Gas Price Rollercoaster: Are Oil Companies Gouging Consumers?
Why are gasoline prices acting so crazy, jumping a quarter at the pump one week, dropping a dime the next? And why aren’t prices consistent from one state to another?
While conspiracy theories and allegations of price fixing abound, the answers are both more simple and complex:
Oil companies don’t set gasoline prices. They compete with everyone else in the global market for the oil they import, and they pay what the world market dictates.
There’s no price gouging going on. Over the past several decades, about two dozen Congressional investigations into alleged price gouging/fixing by oil companies have failed to identify a single instance of gouging or price-fixing by the major oil companies. But these inquiries themselves have taken a bite out of taxpayers’ wallets.
OPEC doesn’t set oil prices, either. If anything, OPEC’s reserves are understated. If OPEC members really believed the world is running out of oil, they’d have done a better job of diversifying their economies.
Gasoline prices boil down to supply and demand. That’s the simple part. The complex part is that “supply and demand” can be defined by anticipated shortages or outages in the supply chain. So, unrest in the Middle East can trigger higher prices here at home, in expectation of a conflict that hasn’t even happened yet.
Blame state-to-state variations on the state. Gasoline price differences from state to state are generally a result of different tax levels and state regulations. There are so many different state regulations about auto exhaust emission that the gasoline refining industry has to produce 17 “boutique” blends, depending on the season and the market.
Regional disparities are caused by outages. If a price spike is limited to a particular region, it’s invariably because of a physical outage in the supply chain for that region.
No one has a miracle engine or fuel. The silly urban legend about some ‘secret miracle’ auto engine or fuel is noteworthy only for its inability to stay dead. This zombie myth, along with hoarding vast quantities of oil in tankers just offshore to squelch supply and drive up prices, seems to rise from the dead every time gasoline prices spike. It just defies common sense. If you owned such an engine/fuel, it would instantly drive your competition out of business and earn you the kind of wealth that would dwarf the profits of all the major oil companies combined.
You can’t blame it on speculators creating artificial demand. Oil futures traders are a crucial component of price stability, providing transparency and liquidity to oil markets. We should focus on expanding participation in oil commodities trading, not limiting.