Why don't record prices of oil per barrel translate to the record prices at the pump?
Have you noticed that whenever the price of oil goes up by two bits a barrel the price of gas is instantly raised at the pump? Even though the actual gas refined from that oil was months away from the pump? But when the price per barrel drops, the drop in gas prices NEVER instantly translates to the pump? The oil people always made a point to tell us, "The price drop won't be reflected at the pump until the oil is refined, months from now." They shouldn't be able to have it both ways, either it jumps on the news and drops on the news or the drop should take months and the increase should take months.
Why is this possible? The oil industry has figured out how to use this asymmetric pricing story to get away with gouging at a macro level. People hear the price per barrel is going up, so they have been trained to expect it to go up at the pump. When it drops, they have been trained to expect that it won't be reflected right away, (while the oil industry wrings some more profit out of the public.)
“But Spocko”, you say, "This is the invisible hand of the market. Classic supply and demand." Well how about I demand that when there is an announcement that price per barrel drops, then the price at the pump should drop as well. That might be just as valid as story as theirs.
They KNOW that the public attention span is short, so they jump up the price at the pump when they know the public will remember, "Oh yeah, I remember something about the price going up per barrel." On the other hand, price drops don't make the news as much, but if they do, there is not the same response, "Hey, I just read that the price per barrel dropped. Why isn't it cheaper at the pump?" If they do ask then the oil industry spin starts. You get some lame consumer reporter on TV talking to oil experts spewing the same old lines.
But with the recent LACK of a parallel increase in prices at the pump to match the record price per barrel, I wonder, are the oil companies purposely holding back with prices at the pump now? Is this some strategic thinking going on? Do they want Bush to win because they know he is the best friend the extraction industry has ever had?
Following their usual model shouldn't the record high prices per barrel be reflected by the highest prices ever at the pump? There are few indicators for greater supply, just greater demand.
1) It is the summer
2) There are distribution problems in Iraq
3) The public are trained to expect an increase
4) There isn't a drop in demand, SUVs are still humming along
They have figured out if they don't forgo record profits they might lose their boy in the White House.
It's not conspiracy. It is not collusion. They have all come to the same conclusion separately.
That conclusion is, “Don't go too crazy at the pump until after November. This president has shown that he won't release the strategic reserves, he won't issue caps. He might beg Bandar for more oil and push for drilling in Alaska, so if we keep prices down until November, (or like Prince Bandar promises we get more supply) we will have four more years of record profits.
3 Comments:
Excellent analysis, I've come to the same conclusion myself, although I wouldnt put it past the current administration that the lack of paralellism is directed from above and not done by the industry itself. If there's any place left that Bush/Cheney have any pull its with the oil companies. Since Bandar hasn't been able (or willing)to deliver the supplies yet (they're making record profits too) There may be a push from the administration to cool it on price hikes as many consumers see gas prices as a direct indication on the state of the economy. If the meme "gas prices are going down, the economy is doing better" can be established then it may be all that is needed to get those four more years, in which there will be of course enough world instablilty to act as cover for any egregious price hikes in the future. I do suspect collusion, as there is absolutely no reason for the historic (if invalid) instantaneous link between crude prices and supply disruptions and gas to suddenly break so noticibly.
driver
btw, nice blog, you've got another reader.
driver:
Thanks! I too suspect collusion, but every time some Attorney General decides to try and prove price fixing, the industry beats it back as "just a coincidence!"
spocko
haha. parallelism-
you agree that in the last ten years the price of oil per barrel has generally ranged between $40USD and $80. thats actually a slightly larger range than it really is. ok. so how can the price per gallon range from $1 to $3 over the same timeframe? think about it- price per barrel has increased 200%, yet the price per gallon has increased 300%. obviously something is not right. look at the data and analyze it for yourself.
or let a "market analyst" think for you. haha. if the "analysts" on tv were really experts they would be on their super yacht in the bahamas, stacking their poker chips.
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