Gas Prices

Drive down the street. Observe gas pump prices. Two things will come to mind: first is the sameness of the prices; second is lack of premium grade prices.

I drive a car requiring premium gas. It is expensive but we don’t drive much anymore, certainly no more trips or even adventurous Sunday drives. So, the marginal cost increase per gallon is not a real issue for us. The price hurts, of course, because we are senior citizens on a fixed, slim income.

Gas Buddy helps us with finding the lowest price on gas. We use it to find premium prices, too. It works quite well. With volatile gas prices, we also watch the daily crude oil barrel prices on the global market.

From this we learned what relationship exists between world prices for a barrel of oil and gas pump pricing. This is an imprecise process, but it provided some conclusions.

First, barrel price jumps almost always are reflected in a pump price hike. Often these hikes are out of proportion to the barrel price hike. A one dollar barrel hike often excites a 30-cent per gallon gas hike.

Second, barrel price drops almost always are followed by a drop in pump prices, but not as instant as the hikes. Also, pump prices rarely drop in parallel margins as hikes. So, a drop in barrel prices of $1 may show a pump price drop of 10-cents. You see the disparity?

Third, big barrel price drops are not reflected quickly at the pump. Clearly the retailer or gas chains are waiting for price volatility to settle down before adjusting pump prices.

Fourth, oil producers play games with supply to pressure price upward due to artificially higher demand (scarcity principle). This rarely works for long because too much manipulation causes alternate supply creation. Oil is much more available by several means other than drilling and transporting long distances. Replacement technology is also spurred. Example: electric vehicles.

Fifth, the oil industry has harped so long (decades) that oil is a vanishing resource, that replacement of oil as an energy source is inevitable. The result is a serious development of electrical vehicles AND developing alternate energy sources which also are gentler on our shared environment. I think the oil industry birthed its own demise by accident. Greed does that.

Some other thoughts and conclusions have surfaced in my mind.

A.   The pandemic truly shocked consumers into major changes in using energy. We changed our driving patterns. We have eliminated commutes for a lot of workers, and we have reduced commuting for many others.

B.      The pandemic caused gasoline demand to nearly disappear for almost 2 years. It is only now returning to once normal demand volumes. In the meantime, pump prices for gas dropped to less than $2 a gallon. It was only a matter of time before pump prices rose to the old normal which is near what we are paying right now.

C.      Inflation of gas prices is a myth. Price is resuming an old norm, not setting new heights.

D.      Supply of gas remains plentiful, much more than demand requires. Pump prices should reflect that fact, but the oil industry is hanging on to higher profits as long as they can and selling the public on a false narrative.

All of this experience confirms my belief that the oil industry is not interested in the well-being of its consumers, nor is it aware that it is not a petroleum industry but rather an energy industry. If they continue in this manner much longer, the oil industry will find itself nowhere, just like the buggy whip industry.

Couldn’t happen to a nicer bunch!

December 7, 2021

 

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