Gas Prices- A Common Sense View

Today I was reading another diatribe both attacking and then the response defending oil companies in regard to gasoline prices and record profits.

Each time I see this the discussion goes off into international oil markets, bounces around a bit, and ends up in name calling.

I guess it is bizarre to me that so many people seem to miss the point, so, as I see it, here it is.

The price of a barrel of oil is only the baseline of this problem, it is the benchmark, not the driving force. The problem for the last few years have been skyrocketing PROFITS, by gasoline manufacturers.

Profit is what you make over and above your operating cost. That includes buying oil at whatever price it is, refining and then distributing it to retail outlets. If oil is 10 dollars a barrel and a company makes 38 billion in profit, or oil is 100 dollars a barrel and the same company makes the same 38 billion, there is no difference.

Nothing wrong with profit. That isn't the problem. The problem is twofold from my standpoint. One, there is no such thing as a free market economy. All financial systems must have some controls to avoid one company or another that creates a vital part taking over. Then you have feudalism. So, these controls have to set certain rules. One of those rules in the United States states that there can be no collusion among competing companies. Also known as "Price Fixing", where companies agree to subvert the market pressure and agree on an artificially inflated price.

Case in point. Last year gas hit $3.00 per gallon. Industry analysts said that to support that price level, if all other things were equal (including profit), oil would have to be at 90.00 per barrel. At the time it was barely 60.00. Yet, all gas companies were charging 3.00 plus per gallon for fuel.

Flash forward. Now oil actually is hovering in the 90.00 per barrel range. And gas? It is at about 3.00 per gallon. Does something seem wrong here?? If the price of a barrel of oil is the driving factor, then last year gas should have been at around 1.98 per gallon, reflecting the 60.00 per barrel price. But it wasn't. And the oil companies that can obviously sell gas at 3.00 per gallon when oil is at 90, were selling it at 3.00 per gallon when oil was at 60. All of them. No maverick at 2.00 per gallon cornering the market. Just uniform pricing and record profit.

Does that sound like collusion? Does to me.

So please, don't quote oil prices to me. Use common sense, look at profit percentages. That's where the problem lies.

Xtian