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Gas prices - Phil's Rambling Rants
September 18th, 2006
05:50 pm

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Gas prices
I notice that gas prices are down nearly a third, just as we're heading into an election where anger and worry over the price of gas was poised to be a significant vote-loser for the Republican party.

Coincidence? I don't think so.

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From:ericcoleman
Date:September 19th, 2006 12:22 am (UTC)

How unamerican

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Of course it's a coincidence, and you would be a fool and a traitor to say otherwise ...
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From:billroper
Date:September 19th, 2006 03:32 am (UTC)

Re: How unamerican

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Actually, it was pretty predictable, but not for the reasons you think.

One of the things that was driving up the cost of gasoline was the requirement for summer blends that contain oxygenates in many markets. Since the Federal Government (not without some good reasons) no longer mandated the use of MTBE in these blends, the refiners all stopped using MTBE to avoid liability and shifted to ethanol. Ethanol's been in short supply as a result, driving up the cost of ethanol-containing blends.

Well, it's fall now and we're switching to the winter blends, so the demand for ethanol goes down, and the blends are cheaper to make as well.

Further, the summer driving season is over and the storage tanks are pretty much full of gasoline, so there's low demand. This also drives gasoline prices down.

The price of crude oil is also down, because nothing bad has happened and the price of oil has had a premium built into it by traders who have been betting that we'll get another disastrous Gulf hurricane, or a war with Iran, or... None of those things have happened (yet). So the price of oil goes down, because there's more than sufficient supply.

This isn't some great conspiracy, it's economics in action. If the Bush Administration could repeal the laws of supply and demand, it would have done so long ago. Of course, attempting to do that was one of the reasons that the Soviet Union collapsed...
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From:tigertoy
Date:September 19th, 2006 04:06 am (UTC)

Re: How unamerican

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E85 was $2.859 a gallon when gas was over $3, and it was $2.459 this past weekend when regular unleaded was $2.249. Since ethanol is only 10% of regular ethanol blended gas, it would have to be significantly above $3 a gallon for it to be driving the price up when it's at $3.

The price of crude oil has dropped, but not enough to justify the drop in the price of gas. Of course, it's been obvious for a long time that the price of crude going up was an excuse to increase profits, since the price of crude going up 5% would mean an instant 10% increase at the pump, even though the gas in the pump wouldn't be made from the more expensive crude for several weeks. Similarly, the gas that's cheap now was made from oil bought about when things were really heating up in Lebanon and the price was well over $70.

There is some actual supply and demand influence on the price, but there's clearly a lot of manipulation too. And right now, looking at the political leanings of the people who do the manipulating, there's an obvious motivation for them to make the voting public less unhappy with them right now.

Look for the price of gasoline to go up significantly without any justification in the market fundamentals soon after the election, whoever wins. (Hmm, actually if the Democrats win big enough, they might have to be circumspect about it because the Dems might grow enough balls to have Congressional hearings on the price manipulation.)
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From:billroper
Date:September 19th, 2006 04:48 am (UTC)

Re: How unamerican

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First, E85 is tax-subsidized, so it doesn't reflect the true market price of the fuel. Second, you've neglected the portion of the price of gasoline that is federal, state, and local taxes. When you take those out, you'll see that the actual price of a pre-tax gallon of gas is a good bit lower than you might expect. (I went through this analysis about a year ago in someone else's LJ, but I forget whose.)

The spot market price of ethanol per gallon has been over $3 a gallon. In fact, this Reuters story indicates that ethanol peaked around $5.75 per gallon back in June when gas prices were much higher. Now it's down to $2.15 per gallon, because more supplies are available.

As far as pump prices tracking the current price for gasoline as opposed to the price when they bought it, that's a well-known phenomenon and I could go into an explanation of why it works that way, but it's not really surprising. I agree that prices are stickier coming down than they are going up, but that's a decision made by the individual gasoline station operators, many of whom are independents.

Congressional hearings have been held on the subject of whether or not gasoline prices have been manipulated. Not surprisingly, the answer is that they haven't been. Now, you may say that's because Congress is controlled by the evil Republicans, but have you seen any minority reports by the Democrats in Congress with evidence that contradicts the official report? I haven't, because there just isn't any such evidence.

I understand that it makes you feel more comfortable to believe that the gas prices are inflated only because of the evil Bush Administration and the evil Republican in Congress, because that would mean that if you can just manage to vote those evil people out, then you'll have cheap gasoline and the birds will happily sing.

But that's not the way that the market works. And if the Democrats decide to mess with the market, I have every faith that they'll find a way to make it worse. (But I suspect that they'll decide not to mess with the market. Much.)
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From:tigertoy
Date:September 19th, 2006 04:50 pm (UTC)

Re: How unamerican

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E85 is not taxed as much as gasoline, and ethanol production in general gets tax subsidies, but I wasn't aware of actual subsidies for E85 that would make the retail price of E85 unrelated to the price refineries pay to blend E10.

I don't actually want to see the price of gas go down. I want it to stay at a level that keeps people thinking gas is expensive, which probably means continuing to increase over time as people get used to the price. But I want to see the price increasing because we're collecting more taxes, not because we're pushing the profits of Exxon higher and giving more money to countries in the Middle East that want to kill us. The increased tax revenue should at least postpone the financial collapse of the federal government. And I want to see price stability. People were just starting to get the message that maybe they should not buy an SUV when they go car shopping, and we see the price go down. It'll be back up, but we'll have lost valuable time in getting a more efficient vehicle fleet out there.

I never intended to claim that gas prices aren't influenced by market forces. I just don't think that market forces can account for all of the price volatility we see. There are a lot of individual gas stations but only a few oil companies for them to get gas from -- few enough that they retain meaningful pricing power. The fact that they have pricing power does not prove that they are using it to achieve a political end -- but I do find it fishy that the price changes have been very politically convenient.
From:markiv1111
Date:September 19th, 2006 05:45 pm (UTC)

Actually, this is about our previous conversation

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You closed the thing you said to me last time with something very much like "Do you want to visit" and then it dropped off in the middle. Louie and I would very much like to see you and spend some time with you. We will be staying at Art Warneke's place and trying very hard to get together with Barisha and Richard for at least dinner; I think there might be one of those Sunday afternoon things that is a late brunch, and I am hoping that several of Louie's and my mutual friends with Barisha and Richard will be there. And you would definitely be one of the high ranking people we definitely want to see. So let us stay in touch.

Nate
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From:tigertoy
Date:September 19th, 2006 08:32 pm (UTC)

Re: Actually, this is about our previous conversation

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In the comment you refer to, I actually was asking if you wanted to visit Valley of the Kings, another big cat rescue facility that is fairly near Milwaukee. But I must have mistyped something in the hyperlink, and blinkety-blank LJ's error handling method was to throw away everything after the hyperlink, rather than giving me an error message so I could fix it.

I'll have to get in touch with Art.
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