Cha-ching!
Every time someone brings up the issue of gas price gouging, it is inevitable that some diluded individual laughs at the "conspiracy nuts" and states matter-of-factly that supply and demand is the only factor determining prices. They'll almost always use the "if there's collusion or gouging, give me names and places and dates as proof" statement, feeling that will put an end to it. But it never does. And why doesn't it? Because the "supply and demand" argument doesn't hold water either. Let's take a look at a couple pieces of information, shall we?
According to Reuters the national average price for a gallon of gas is 33 cents higher than it was a year ago (and this is after some seven straight weeks of price declines--the gap was much larger a month ago). Now, that equates to about an 18% increase in a year's time.
Now, in order for prices to rise in a purely supply/demand driven situation, either the supply must decrease or the demand must increase. That's really, really basic economics. So, which of these (or combination) has resulted in the 18% price increase? I am, unfortunately, unable to find hard numbers showing worldwide barrels per day of crude oil. However, every source I do find says that production is up in 2004, and Kuwait is even stating publicly that there is an overproduction. So, we know that a reduction is supply of crude isn't the culprit. So, could it be a shortage of refined gas? Nope. Refineries, while at their production limits, are pumping out virtually identical numbers as last year. So, we know there has not been any reduction in supply to account for an 18% price increase.
Well, then it must obviously be that we've encountered an 18% increase in demand over the past year, right? Various sources have reported an increase of anywhere from 3% to 5%. Overall demand for crude has increased a mere 7.5% over the past 2 years.
So, to all you "it's entirely supply and demand" believers . . . can one of you kindly explain how a 5% (being generous) increase in demand can account for an 18% increase in price?
According to Reuters the national average price for a gallon of gas is 33 cents higher than it was a year ago (and this is after some seven straight weeks of price declines--the gap was much larger a month ago). Now, that equates to about an 18% increase in a year's time.
Now, in order for prices to rise in a purely supply/demand driven situation, either the supply must decrease or the demand must increase. That's really, really basic economics. So, which of these (or combination) has resulted in the 18% price increase? I am, unfortunately, unable to find hard numbers showing worldwide barrels per day of crude oil. However, every source I do find says that production is up in 2004, and Kuwait is even stating publicly that there is an overproduction. So, we know that a reduction is supply of crude isn't the culprit. So, could it be a shortage of refined gas? Nope. Refineries, while at their production limits, are pumping out virtually identical numbers as last year. So, we know there has not been any reduction in supply to account for an 18% price increase.
Well, then it must obviously be that we've encountered an 18% increase in demand over the past year, right? Various sources have reported an increase of anywhere from 3% to 5%. Overall demand for crude has increased a mere 7.5% over the past 2 years.
So, to all you "it's entirely supply and demand" believers . . . can one of you kindly explain how a 5% (being generous) increase in demand can account for an 18% increase in price?
posted by Phil @ 12/22/2004 08:27:00 AM
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