Gas Price Disconnect
I've always challenged the supposition that the oil companies control the price of a barrel of crude. Sure, they pull a variety of levers (e.g. exploration, etc.) that impact price at the margin, but by and large, the price of oil is determined by worldwide supply and demand, coupled with commodity trader speculation about future supply and demand. That view has certainly been validated by recent economic developments. As current worldwide demand and perceived future demand estimates have dropped precipitously, so has the price of a barrel of oil.
The oil companies, however, are not as innocent when it comes to the price of gas at the pump. Simple facts don't lie. The retail price of gas peaked in July of 2008 at $4.11. Concomitantly, the wholesale price at that time was roughly $3.50. That's a spread of about $.60. Today, the national average retail price is $2.66, while the wholesale price is $1.46. That's a spread of $1.20. All things considered, that $2.66 price should be $2.06.
Don't get me wrong. I have no interest in telling the oil companies what to charge. The market should largely be left to its own devices. I do, though, have an interest in pointing out their hypocrisy. If they are going to defend the rapidity of price hikes at the pump when oil spikes, they can't retreat from the hard questions on why prices don't come down with similar alacrity when oil tanks. Short of exigent circumstances (e.g. disruptions in refining capacity, etc.), of which there are none, there is no reason why the price cannot move down as fast as it moved up...other than oil companies deciding to make more money. That's their right. It does come with a price, though. Their disingenuousness on this matter will make them harder to defend when the "oil companies are evil crowd" inevitably come after them again. A windfall profits tax would be a tragically wrong government incursion into the free market, and a very high price to pay. Let's hope oil companies drop the price at the pump now. The economy can really use a shot in the arm, plus, it could save them a lot of pain down the road.
The oil companies, however, are not as innocent when it comes to the price of gas at the pump. Simple facts don't lie. The retail price of gas peaked in July of 2008 at $4.11. Concomitantly, the wholesale price at that time was roughly $3.50. That's a spread of about $.60. Today, the national average retail price is $2.66, while the wholesale price is $1.46. That's a spread of $1.20. All things considered, that $2.66 price should be $2.06.
Don't get me wrong. I have no interest in telling the oil companies what to charge. The market should largely be left to its own devices. I do, though, have an interest in pointing out their hypocrisy. If they are going to defend the rapidity of price hikes at the pump when oil spikes, they can't retreat from the hard questions on why prices don't come down with similar alacrity when oil tanks. Short of exigent circumstances (e.g. disruptions in refining capacity, etc.), of which there are none, there is no reason why the price cannot move down as fast as it moved up...other than oil companies deciding to make more money. That's their right. It does come with a price, though. Their disingenuousness on this matter will make them harder to defend when the "oil companies are evil crowd" inevitably come after them again. A windfall profits tax would be a tragically wrong government incursion into the free market, and a very high price to pay. Let's hope oil companies drop the price at the pump now. The economy can really use a shot in the arm, plus, it could save them a lot of pain down the road.
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