Sunday, February 27, 2011

That Didn't Take Long

Oil prices are up about 15% and gas prices are up 20 cents in the last week, and this old email came today (you can tell it's old by the prices they mention):

>I hear we are going to hit close to $ 4.00 a gallon by next summer and  it might go higher!!  Want gasoline prices to come  down? 
>   
> We  need to take some intelligent, united  action.  
> The  oil companies just laughed at that because they knew we wouldn't  continue to "hurt" ourselves by refusing to buy  gas .. 
>   
> By  now you're probably thinking gasoline priced at about $2.00 is super  cheap.  Me too!  It is currently $3.08 at Arco and Costco  for regular unleaded in Salem, Oregon and climbing every  week.
>   
> Now  that the oil companies and the OPEC nations have conditioned us to  think that the cost of a gallon of gas is CHEAP at $1.50 - $1.75, we  need to take aggressive action to teach them that BUYERS control the  marketplace..not sellers. 
>   
> With  the price of gasoline going up more each day, we consumers need to  take action. 
> 
> The  only way we are going to see the price of gas come down is if we hit  someone in the pocketbook by not purchasing their gas!  And, we  can do that WITHOUT hurting  ourselves. 
> 
> How?  Since we all rely on our cars, we can't just stop buying  gas. 
> 
> But  we CAN have an impact on gas prices if we all act together to force a  price war. 
> 
> Here's  the idea: For the rest of this year, DON'T purchase ANY gasoline from  the two biggest companies (which now are  one), EXXON and MOBIL. 
> 
> If  they are not selling any gas, they will be inclined to reduce their  prices.  If they reduce their prices, the other companies will  have to follow suit. 
> 
> But  to have an impact, we need to reach literally millions of Exxon and  Mobil gas buyers.  It's really simple to do!  Now, don't  wimp out on me at this point...keep reading and I'll explain how  simple it is to reach millions of  people!!
> 
And it goes on to prompt you to mail it to 10 or 30 friends and let's get those oil companies.

There are two problems with this idea.  The first is the author stops thinking after step one and never asks "and then what?".  Simply put, if you don't buy gas from two companies, you'll create excess demand at the other companies.  Excess demand on constant supply means the price at the other dealers goes up. The companies you're not buying from may drop their price to lure you back, but if you're principled, you're buying from the expensive source. 

The second is that oil is the very definition of a fungible commodity.  It's as if every drop of oil from every well in the world went into a giant tub and we bought scoops out of it.  We don't buy Libyan oil, per se, (about 5% of sales), but Libyan oil not going into that tub raises the price of all oil because there's less of it.  And if we don't buy from Exxon and Mobil, the tub still has the same amount going into it and coming out of it. 

If you hate the oil companies, your anger is displaced.  This cartoon is pretty much right, although I think the profit is high; it's more like 6 cents per gallon.

5 comments:

Anonymous said...

You're acting like oil is a free market. It's not. OPEC is a cartel and they make the price what they feel like.

Get a clue!

Graybeard said...

Thank you, anonymous. A touch on the rude side, but it gives me an idea for tonight's topic!

BS Footprint said...

That's a great graphic. Where did you find it?

BS Footprint said...

The economic ignorance of the average American is just breathtaking.

I wonder just how much "demonizing" (or scapegoating) the producers of the world will take before they fold up their tents and go on a long, quiet vacation in the country?

And if they do (I argue it's already happening to some extent) the economic idjits of the world will be the ones who suffer the most.

Graybeard said...

BS Footprint: the link to the cartoon was right above it, but here it is again:

http://starphoenixbase.com/?p=555

Of course, if they would like me to delete it, I would, but I'm hoping linking back to them is sufficient. That works if anyone copies me.