Friday, April 29, 2011

Unsurprising News

As many of you know, I don't drive anymore. I don't own a car and I rely almost entirely on public transportation. I still have been watching the amazing rise in gasoline prices, usually from the window on a bus I ride each morning. Right now, cheap gas in the San Gabriel Valley is going for around $4.219 for regular unleaded along the bus route. The prices for gasoline are even higher in other areas, especially if the station is close to a freeway on ramp and if the station carries the logo of one of the larger brands such as Exxon.

I had assumed that the gasoline price hikes could be linked to the rise in the price of the barrel of crude oil powered by speculators. It turns out, according to this article in the Los Angeles Times that this is only one part of the price equation.

Exxon Mobil Corp. earned nearly $11 billion in the first three months of the year, a rollicking 69% increase over its performance for the same period last year. That's on sales of $114 billion.

It's the same story for the other big oil companies. Royal Dutch Shell turned a profit of $6.3 billion in the first quarter, and BP — despite lingering costs from the Gulf Coast oil spill — made $7.1 billion.

What they aren't making is fuel, at least not in normal quantities. And that's a key factor in their reinvigorated financial performance. ...

"This is a page torn right out of the handbook of gouge-onomics," said Charles Langley, senior gasoline analyst at the Utility Consumers' Action Network in San Diego. "We call it the law of supply and demand: They supply less product and demand more money for it."

Oil makes up about two-thirds of the cost of a gallon of gas, so expensive oil always turns into expensive fuel. But as for-profit entities, refiners use a variety of means to ensure that they keep as much of that windfall as possible.

The nation's refineries are operating at about 81% of their production capacity, Energy Department statistics show. That compares with a 20-year historic average of about 89% for this time of year, according to department records.

But wait: there's more.

Oil company refineries are shipping a lot of the output out of the country, much of it as diesel for South America. Oil companies, claiming that because the US is still not back economically and therefore not using as much fuel, argue that they need to expand their markets. So, there's less gasoline available for Americans for several reasons. The price hikes, and by extension profits, will obviously continue throughout the summer, thereby hobbling the economic recovery for the rest of us even further.

The invisible hand of the market has flipped us off yet again.



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