Friday, September 02, 2005

Freezing gas prices???

Libs, please answer this question thats eating away at my brain: Many libs say that Bush went to war in Iraq for oil. If we went into Iraq for oil, where is it?

Now gas prices are spiking all over the country....its $3.29 by me in the Chicago suburbs, $3.75 in the city, and as much as $6 in Atlanta.

There has been talk of freezing gas prices, is this a good idea? I'm no expert on business but isn't this a classic case of supply and demand? Why is it any suprise the prices went up? The supply is low, thus the demand is higher. If we were to freeze gas prices, wouldn't that make everyone go to the pump to fill up all at once? If I knew that the US were going to freeze prices, I'd run right over to fill up while it lasted. But now, I filled up on Tuesday when it was $2.66, I only drive to and from work (14 mi/day total) and am doing my part to conserve.

From the UK Daily Telegraph: "Steve Forbes, the billionaire business publisher, predicted that the oil bubble will burst inside a year, and the price will plunge as the impact of Hurricane Katrina sent the price of oil soaring to new record levels. "He spoke as Katrina shut down almost all the flow from the Gulf of Mexico, which provides over a quarter of the US oil. He said, 'I'll make a bold prediction. In 12 months you're going to see oil down to 35 or $40 a barrel. It's a huge bubble. I don't know what's going to pop it but eventually it will pop. You cannot go against supply and demand. You cannot go against the fundamentals forever."

Any thoughts?


At 11:15 AM , Blogger Full-Auto said...

The leftists aren't going to understand your asking them to justify their "no blood for oil" ramblings.

At 3:54 PM , Blogger holleritsme said...

The problem is, the gas companies immediately began speculating on the price of gas.

As you know, we don't just pump gas from the oil wells right into the cars, it goes through the refining process, and depending on where that takes place, tehre is a supply chain involved.

So for prices to shoot up *immediately* like they did is a bit bogus, because there is still 5-7 days worth of saleable gas in the pipeline (between the distribution centers, tanker trucks, and those already en route to deliver stock).

You are right in your analysis - this is a classic case of supply and demand. However, those actually selling the gas are taking a bigger cut than normal, citing the emergency, and profiting at our expense. That part is bogus.

Interesting thing I didn't know until last month, gas sales have a razor thin margin at the pump. There are 1000% markups on fountain drinks and candy bars that make gas stations profitable, but the gas itself doesn't do it.

At 4:01 PM , Blogger holleritsme said...

Also, predictions that sustained gas prices above $3 would change consumer behavior are proving true, but in unexpected ways. Instead of cutting consumption of gas, consumers are cutting consumption of other goods and services to compensate for the increased price at the pump.

Ironically, this will create some pressure on low cost retailers, like Wal Mart. This is because, in many areas, Wal Mart provides goods to consumers at rock bottom prices. The ocnsumers in many of these areas have little so-called "disposable" income - the kind of income we might use to go to a movie or go out to dinner.

Further, with the inevitable increase in transportation costs for goods, the recent events are likely to push consumer prices higher in the short term. Even with today's release of up to 60mm barrels of oil (which, due to the bidding process involved, won't translate into useable gas for at least 11-14 days at a minimum) oil companies expect that the disruption in production, refining, and distribution of petroleum based products is likely to last well over 2 months.

While people haven't predicted "gas lines" like in the 70's, its probably wise to keep filling up with about 1/2 a tank left.

At 11:24 AM , Blogger mthomas1776 said...

several local stations here in virginia are out of regular gas.

on a related note: fema article

At 11:29 AM , Blogger mthomas1776 said...

gas lines were a result of fixed prices. The price was low, but there was no gas. Anytime you have lines or simply run out of gas the market price is higher than the current price things are selling at.

The second law of demand, which gets less attention than the first (1st: There is a higher price which will induce every consumer to buy less of a good, assuming no perfect elasticity), is: elastisity is greater in the long-run. If prices stay above $1.50 for a year sales of hybrid vehicles increase. If prices stay above $3 for a long-time people may make any number of dramatic changes to their lives. Just to mention, the government is considering higher cafe standards on fuel effeciency, and that was a result of $2.50 gas.


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