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July 15, 2013

Price Shocks Ripple Throughout Country


Gas prices around the country have spiked in the last week, after settling down in the wake of the July 4th holiday. While the recent political unrest in Egypt seems unlikely to effect control of the Suez Canal, analysts claim international turmoil is in large part responsible for the price increase. Bloomberg reports that production difficulties in Libya are more directly relevant to US consumers:

Production dropped 16 percent to 1.13 million barrels a day last month, the lowest since January, according to data compiled by Bloomberg. The decline is partly because power shortages are disrupting the pumps that lift oil from beneath the ground, said Abdel Jalil Mayuf, a spokesman for state-run Arabian Gulf Oil Co., which pumps crude in eastern Libya.

“The country has been through a tumultuous time,” said Sana Abid, an oil analyst at KBC Energy Economics. “It looks bleak for Libya at the moment. They are going to struggle and that’s reflected in declining output.”

Austrian producer OMV AG (OMV) said today its fields in Libya, which produced 30,000 barrels a day last year, have been shut since June 25 because of the political situation.

The Libyan government is trying to address the problems facing oil producers, quadrupling the size of a special guard to protect the industry from attacks to 12,000 people this year.

Despite the fact that there is no easy end in sight, prices are expected to decline in the fall according to yearly trends. Nevertheless, this is yet another stark reminder that the potential for unforeseen international events to disrupt domestic markets is significant.

Filed under:Fuel cost,Price Shocks | by Eyes on Energy @ 4:26 pm | 

February 23, 2013

National Average Prices Drop One-Tenth of a Cent: Does it Matter?


American Automobile Association found the national average gas price dropped for the first time in 36 weeks.  However, it only dropped a remarkably modest tenth of a cent. Is this actually a significant move in prices? According to CNN:

“The national average price for regular unleaded gas dropped on Saturday by a 10th of a cent, snapping a streak of 36 consecutive daily increases…During that stretch, the average price increased 48.8 cents or 14.82%. The price fell to $3.78 Saturday.”

While it’s dubious whether such a small decrease could really be as drastic as “snapping” at 36 week streak, it is worth looking more closely at regional patterns. For example, a recent report from the AAA branch in the Mid-Atlantic seems to contradict the idea that national averages are on the decline:

“…the average price of a gallon of regular gasoline in New Jersey on Friday was $3.63, up 6 cents from last week. That’s also higher than the price from a year ago, when motorists were paying $3.54.”

Furthermore, the same report points out that the one-tenth decrease in price may not be significant in the context of larger trends – and for good reason:

“[The national average is] higher than the national average from a year ago, when motorists were paying $3.61. Analysts say the higher gas prices are mainly due to the trend of refineries across the U.S. performing seasonal maintenance and making the switch-over to summer blend gasoline production earlier than normal.”

It appears that in their haste to break news, this CNN blogger has overhyped a report that is – in fact – consistent with our expectations based on seasonal patterns. As with all things, it is absolutely necessary to base conclusions off of the best data available, and not to fit any sort of agenda.

Filed under:Fuel cost,Fuel Price Trends,Gas price | by Eyes on Energy @ 8:02 pm | 

November 2, 2012

Can the President Control Gas Price at the Pump


Bloomberg Businessweek contributor Roben Farzad discussed this very question on NPR’s ‘Solve This’ series.

The short answer is, No. But of course this does not stop candidates from talking about it,

Oil and its various products are traded in a global market. All the oil we have been pumping right here in the USA doesn’t make a bit of difference. Oil producers want to sell their product for the highest prices available. That may not mean to US buyers and it’s not something the President and/or Congress can demand.

Read the whole transcript for the complete explanation. You can also listen to the story.

Filed under:Fuel cost,Fuel Cost Control,Gas price,Presidential Election | by Pump Girl @ 4:13 pm | 

October 25, 2012

Good Question for an Election Year


Why doesn’t the President freeze gas prices?

For those of you who are not regular readers of The Straight Dope, I’m publishing a question posed to Cecil Adams, who can ferret out the answers to anything (no matter how ridiculous it may seem).

Here’s the query:

Dear Cecil:

My wonderful father, born in 1939, insists high gas prices are the only reason the economy is in the tank (no pun intended). He constantly tells me Richard Nixon was able to stave off economic hardship for our country because he froze gas prices during his presidency and that if Obama truly wanted to improve the economy, all he would have to do is freeze gas prices too. Did Nixon actually freeze gas prices? Could Obama, if he wanted to, do the same so I could pay $2 per gallon instead of $3.30? Or is Obama really trying to destroy the country and push his socialistic/communist agenda (my dad’s words, not mine) by making us pay higher prices at the pump?

— Naomi Byrne, Texarkana, Texas

Now, Cecil gives us the Straight Dope:

Cecil replies:

Don’t get thrown off the scent by your old man’s red-baiting, Naomi — he’s the real Bolshevik around here. Controlling prices is what communist central planners did in the old days, and what leftist rabble-rousers like Hugo Chavez of Venezuela do now. Thankfully, there’s little chance of it happening in the U.S. Our last experiment with socialism, during the administration of that well-known Marxist Richard Nixon, was convincing proof that government-dictated price controls don’t work.

In August 1971, hoping to dampen rising inflation, Nixon declared a freeze on wages and prices. Initially the freeze applied to everything, later just oil and gas. World oil prices were fairly stable during this time; not surprisingly, so were gas pump prices. If you weren’t paying much attention, you might think the price freeze had worked.

Then came the real test. On October 6, 1973, Egypt and Syria attacked Israel, igniting the Yom Kippur War. Nixon sent money and supplies to Israel. Partly in retaliation, the Organization of Petroleum Exporting Countries (OPEC) announced a 70 percent increase in the price of oil, and not long after Arab countries declared an embargo on oil exports to the U.S. Oil production was cut 25 percent.

A cease-fire ended major fighting within weeks, but skirmishes continued through the winter, and the Arab states kept up the oil embargo till March. By then world oil prices had risen from $3 a barrel to $12. Amid calls for rationing, worried U.S. consumers formed long lines at gas stations; some operators ran out.

What effect did the Nixon price controls have on all of this? Not much. The pump price of a gallon of gas in the U.S. rose from 38 cents in May 1973 to 55 cents a year later — a laughable amount now, but a big jump then. Scholarly analysis of the Nixon controls suggests they had only a trivial impact on gas prices.
Why? The immediate reason is that Nixon’s price controls applied only to U.S. oil production. Domestic petroleum output was then in decline, dropping from 79 percent of U.S. consumption in 1970 to 64 percent by 1975. Even so, roughly two-thirds of the oil we used at the time was produced within our own borders, and a good chunk of that was subject to price controls. Why then did the rising price of foreign oil drive local gas prices so high?

The answer has to do with a basic but often baffling economic concept called marginal cost. The idea is this: in a perfectly competitive market, price is determined by the cost of producing one more unit, in this case a gallon of gas. With U.S. demand greater than U.S. production, then as now, those additional units had to come from expensive foreign oil. Since gas was gas and nobody was willing to pay a price differential depending on where the oil was pumped, the price of all gas went up.

Your father may say: Hold on. If the price of gas is effectively determined by the cost of the most expensive oil used to make it, that means oil companies with access to a lot of cheap domestic product made out like bandits.

You got it, bubba. The Carter administration tried to address this problem with a windfall profits tax. Whatever may be said for the wisdom of that strategy, it had little impact on pump prices.

If you really want to keep the price of gas down, and I mean way down, the only proven solution is to nationalize the oil companies and control the price directly. Hugo Chavez did that, and the price of gas in Venezuela is the lowest in the world, recently under 10 cents a gallon. This may be your father’s idea of paradise. It’s also socialism, and we’re not talking about the current right-wing nutcake idea of socialism, meaning anything Obama does, but actual socialism.

Happily for us, and I say this without sarcasm, we don’t have socialism in this country, we have the free market. When gas prices are high, the market is telling us a lot of people are competing for a scarce resource. If you don’t feel like spending so much and don’t want to move to Venezuela, your only choice is to quit whining and figure out some way to use less.

— Cecil Adams

NEW: THE STRAIGHT DOPE PODCAST! No time for retro print technology? Listen to the Straight Dope while you multitask! Launch iTunes, then search for “Straight Dope” in the iTunes Store. Click on “subscribe” and Cecil’s latest installment of wisdom will be automatically delivered each week.

Hope you were enlightened and entertained :)

Filed under:Fuel cost,Fuel Cost Control,Gas price | by Pump Girl @ 1:21 pm | 

October 23, 2012

Update on Rapid Drops in Price of Gas


Yesterday we reported that gas prices around the nation were set to drop rapidly as the winter quickly approached. Today’s trading only intensified this shift to lower prices. According to the Associated Press:

“Benchmark oil dropped $2.32, or 2.6 percent, to $86.29 in afternoon trading in New York. It’s lost about 6 percent in the past three trading sessions.

That’s starting to mean more relief at the gas pump for U.S. drivers. The national average for a gallon of regular gasoline dropped 2 cents overnight to $3.65. The price has fallen 17 cents in the past 12 days.”

A variety of factors on both the demand and supply sides of the market are contributing to this drastic drop in price. The debt crisis in Europe depressed worldwide demand while US stockpiles reached the highest levels in months. If these trends continue, as they are expected to, it is likely that Americans will experience an extra thirty cent price drop by Thanksgiving.

Filed under:Causes and Solutions,Energy,Fuel cost,Fuel Price Trends,Gas price | by Eyes on Energy @ 10:21 pm |