The stock of said companies would be almost worthless if they were hemmoraging money like that LOL.

Thanks for making my earlier point, Jim S. I saw a report last year detailing how the 6 major oil companies have cut back on their refining capacity, which has helped them reap the obscene profits they have made, at the expense of the American consumer. This is capitalism run amok, but those who speak out against it are made to seem like Leninists, not Middle American consumers that are caught in a bind.

My driving habits haven’t changed a whole lot because there isn’t much to change. I live approximately nine miles from where I work. It’s a suburb to suburb commute and there is no public transportation. Even if gas prices were to double I’m not in a financial position to sell my house or buy a new car (I don’t drive an SUV, just a Taurus.). The house is pretty much fixed. The car can’t be replaced for a couple of years. Lots and lots of people are in similar positions so of course short term demand is inelastic.

That good enough for you?

Gore/Clark ’08

The Washington Postreports this a.m. that “the hedge fund that employed John Edwards markedly expanded its subprime lending business while he worked there, becoming a major player in the high-risk mortgage sector Edwards has pilloried in his presidential campaign.”

Pyst, I trust you will be posting your denunciation of John Edwards in this blog shortly?

> but a combination of NIMBY,
> environmental concerns, and
> other factors have thus far
> prevented an expansion of
> refinery capacity.

This also applies to power plant construction (not limited to nuclear plants and anti-nuke insanity) and liquefied natural gas import facilities. (Most new power plants will be gas-fired because of clean-air concerns and anti-nuke hysteria.)

> Add to that the various State
> requirements for boutique fuels

Yes, it’s crazy.

And no, Americans do NOT want government trying to decide what behavior is best for us and what behaviors should be sought through a system of rewards and punishments (social engineering). There should be no varying taxes on engine displacement, horsepower, or estimated fuel consumption, no “fee-bate” structure that transfers income to people who purchase fuel-efficient vehicles, from vehicles that are less efficient.

In the real world, there will still be a need for trucks and even SUVs, and the overall standard for acceptable fuel efficiency still remains the metric magic figure of 10 km/l or 23.5 MPG. Meanwhile, environmentalists are the fuel savers’ worst enemies; we can’t buy modern Diesel vehicles in a number of states dominated by Cyanide Nation non-thinking. It would be great to be able to get a Ford Ranger that would offer 300 lb/ft over 2,000-3,000 RPM while getting 30 MPG on the highway. But this would be simply illegal right now in a number of states. That’s one reason (along with stupidity) why Ford and GM do not sell small, fuel-efficient, attractive vehicles here in the States that already exist and are selling well in Europe. (Stupidity is the only reason in the case of existing gasoline-powered vehicles. Even the young, hip crowd, most favoring the imports, screams that they’d buy those cars if they were offered here.)

…

Regarding supply and demand:

Some additional information for readers’ interest.

1. FTC document. Note that this is done under the Bush administration so you may be somewhat skeptical, but the report is good.

[also tells us what we already know]

“As noted earlier, a substantial body of empirical literature
has shown that, even if the price of gasoline increases relatively quickly and sharply – as it did in
the Phoenix example – the short-run demand for gasoline does not decline much. In other words, short-run demand for gasoline is very inelastic.”

“The average price elasticity of demand for long-term studies (at least one year) is approximately -0.6. This means an increase in price of 10 percent results in a 6 percent decrease in the quantity demanded in the long term.”

http://www.ftc.gov/reports/gasprices05/050705gaspricesrpt.pdf

2. Becker (who can view anything “economically”):

“No one mentioned any oil conspiracy when real gasoline and oil prices declined significantly during the 1980′s and 1990′s. Stagnation in the number of American oil refineries, the havoc caused by Katrina to refineries in the Gulf, rapidly growing world energy demand, and disruptions in the world supply of oil during the past year are sufficient to explain high gas prices without any conspiracy theory.”

http://www.becker-posner-blog.com/archives/2006/04/rising_gasoline.html

3.

“Consumers of auto transportation pay the private costs, but not the social costs generated by auto usage. When the marginal private cost of an economic activity is lower than the marginal social cost, too much will be done. We drive way too much.” [sic]

http://www.econ.ucdavis.edu/faculty/fzfeens/trans/Transport-lecture2.pdf

4.

“The most efficient strategy for improving fuel efficiency and
reducing carbon emissions, would be to increase fuel prices. Yet many attempts to increase gas taxes in the US have failed. There is little support for taxes in general and for gasoline taxes in particular.”

http://www.hgu.gu.se/files/nationalekonomi/personal/thomas%20sterner/pol%20econ%202004v25-03-a011.pdf

Hedge funds are redundancy personified, and greatly contribute to prices on EVERYTHING being higher than they should be. The very idea is an unprincipled capitalists wet dream in action.

I’ll tell you I find the stock market to be the single worst creation of capitlism as it is nothing more than unearned wealth, but hedge funds couldn’t have been created without that mythical character the devil being part of it.

We are watching betting on betting with the knowledge that the money made from it goes nowhere other than back into the mix. It creates no new jobs (other than hedge fund managers), no new schools, fire stations, police stations, nothing for the common good of the nation that prints that money. It’s literally trapped in the investment world never to be seen again. Infact they’ve even become smart enough to remove most if not all of the taxes on this useless process of hiding money from capitalism.

Hedge funds must go before our economy goes first.

I think there is a strong desire in the oil industry to build more refineries, but a combination of NIMBY, environmental concerns, and other factors have thus far prevented an expansion of refinery capacity.

Not true, and the fact is supported by the number of refineries shut down and shipped overseas in the past 20 years. Between 1981 and 1994, about 145 U.S. refineries closed.

Refining is a low margin business, though not as bad as it used to be. When politicians tell you our refineries are operating at 95% capacity they are telling you the truth. What they aren’t telling you is why. Mainly because they loose money at 94% capacity.

And more so than violence in the middle east or hurricanes, refining capacity is always the best excuse for increased prices.

> I wonder where the fail
> safe point will be before
> people truly feel the pain?
> $5 a gallon? $6 a gallon?

Shaun, years ago when I lived elsewhere (I’ve lived and traveled all over the USA, largely traveling by road), I asked someone in Belgium about this. I was aware that here the demand for gasoline is inelastic — people will, if they must, make budget changes elsewhere rather than in reducing fuel use, as a rule — but at some price, the demand should begin to be elastic.

(Note to readers: Our fuel prices are higher than in a number of other countries as well as lower than in Europe. We are not in any way wrongly “given” “artifically low” prices!)

I asked the guy in Belgium about this because he was obviously facing higher prices in Europe and yet (as is so in the UK) auto use continues to increase. He said he believed that psychological studies had indicated the break-point where demand becomes elastic for the public at large, the value you would like to know, is approximately $8 per gallon.

Additionally, you may find this a curiosity, but while the affordability of fuel is not a concern to me, I surprisingly find myself more sensitive to high fuel prices once they exceed three dollars per gallon than others I know who drive much less. Maybe it’s just resentment on my part about spending so much for “overhead” that goes out the tailpipe, but I have refrained at times from driving, or reduced the trip length, specifically due to high fuel prices.

I think there is a strong desire in the oil industry to build more refineries, but a combination of NIMBY, environmental concerns, and other factors have thus far prevented an expansion of refinery capacity. Add to that the various State requirements for boutique fuels in the summer to reduce smog and increased demand for fuel in the summer and you have a decent explanation for the yearly spring rise in gas prices (and also the yearly fall decline in prices).

Simply standardizing low-emission fuel across regions, if not nation-wide, would go along way to reducing the cost of fuel in the summer.

But overall, Dave has it right – we only need to look in the mirror and at our own lifestyles to see why we’re in the situation we are.

As a nation, we can certainly organize toward alternative energy and punish anticompetitive businesses at the same time.

Chris, it’s completely within your power to punish them right now: don’t buy so much gasoline. It’s as simple as that; the oil companies profits would fall if demand fell, but we want our cake and eat it too. We keep the demand high and inelastic by choosing not to conserve.

Kim, if you reread your comment, I think you might see that it was a bit incoherent because you explained (well) how we bring the high prices on ourselves by the choices we make, and then you closed by saying that the problem is that our government doesn’t work. What would you have government do in this case, and why put the blame there instead of accepting that consumers have to lie in the bed of our own making?

But, I think government has become an enabler of gouging- look who we have in our top 2 positions. And it was Cheney who allowed the oil execs to write the energy policy. But as I said before, I blame everyone involved, including consumers who refuse to demand more efficient fuel standards in their cars or give up SUV’s. Dems have been ineffective on this issue, Pubs don’t even make oil execs swear in when giving testimony on Capitol Hill. We no longer seem to be innovative in solving these kind of problems. (or any other for that matter) For the record I do think prices are being manipulated by purposely restricting competition and keeping refineries offline to decrease supply during the peak driving season.

You’re free to change your own way, but not to change mine. I’d travel supersonically if it were affordable.

> or we need to develop
> a cost effective alternate
> fuel.

*WHEW* At least you realize it has to make economic sense!