.

 

Watching the dollars wheel spin feverishly past on the gas pump these days is somewhat equivalent to the cogs whirling in one’s head, trying to fathom why prices have skyrocketed in the past month, reaching historic highs for this time of year.

In my town, prices are up more than 50 cents per gallon, with almost daily increases. Some areas of the country are already seeing $4.50-4.75 … and the busy summer driving season is still three months away.

Determining where the fault lies in escalating gas prices is much like a hamster on a revolving wheel — one gets nowhere fast.

The blamers are many, their villain of choice diverse: It is (pick one or all) Obama’s fault, or the monopolistic oil companies, Congress, OPEC, China, refiners, environmentalists, the EPA, the lack of new refineries, the closing of refineries, Hurricane Sandy, Winter Storm Nemo, not enough new energy, too much new energy, exporting of U.S. energy, speculators, and on and on.

Ironies abound: The media talking heads were yammering of late that U.S.-produced oil and gas supplies are at an all-time high. This on the heels of reports that oil, gas, and refined petroleum products are now the leading U.S. export.

Raising, of course, the inevitable question: If the U.S. is producing so much more oil and gas, why aren’t prices stabilizing or going down? The analysts say, well dummo, the oil market is just one giant barrel that everybody’s oil is poured into, and price of the oil in that metaphoric barrel is a function of the world market, blah, blah — and oh, just incidentally, because the companies can get more selling it to China and Europe and elsewhere than they can get here.

Then there’s the refinery paradox, spawning articles and analyses that would stretch the length of the in-limbo Keystone pipeline. Critics point out that no new refineries have been built in the U.S. in 30 years because of environmental opposition and overly stringent EPA regulations, that besides, the oil companies have shut down almost half the refineries in the U.S., that refinery profits have been ballooning in recent years, and the companies use refinery capacity as an excuse to manipulate prices at will.

Not so fast, says the other side: Indeed, no new refineries were built for over three decades and a lot of old, inefficient facilities were in fact shut down, but at the same time capacity at existing facilities has been continually expanded. Further, they say, it wasn’t the EPA or environmentalists that thwarted the building of new refineries, but the huge investment required and the low profits in refining.

Others say it’s all the fault of speculators, who care not a whit about pump prices, as long as they can make a buck trading futures. Ah, the traders say, but that’s just the market at work — a price-setting mechanism, don’tcha know.

As for the president and Congress, well, they have about as little influence over pump prices as you or I. They can bluster and bloviate, and even take some oil from the nation’s strategic reserve, but any effect is minuscule and very temporary.

You get the picture: He said, she said, and nobody’s any nearer to a revelation.

But while Joe Citizen may not comprehend the big picture, he knows all too well rising gasoline prices mean more hard-earned dollars being sucked into the gas pumps. And the price of everything he buys, from groceries to clothes, goes up and up … because everything he buys is touched by oil and transportation.

Discuss this Blog Entry 2

Anonymous (not verified)
on Mar 4, 2013

Hi Hembree,

Always enjoy your commentary! Missing from your list of valid price drivers is the main one: production of light sweet crude peaked worldwide around '06. That's the easy-to-get-easy-to-refine stuff (read: cheap). That easy-to-get has been got. All the alternatives that have been added in to make up the shortfall (tar sands, kerogen, heavy sour crude, bio-diesel, ethanol, solar, wind, etc) are much more costly to access, produce & refine. As the increased price of energy has been working its way through our system, the price of everything has also been increasing (in real terms). As you pointed out, everything is touched by oil. There is a reason light sweet crude has increased in price 10-fold over the past 25 years; the consequences are just beginning to show. The chickens are coming home to roost, and the horizon is darkening with black swans.
Best of luck to us,
Robert (a farmer; ever-so-dependent on diesel)

Dan (not verified)
on Mar 7, 2013

Last fall I drove from Kansas City to Sikeston, MO, then into Arkansas and home by a different route. I was amazed that the price of gasoline at the pump didn't vary by 10 cts per gallon. I never noticed it being so uniform. Is this due to the new communications where pump price has been previously been determined by future's contracts, or is there a tacit agreement between distributors what the price should be?
When the price changes it seems everybody gets the same message within 24 hours.

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