I paid $3.02 for gas yesterday

Posted: January 6, 2011 by datechguy in business, economy
Tags: , , ,

Three to four days a week minimum for me are on the road selling ads, or going to the studio. Can someone explain to me with production down and new supplies all over the place why gas is up to $3.02 a gallon around here?

I talked to one of my advertisers this week. The rising fuel costs over the last few weeks have consumed over a third of his profit that he works like a dog to achieve.

Has the actual cost of pumping a barrel of oil actually increased to justify the cost? Where is this extra cost actually coming from?

During the Obama years oil prices have risen steady. The effect on the price of everything has skyrocketed because of this since everything we buy is hauled by truck.

Yet we see very little of this in the news. After all The One™ was going to solve all of our problems, pay our rents, give people “Obama Money” etc etc etc.

Well now that we have Republicans in charge of at least one house I’m sure the media will start to report on some of these problems, after all there is someone to blame. For example as reported by wyblog it looks like free checking might be over:

New federal banking regulations, the cost of complying with those rules and a reduction in fees banks can charge customers will change the financial products they offer, bankers say.

Who is most likely to need free checking with low (or no) minimum balance? Poor people. Oops. I guess Elizabeth Warren hates poor people. Sorry, no bank accounts for you! We’ve got to protect morons who can’t balance their checkbooks from being charged for their laziness!

But wait, there’s more…

She apparently hates women too; her credit card regulations require that a non-working spouse can no longer use her husband’s income to qualify for credit.

Oops sorry, that is the Obama appointment, but have no fear republicans will be blamed as Don Surber notes the NYT is already on the job.

  1. Roxeanne de Luca says:

    Stating the semi-obvious: the market price of a good will only approach the cost of production plus a small profit if there are enough of those goods, now and in perpetuity (or what can be construed as such) so as to create a free market. What is happening is that our supply chain, in the best of times, is very tight: there’s not much excess production. So when something goes wrong (like the Gulf Oil spill and various drilling moratoria and regulations) there’s almost no slack. Since a lot of oil consumption is inelastic demand, the price can (and does) go up very quickly. If a gallon of gasoline is $10, we don’t have a tenth the need for it that we do at $1: there’s always going to be some gasoline that we need to get to work, the supermarket, to get our kids to school, etc. Finally, a lot of this is a bet: a bet that oil in the ground (which isn’t being replaced any time soon, even though we do find more of it) is more valuable years down the road than it is now. When lease-holders think that, they don’t bring as much oil out of the ground, which raises prices in the short term.

    Obviously, the way to remedy this is to open up the US to more, not less, drilling, and to create more, not fewer, refineries here. That would add a lot of slack into the market, as well as to bring down the price of crude.

    Also, inflation plays a huge role: as our currency becomes less valuable, we need more US dollars to purchase a barrel of oil from overseas. Given that over half of our oil is not produced domestically, inflation plays a huge role.

  2. Roxeanne de Luca says:

    1. True, but production costs are not the only factor.

    2. Sort of true. China’s demand is increasing, and you’re ignoring the reality that there is a finite amount of oil in the ground. Why pump it out during a downturn when you can pump it out later and charge a lot more for it? Also, you keep ignoring that oil use is mostly inelastic. It’s not like buying a new purse; even in a crummy economy, we still need to get to our jobs (even if they pay less), heat our homes, etc. Yes, the economy will affect the need, but not as much as you are assuming. Please, do the math and tell me how much less gasoline and home heating oil you’ve used because you’re underemployed. My guess is ten percent, tops.

    3. Your post was mostly about prices at the pump.

    4. Not enough to spike the prices up the way we’ve seen; free markets would push gas towards less expensive channels with fewer middlemen.

    If, tomorrow morning, we woke up to find that Santa’s elves had been very busy and had built us a drilling platform in ANWR, a pipe to the lower 48, and had reconfigured all of the off-shore drilling requirements and equipment so that it could be done safely and without government interference, the price of oil would drop like Obama’s approval ratings. All of a sudden, it would be better to pull it out of the ground now, rather than to wait for a more crowded market.

    Pete, you can’t turn away from the fact that oil is a finite resource, and producers cannot – unlike with almost every other commodity, good, or service – produce it indefinitely. Therefore, the price and availability will always be a reflection of what oil producers believe that the market will do in the upcoming decades. My guess is that the oil producers know that when China’s economy grows in upcoming decades, there will be demand among the now-poor, to-be-middle-class, for oil. American demand is much less elastic.