Thursday, February 28, 2008

Maybe Some of The Right-Wingers Can Explain This To Me

I've written numerous times about how the oil companies are screwing us consumers and in a post called Bend Over and Take It a right winger made the snide comment that I obviously hadn't learned any economics while I was in ed. school.

So maybe that right winger can come back and see how my grasp of it is.

Let's start with supply and demand shall we?
But oil slipped after the Energy Information Administration's weekly inventory report. EIA said crude stocks rose by 3.2 million barrels last week, higher than the 2.4 million barrel increase expected by analysts, according to a Dow Jones poll. Gasoline supplies, attracting more attention as traders anticipate the upcoming summer driving season, rose by 2.3 million barrels. Analysts were expecting a gain of 400,000 barrels. EIA said gas stocks are now above average for this time of year.

That was the 7th week in a row US crude and gasoline supplies have risen.

So apparently, supply and demand is not the answer.

How about the economics of it all? Let's see, it's now costing me $60 a month more to fill my vehicle up with gas. That's $60 I'm not spending anywhere else. But where does that $60 go? Into the bank accounts of Exxon, Shell and other companies, which are experiencing record profits and getting a nice tax break on it all, which their president has pledge to protect.

But the effects don't end there. Not only am I putting an additional $60 a month into oil company profits, I'm also having to pay more for everything I buy, since EVERYTHING we purchase has to be produced and transported using gasoline, oil and diesel.

I wonder what it is costing me total every month? $75? $100?

Is it any wonder the rest of our economy is going down the crapper into what may be the worst recession since the Great Depression?

Explain it for me some of you right wingers.


Singing Fat Girl said...

Well said- Big Oil = Big Trouble for us REAL Americans. By REAL, I mean those of us who work and tend to our patriotic duties of contributing to the next generation, questioning authority, and challenging the institution.

Coach Brown said...

I'm not a right wing nut, but I do teach economics and I'll try and explain.

You are assuming that the market for gas is simply the United States, and that it is simply gas for cars. Let's remember that oil is being used for everything from plastics to cosmetics to, well, gas for cars. However, the demand for gas is not just for the United States, its for the entire world. The amount of cars in China alone is rising at an amazing rate and this inflates the demand for gas, therefore raising prices. And that's just gas. The fact that countries that were under-developed are now "developing economies" pushes the demand for oil based products through the roof. Oil goes up in price. Add to that the demand of foreign goods from Americans (increasing transportation costs, and oil), and ethanol (which takes even more oil to produce and transport) and that all equals a massive demand that supply can't keep up with. Sure, there is more supply of oil in the United States, but it isn't even coming close to meeting demand. And Americans are still driving.

As for the "recession", I would be careful about falling for the media hype. Things were worse after 9/11, worse during the "tech bubble burst" of 1999, and worse during the economic recession of 1991. While some economic numbers (housing in particular) are bad, a lot of numbers are still good. The FED needs to stop lowering rates or we will start looking at 70's style stagflation, something a hell of a lot worse than what we have now.

People blame "Big Oil" all the time, but then use oil based products and drive like crazy. Want to change "Big Oil"? Change your buying habits.

Mike in Texas said...

Coach Brown,

Thank you for the thoughtful explanation, but I have to disagree with you on several points.

One thing I would disagree with you is that fact that oil prices are largely determined by events in the US. After Katrina and Rita US prices skyrocketed.

After an explosion in a refiner in Big Spring, Tx prices jumped again.

Prices react to the US inventory report but lately an alarming trend has developed. Prices continue to rise while the US is literally awash in oil and gasoline, supply and demand are not the problem.

I'm aware that much of what we use is based on petroleum products, or petroleum products weigh heavily on their cost of production (transportation of goods being a big cost). Notice the recent upward spike of food prices in the US.

In addition, OPEC tends to support the belief there is plenty of oil. Not only have they refused to raise production quotas, last year they actually cut back some.

I respectfully disagree. I think Big Oil is soaking us for everything they can get while their boys W and Dick are still in office and while they're still enjoying their massive tax breaks on their profits.

NYC Educator said...

Also, I understand that energy costs, for some inexplicable reason, are not calculated into inflation figures. That seems bizarre. and I wish someone of any political persuasion would explain it to me.

Johnny Virgil said...

I always assumed it was the fault of trading in futures. Trading in oil futures provides some protection against a weakening dollar. I'm not a trader, but I think the gas prices are artificially jacked because like the rest of the stock market, it can be affected by panic and irrationality. For instance, a weather report predicting a storm in the gulf that *might* potentially affect a refinery could raise gas prices over night.