Why *are* gas prices so high? No, really, WHY???
Posted by Prof. Goose on April 11, 2005 - 12:20pm
Sometimes we forget that there are many actors involved in the process of getting gasoline to market, many steps in the process of refining crude. Some of these can create bottlenecks of supply (for instance, American refining capacity...we just can't get anymore gasoline to market right now).
First, here's a link to an article that claims that gas prices are going to go through an average of $3/gal by 2006, if not this summer. Why? Because we are at full refining capacity. If we lose one refinery, if we lose one tanker, if one country in the world slows its production for ANY reason, prices could skyrocket (this is the point of the Goldman Sachs "superspike" scenario, but there are many other reasons gas prices will continue to rise, namely increasing demand and static or falling supply...you know that whole "peak oil" thing?)
I also found an article that does a really nice job of laying out the many actors involved in higher gas prices...here's the link. It's not your local gas station that's ever the cause of higher prices, folks. The price is established well before that in the causal chain. More importantly, it does a nice job of capturing the picture of global interdependency and the many variables involved in the supply and demand equation that we often just gloss over by saying "demand" and "supply."
Some of the money quotes:
"The most obvious villains are the giant oil companies and rich oil countries such as Saudi Arabia. But they're just two pieces of a complicated answer to why the price at the pump is so high.
Other villains include, in no particular order: you, environmentalists, the weak dollar, government regulators, Wall Street investors, China and other developing nations. All played a role in creating today's high gas prices."
edited to add:
Hey, now here's an idea:
"Any non-American is bound to think that there is a much easier way. A tax of $1 per gallon, made in five annual steps and announced in advance, would eliminate the US budget deficit, support the dollar and help to curb oil consumption in a predictable way that allows the motor industry to market new ranges of vehicles using less fuel and maintains consumer confidence. It would also, in future, give the Federal government a weapon to stop future oil spikes hurting the US economy. Sadly, we know that US oil is influential and this will not happen."
sigh, I fear the article is correct...that's a solution that would fly in Europe, but not here. Oil interests are too strong and public opinion isn't riled yet. People are already pissed off about paying $2.25/gal here in the US! This piece of wisdom (and a few others) can be found here at the Times Online (UK).
Technorati Tags: peak oil, gas prices
First, here's a link to an article that claims that gas prices are going to go through an average of $3/gal by 2006, if not this summer. Why? Because we are at full refining capacity. If we lose one refinery, if we lose one tanker, if one country in the world slows its production for ANY reason, prices could skyrocket (this is the point of the Goldman Sachs "superspike" scenario, but there are many other reasons gas prices will continue to rise, namely increasing demand and static or falling supply...you know that whole "peak oil" thing?)
I also found an article that does a really nice job of laying out the many actors involved in higher gas prices...here's the link. It's not your local gas station that's ever the cause of higher prices, folks. The price is established well before that in the causal chain. More importantly, it does a nice job of capturing the picture of global interdependency and the many variables involved in the supply and demand equation that we often just gloss over by saying "demand" and "supply."
Some of the money quotes:
"The most obvious villains are the giant oil companies and rich oil countries such as Saudi Arabia. But they're just two pieces of a complicated answer to why the price at the pump is so high.
Other villains include, in no particular order: you, environmentalists, the weak dollar, government regulators, Wall Street investors, China and other developing nations. All played a role in creating today's high gas prices."
edited to add:
Hey, now here's an idea:
"Any non-American is bound to think that there is a much easier way. A tax of $1 per gallon, made in five annual steps and announced in advance, would eliminate the US budget deficit, support the dollar and help to curb oil consumption in a predictable way that allows the motor industry to market new ranges of vehicles using less fuel and maintains consumer confidence. It would also, in future, give the Federal government a weapon to stop future oil spikes hurting the US economy. Sadly, we know that US oil is influential and this will not happen."
sigh, I fear the article is correct...that's a solution that would fly in Europe, but not here. Oil interests are too strong and public opinion isn't riled yet. People are already pissed off about paying $2.25/gal here in the US! This piece of wisdom (and a few others) can be found here at the Times Online (UK).
Technorati Tags: peak oil, gas prices
“This order [i.e. capitalism] is now bound to the technical and economic conditions of machine production which today determine the lives of all the individuals who are born into this mechanism, not only those directly concerned with the economic acquisition, with irresistible force. Perhaps it will so determine them until the last ton of fossilized coal is burnt.”
—Max Weber, 1905
Contact
- Content: editors at theoildrum dot com
- Tech support: support at theoildrum dot com
License
This work is licensed under a Creative Commons Attribution-Share Alike 3.0 United States License.
There seems to be a logical non seqitor in the Tradingcharts article. I have run across it a few times now from various sources. Perhaps you can clarify it. It is stated that the US is operating at essentially full refining capacity, and therefore, any unforseen calamity in crude production would have dire consequences.
That makes no sense. While a post-refining calamity would be magnified, anything affecting crude production, for better or worse, has its impact reduced due to the refining capacity shortage.
prof: can we drop domestic motor fuel consumption 2Mbbl/d by decreasing commutes (subsidies for tele-commuting, etc.) and increasing hybrid car sales? that would put us back to early '90 consumption levels, and with the current trends in industry and other transport, it would drastically cut our overall consumption/day. if 2M is unreasonable, whats a reasonable decrease in consumption via motor fuel using the two methods (and again, they'd be employed on a mass scale)?
Njorl, if there's an incident pre-refining that reduces supply, with no other country able to increase supply, the price of crude will go up...but you're correct, there would be a concurrent drop in supply at the refiner level, and therefore, the prices there may go down...but then, in turn, because the refinery would be churning out less gasoline/refined product, (ceteris paribus with demand staying the same), prices at the pump would still go up because there would be less supply with constant or increasing demand.
The real problem with this description is the demand side of the equation...because many of the folks watching this puzzle are trying to figure out at what price level demand will actually be curbed. We haven't hit it yet apparently.
SS: Both solutions sound nice, but their execution would take a while.
(my quick first-step, for what it's worth, to this would be a scaled in tax (20 cents/gal every six months-ish) on gas consumption...we could reduce the deficit pretty quickly, eh? and get Americans used to less driving! but politicians would view it as an economy killer and therefore never go for it).
The problem with hybrids are that they aren't really all that helpful in the long term, either environmentally or with regard to energy consumption, YET. (though the technology may improve).
Here's a good summary of that case: http://www.thetruthaboutcars.com/content/110808113434428318/
as for the incentives for telecommuting, etc., those have mostly been implemented at the local level. it would be tough to do on a national scale within two years, but it is a policy alternative worth pushing on your representative, absolutely!
I remember the same tax comments 30 years ago - same problem now. How does one convince a society based on xenophobia, fake populism and incredible selfishness that an increase in cost today is a benefit for the future of us all? It didn't pass then, it didn't even get a hearing at any significant point since then, and it won't go far now - Bush and co would rather have continual war than consider a tax like this.
And don't forget that many of our compatriots are convinced the End Times are coming, and therefore any concern about the future is a non-starter, as there will be no future in the conventional sense. Same reason many of them don't care about the Social Security flap - we'll all have faced Judgement long before we need the money.
To be fair, I don't think a belief in the End Times necessarily precludes concern about or action on the current and coming energy crisis. For some, yes, but not for all. Hope for the best, and plan for the worst is my motto. No, I think the larger problem is apathy across North America. I can't even get most people I know to acknowledge that there is an energy crisis.
I've been considering hybrids and biodiesel and even WVO recently. Even alternate fuel sources don't address the issues of lubrication for transportation and industry. It's pretty staggering to really start thinking about how much of industrialized society is based on cheap petrolium.
I think that industry will be able to figure some sort of petrolium substitute for lubrication and production, eventually, but what are the chances that "solution" will be any better for the environment than existing practices? Industry (and I am speaking in the historical collective, here) has repeatedly shown disregard for any environmental or social consequences of it's actions as long as there was a profit involved.
My opinion, only. Feel free to shoot flaming arrows through it.
No flaming arrows here, Haz. I think the main point of all of this is: if we're wrong, and we're not already at the peak, then it's high time to do something about this..if we are at the peak, then it's way past high time to do something about this...end times or not, self-fulfilling prophecy or not.