I just don’t understand. Here we are in the midst of a gas crisis again, and it just doesn’t make sense to me. Oil is priced according to supply and demand. Demand is high, so the prices go up. Oil companies raise the price of gasoline… and yet, they’re making higher and higher profits. Simple math tells us that they are charging more and more per gallon than their actual costs. Common sense tells us that they are doing this because people will pay it. If they were just passing along the higher oil costs, they wouldn’t be making huge profits.
Ethanol has also spiked in price because it is in higher demand. All this doesn’t make sense to me, because it is at odds with another market truth: the more something is in demand and goes into higher production, the cheaper it becomes.
This is a mantra we’ve all heard when looking at some new product — that it will be less expensive once more people adopt it. So, for instance, why isn’t the price of computers going up when demand is high? Why, now that demand for writable DVDs or CDs is so high, don’t the blank discs cost $5 each?
An oil company making a billion dollars a quarter in profits could easily afford to price their product 10¢ cheaper per gallon and still make a record profit. Or do I just know nothing about business?
>Why, now that demand for writable DVDs or CDs is so high, don’t the blank discs cost $5 each?
It’s because it is Supply -and- Demand … not just Demand.
Blank CDs are more of a commodity than gas in this country due to the fact that:
1) Blank CDs are more easily transportable than gas.
2) Every part of the country uses the same Blank CDs. That’s not the case for gas (like our special California formulation – thanks to the corn lobby 🙁 ) Actually, this formulation stuff has been a real fiasco – especially in the east coast (that’s why there were shortages).
Also, further exacerbating the supply side is the fact that… well… you can’t just make oil like you can produce blank cds.
Even worse, I read that 28% of the vehicles sold in the last year(?) had V8’s. That’s like 28% of CD-R drives requiring two CDs to burn 75 minutes of music instead of just one. 🙁
A really good question would be: How has the price of oil changed in other countries like England in the last 2 years?
Personally, while I have no doubt that the oil companies are making a killing on this, much of the rise in price is not strictly their fault – it’s a combination of our gluttony ways, China, India, and the fact that oil is a non-renewable resource that we expect to have at $1.50 a gallon, while we pay $4 for a cup of starbucks.
I’d SO love to be able to have photovoltaic panels on my roof; the power comany has to buy back any excess energy you generate!
Yes, I understand that it is supply and demand — but I can’t help wondering, in an ultra-liberal, FDR-kind of way, why we allow a product so vital in every conceivable way to our society and economy to be priced in such a fashion: perhaps solid government regulation of gas prices is the solution for now.
Obviously, the price of gas has very little to do with its actual cost, otherwise the oil companies would not be swimming in obscene profits. So maybe the government should dictate what the price must be.
Still, this all points out that we as a society want cheap gas so we can continue to guzzle it, drive inefficient cars, and generally waste it.
Au contraire, TK: here in California, PG&E is not required to “buy back” excess energy you generate. But they do “bank” it — if you generate, say, 5kW that you don’t use, you are allowed to pull 5kW back out of the grid later for free. But you’ll never get a cent from PG&E for generating electricity.
My big beef with the oil companies is, why don’t they see the big picture? If I were running an oil company, I certainly would be putting a big chunk of my profits toward developing AND IMPLEMENTING renewable energy solutions. The three biggest 3 sources we have are wind, sun and water. That’s why my investment money, starting this year, has begun to go to companies that are currently selling products that use these three non-pollutable power sources. We are gonna run out of oil, folks. It makes our environment unhealthy and stinky. It causes unstable countries to hold an energy axe over our heads. It causes corruption on a scale not to be believed. I urge all of us to start saving so we can have photovoltaic panels on our roofs and buy our electricity from electrical companies that provide electricity through windpower or waterpower sunpower instead of coal. Also so we can have electrical power in our vehicles.
Yeah, it sounds like a pipe dream. Sue me. I’m looking ahead with hope….