Gas Price at the Pump Manipulation?

This topic has been talked about often on Dkos over the years.  Normally it comes in the form of "they are manipulating gas prices prior to the election to help Republicans".   I believe that was true in the last election and have not seen good arguments against that.  Here is some background.  I'm a simple man.  I've got a college education but I'm not some great scholar.  I read things.   Throughout my life I have seen no correlation between reality and the price of gasoline.  I live in a port city.  We've got the big oil and gas tanks on the river.  When Katrina hit I was getting a pizza in my local joint and a dock worker was in there and said, "Gas prices are going up $0.40 tomorrow based on the what is on the ships".  I figured he was wrong.  He was more right than wrong.

So, apparently the gas that had been produced well in advance of Katrina and was already on tankers when Katrina just got way more expensive.   Magic?   Now I know the argument about how refineries were damaged, shortages, etc.   I say it was all crap.  How many Americans have waiting in line to buy gas in the last 5 years?  None.  There have been no "shortages".   A shortage implies I can't get any.  I always can.  What I pay for it is a different matter.   Look at these two graphs.  We see how the price of oil and gas both took a nose dive prior to the 2006 elections.   But then look a little further to the right.   Can someone please tell me why in November of 2005 oil was around $60 a barrel and gas was around $2.75.     Now oil is around $95 a barrel and gas is around $2.75.    I might be able to understand this concept if oil only made a small percentage of the ingredients in the soup we call gas but last I checked, if you want the gasoline, you need start with a big bowl of the oil.   And if the market reacted immediately to Katrina, why isn't it reacting immediately to a real market condition?

Why aren't we paying $5 a gallon?   Why is is that whenever prices go up the industry claims that their margins are so thin and that they aren't really making money...blah...blah...blah...but then when their raw material costs go up by 50% they apparently don't have to raise prices.   Anyone?   Beuller?    

One other thing.  Exxon Mobil is the biggest corporation in the world.  They had "disappointing" numbers last quarter.  They only made $9.41 billion.

Irving-based Exxon Mobil earned $9.41 billion, or $1.70 per share, compared to $10.49 billion, or $1.77 a share, in the July-September period of 2006.

How disappointing.

•  something smells awfully fishy,

  that's for sure.

  by ubertar on Fri Nov 02, 2007 at 06:28:35 AM PDT

•  We are not the only consumers

  India and China, with the two largest populations on the planet, have had increases in consumption of between 9 and 12% for the last several years.  The increase in demand is stretching worldwide petroleum production assets which is causing most of the current price hike.

  by stillthinking3 on Fri Nov 02, 2007 at 06:37:23 AM PDT

  •  i'm aware of that

    that does not explain the ridiculous divergence of the two graphs i linked to in the past few months.

    by onemadson on Fri Nov 02, 2007 at 06:40:03 AM PDT

    •  After Katrina

      the refineries were hit even more than the oil side. The biggest tensions were on the gasoline side of the business. Europe had to send gasoline from its strategic stocks (the US only has strategic stocks of oil, not gasoline).

      Otherwise, autumn is a slow driving season, so demand for gas is less and refinery margins are usually lower.

      by Jerome a Paris on Fri Nov 02, 2007 at 06:53:38 AM PDT

      •  and that explains

        why gas prices jumped immediately after katrina but prices now are not going up with the price of oil?

        I'm not buying it.  There is no consistency.   Autumn is also when people turn their heat on.  Shouldn't that increase demand for oil?

        How can crude be 50% higher and the price of gas be the same?   We are told that the market reacts immediately to any crisis but it doesn't react at all to cost of raw materials?  Find me any other industry that can swallow a 50% increase in their raw materials.

        And this statement reeks of manipulation "europe had to send".   What market force made them send the gasoline?    No one waited in line to buy gas in the US.  Who made them send that gas?

        by onemadson on Fri Nov 02, 2007 at 07:04:24 AM PDT

        •  also

          the seasonal variation argument doesn't seem to be as strong as many say.  According to this site demand varies from a low of 8.8 million gallons per day to a high of 9.6 MGPD.   And if you look at the chart for production of gasoline it strongly correlates to demand.   Seems like they have no problem meeting demand.  So if production can easily meet demand, why would that change prices?  It wouldn't in any other industry.   The "people use more, so we'll make more and thus charge more" model doesn't usually apply.  

          Just one more thing that doesn't add up.

          by onemadson on Fri Nov 02, 2007 at 07:15:25 AM PDT

          •  asdf

            At current levels of demand - ie about 9.2 million barrels per day - the US needs to import 1 million barrels per day of gasoline/blending components to avoid further falls in inventory, which is already very low.

            At present, refinery utilisation is quite anaemic - and it would take a substantial improvement in that area for US production to substitute for imports ( which would put further downward pressure on crude inventory levels ).

            by londanium on Fri Nov 02, 2007 at 09:27:09 AM PDT

        •  asdf

          A few observations:

          If you look at the way that US commercial crude oil inventories have been declining for the past 4 months or so, it's clear that US refiners have been "betting" that the current surge in oil prices is a temporary spike that will reverse in the near term. If you do the comparison on a same-week basis, spot crude prices are 50% higher than the end of October last year, whilst product prices are 25-30% higher; however, if you bear in mind that the oil that is currently being refined is probably $75-80 oil that was purchased 2-6 weeks ago, then the price rises are actually fairly consistent.

          FWIW, I doubt that crude prices will moderate significantly as inventories are likely to post further declines this week and next on the back of weather-related outages in Mexico - and that US gasoline prices are likely to rise some 30-40 cents in the none-too-distant future.

          Given that US refiners had $25-30 crack spreads earlier in the year, they can easily absorb a period of $5 crack spreads if they believe that this will be a temporary - ie less than 90 day - phenomenon.

          by londanium on Fri Nov 02, 2007 at 09:21:24 AM PDT

          •  collusion

            this is the type of statement that i find mind boggling

            Given that US refiners had $25-30 crack spreads earlier in the year, they can easily absorb a period of $5 crack spreads if they believe that this will be a temporary - ie less than 90 day - phenomenon

            You think its perfectly reasonalbe for everyone in the industry to independently agree to eat their profits for 90 days.    This in no way indicates to you any sort of coordinated pricing.  

            I find the willingness to accept this type of statement to be pretty amazing.  

            Of course they can easily absorb any of this.  Exxon makes $10 billion a quarter in profit.   They could give the shit away for the month of December and absorb that.  

            by onemadson on Sat Nov 03, 2007 at 02:35:22 PM PDT

•  1/4 percent to the Oil Companies

  Remember that 1/4 percent drop in the interest rate.
  It was so the common folk could help the poor Oil industry with their poor profits.

  Anything I gained isn't going to help with the housing crisis as they have been claiming it is going out every day to the oil companies.

  Gas jumped here 20 cents in 8 days and they are talking gas at $3.50 for Christmas.

  Take everything you can out of retailers stock they are going to tank. Wal-Mart cut costs now anticipating no one will have money in December. They saw what the oil companies did to them the last time they 'rasied rates' and by January expect recession desipte the 'not two quarters' bull that the Economists will talk about.

  by K Robert Schmitt on Fri Nov 02, 2007 at 06:51:54 AM PDT

  •  when they cut the rates

    the last time fixed rate mortgage rates went up.  Meanwhile the press was telling us it was to help all the troubled homeowners.  

    up is down.

    by onemadson on Fri Nov 02, 2007 at 07:05:06 AM PDT

•  Oil Co Profits Are Down Says the News

  So their cost went up, their profit went down.

  I'd say they're eating some of the oil price.

  Mighty nice of them, I'd say.

  by Gooserock on Fri Nov 02, 2007 at 07:22:32 AM PDT

•  Supply and Demand

  The theories of widespread manipulation of retail gas prices, or world oil prices, has never been established.

  When prices rise, people complain, politicians grandstand, and investigations follow. Curiously, there is little attention paid when the investigations fail to find evidence of price manipulation.

  The FTC investigated allegations of gouging following Katrina and found none.

  The 222 page report by the Federal Trade Commission is  here.

  The Washington Post article on the FTC report:

  Gas Prices Not Manipulated After Katrina, FTC Says
  Market Conditions, Not 'Gouging,' Led to Higher Costs

  By Steven Mufson
  Washington Post Staff Writer
  Tuesday, May 23, 2006; Page D01

  The Federal Trade Commission said yesterday that it found no evidence that the oil industry manipulated gasoline prices in the wake of hurricanes Katrina and Rita and that 15 instances that fit a definition of price gouging set by Congress last year could be explained by market conditions.

  http://www.washingtonpost.com/...

  by science first on Fri Nov 02, 2007 at 08:05:07 AM PDT

  •  ok

    right.  The FTC should be trusted on this issue.  

    could be explained by market conditions.  

    No one can answer my questions about the glaring inconsistencies.  As a fan of science i would think you might have some interest in this.

    How can the raw material cost go up 50% and the product cost not change?  

    If this is a supply and demand issue, why is it that demand always meets supply?

    There have been no shortages of gasoline in the US in over 20 years.  

    by onemadson on Fri Nov 02, 2007 at 08:29:46 AM PDT

    •  Jerome a Paris

      has done some pretty good commentary on the topic.  I have found his writing, and the referenced to sources, to be of interest.

      Re FTC: I'm not sure why you dismiss the FTC report. I could imagine someone might claim that the FTC report was biased or unduly influenced. But the Congress has its chance to find some evidence, and so far none has been forthcoming.

      In sum, demand for oil has continued to rise, snd production of oil has slowed, and some suggest it may have peaked and be in decline.

      Re Katrina: the fact that prices fluctuate in response to market developments (actual or just feared supply interruptions) does not provide evidence of price manipulation.

      The price for a barrel of oil and a gallon of gas in set in a competitive market. (In the old days, the Texas Railroad Commission effectively set the price of oil, but no longer.)

      Prices can also fluctuate when there is little change in apparent fundamanetals, other than people's optimism or fear.  Such fluctuations may be evidence of irrationality, or fear or greed, but they are not evidence of manipulation by sellers.

      by science first on Fri Nov 02, 2007 at 09:10:03 AM PDT