Why are gas prices so low you ask ?

You ask why gas prices are so low right now after a year at record levels? I mean why did the price of a barrel of oil go below $60 for the first time in 2 years?

First , lets get even simpler in examining this.

The price of a gallon of gas at the pump today has not much at all to do with the current price of a barrel of oil. Not much relevance there at all. You may think so because all the talking heads on the news channels. They report the price of oil so often that you'd think it was being pumped into your car.

Now ladies and gentlemen, here's a short lesson for you.

At any one point in time the USA has about 300 million gallons of oil on hand.

There is also about a 295 day supply of gasoline already refined.

See :

http://tonto.eia.doe.gov/dnav/pet/pet_sum_crdsnd_adc_mbbl_m.htm

If this is so, then the gas you are using was imported over 300 days ago in the form of oil at whatever the price was at that time. (We'll skip futures pricing for now.) Then that oil was refined into gasoline and all the products that come from oil. , again, most of this took place almost one year ago.

If this is true, then if the price of oil was say 50 dollars a year ago for one barrel of refinable oil, and it is all about market demand, then the price really should not go up on a gallon of gas until the higher priced oil they just bought is sold one year later, right?

WRONG.

We are capitalists pigs. There is money to be made. Give it a new name and call it supply induced pricing. When the price of oil goes up, and demand goes up, prices go up, even if the real supply is never affected and even if the oil reserve is never affected. What a racket.

Ronald Reagan called this supply side economics.

It’s the way big oil works.

Here is a couple of things to consider.

You ever wonder why the 4 gasoline stations on the corner near an interstate highway are always priced about the same? Does this have anything at all to do with the price of refining oil into gas? Gasoline is priced based on market competition and the level at which your brand is viewed. Generic is cheaper than premium. Sounds like cigarettes and is pretty much priced the same. Shell is higher than CITGO. Now after you have looked at stations near the interstate, go on into town. Single stations without close competition are priced at different levels than the interstate stores, even if it is the same brand owned by the same company.

If the price of gas has anything relevance to the cost of refining the oil, then stations owned by a single company would all be the same price right? Gas station managers are paid to survey and report their competition prices to their superiors and they adjust prices according to their sales strategies. One company I used to work for said “Our gallons are our gallons and their gallons are our gallons”. We would drive the price into the ground to be the lowest supplier on the street if we had to , in order to make the point we would not be undersold.

What does all of this have to do with the current drop in gas prices?

Is it supply?

If you look at the numbers, supply and imports as well as the strategic petroleum reserve haven’t changed enough to affect it.

Can’t be that.

Is it Katrina? According to the latest figures, only distribution was disrupted and then only for a week or so, until it was re-routed. Even if it was that, the re-routing only affected 3 states. Mississippi and Louisiana and Texas.

Can’t be that.

Is it oil prices? Not if it was imported 300 days ago. Can’t really be that either.

Hmmmmmmmm. I wonder what is dropping oil prices in late fall 2006?

In October ?

The month before November?

Gee, here is a thought.

Do you think maybe that big rich oil executives are maybe Republicans ?

Anybody know if there is an election coming up pretty soon? Nahhhhh, they wouldn’t think we are dumb enough to fall for that one are they?