GAS PRICES ARE A RIP OFF

Back in the'60s, people pulled up to the gas pump and actually said to the attendant, “Gimme a dollar's worth.” In 1965, this amount could get you quite far, because gas was only 31 cents a gallon.  In 1969, the price of gas was then increased to 35 cents a gallon. Needless to say, we all squawked because we felt that we were getting ripped off by the gas stations. 

In Vancouver, the motorists in April 2018 are paying as much as $1.64 a gallon.    That is an enormous rip off. In Edmonton, it is only $1.24. It is still a rip off.        The average price of gas in the United States is $2.57 a gallon. That is also a rip off. In Washington, D.C. the price of gas is $3.40. WOW!                                 

In 2017, the average motorist spent $1.765 during that year. In 2018, the average motorist will have spent $1,898 by the end of that year and probably more if the price increases.

If you take a closer look, you see that volatility is built into the price we pay at the pump because many components, both globally and locally have a hand in simultaneously pressing those prices higher and/or lower. These components include: the specific time of year and the federal regulations that dictate whether ‘summer blend’ or ‘winter blend’ gasoline must be available, and how much; the strength of global economies; the relative value of major currencies; crude oil prices; supply and demand of oil and gasoline; refinery operations; pipeline logistics; state and local taxes; weather; OPEC policy; and, last but not least, politics.

Gasoline is a product derived from crude oil and retail gasoline prices are tied to a global average price of crude oil and gasoline prices. We find that oil prices are especially sensitive to geopolitical events that can impact, the ample supply and timely delivery of these commodities. These events whether perceived or actual and whether positive or negative can influence this product.

Gasoline prices are also subject to seasonal increases and decreases tied directly to both refinery maintenance, season (spring and fall) and the Clean Air Act. This Act guides EPA regulations mandating the production and sale of more expensive, but less volatile and cleaner burning "summer blend" gasoline at pumps from the first of June through to September 15.  Refiners must comply by the first of May in much of the United States.

The purpose of these regulations is to reduce smog and pollution, especially in large metro areas across the U.S. during the peak summer driving season. The transition from “winter blend” to “summer blend” gasoline which takes place as refiners perform seasonal maintenance results in a reduction in the amount of gasoline produced and can increase gas prices from 25 to 75 cents per gallon. This then results in a rise in retail pricing that arrives every spring as refineries deplete their inventory of winter blend prior to the annual maintenance needed before they can begin production in March and April of the more expensive summer blend.

What is unpredictable are the unscheduled obstacles refineries may encounter. In areas such as the West Coast and Great Lakes region, where gasoline is produced by a few dominant refineries, motorists are most susceptible to severe price spikes that are triggered when their refineries hit unexpected snafus (even brief ones) especially during a time of year when refineries are transitioning to a larger slate of localized blends.

Weather always represents a potential threat too. Hurricanes Harvey and Irma prompted widespread fuel disruptions and shortages in Texas and Florida, respectively, but the impact was felt in every corner of the United States due to the amount of gasoline production that was shut down after tremendous amounts of rain fell on Texas, the nation’s largest oil producing and refining state. Gasoline inventories plummeted and it took months to recover.

There are no national emergency gasoline supplies available and significant events have the potential to lessen both the supply of gasoline and subsequently increase the gasoline prices.                      

In September 2016, a pipeline leak in Alabama had led to a hike in prices at the gas pumps. There had been some reports by some motorists of gas prices shooting up to more than $4.00 a gallon at some stations in some areas of the City of Atlanta.

Dan McTeague of GasBuddy (he is a recognized authority on gas prices) says that yo-yo pricing is the result of small, independent retailers attempting to compete with the likes of the lower prices offered at Costco and the Real Canadian Superstore.

A gas station owner would need to price regular grade glass at 96.9 cents per litre in order to break even. (Gasoline in Canada is sold in litres and not in gallons) The lack of a profit margin on fuel is potentially negated by the sale of items within the convenience store but, if sales are slow, the price of gas may be temporarily increased to cover the overhead. The fluctuations in the price at the pump at one independent retailer will likely warrant a similar reaction from local competition but the matching of prices is not illegal as long as retailers are not conspiring to fix prices.    

Gas price-gouging isn’t as bad as it previously was but drivers are still being cheated.  McTeague says consumers are at the mercy of gas price fluctuations and recommends filling your tank whenever you encounter a favourable price.

My favorite story about competing gas stations took place many years ago when two gas stations were across the street from one another. When one station would lower its price, the other followed suit. Then one day, one of the gas stations brought in an empty gasoline truck and literally emptied the other gas station’s below-ground tank.

A one dollar American increase in the price of a barrel of crude oil should mean an eight cent-a-litre increase in gas prices in Canada including the tax.

That means that the $10.00 US increase in a barrel of oil from June to September should have meant a seven to nine cent-a-litre increase in prices at the Canadian pumps. As a result, drivers in Canada should be paying 95 cents a litre when they fill up, not the $1.02 a litre that was common at gas stations in Canada. Nor should they have been paying the $1.30 a litre that motorists were paying during the 2017 Labour Day or any other holidays. 

 The 15-cent increase we were paying last September was profiteering and the 40-cent increase we were paying over the Labour Day weekend was just plain gouging the Canadian motorists.  Every penny-a-litre increase generated an additional $2.5 million for the industry each day. The high prices experienced around Labour Day boosted profits for that industry was more than a  million dollars a day. 

There is a clear need for government monitoring to make the industry accountable for these kinds of spikes in prices because there is no incentives for that industry to do it themselves.

Should gasoline price gouging be illegal? The answer is YES.  Unfortunately, there doesn’t appear to be anything done by the most governments to stop this insidious crime.

Texas State law prevents companies from “charging exorbitant prices” for necessities ranging from gasoline to water to clothes during a disaster such as Harvey that was  a torrential storm that devastated some small beach-side communities before dumping more than 50 inches of rain on Houston in just a few days.

In September 2017, Texas Attorney General Ken Paxton sued  three Texas companies he believed were involved in price gouging in the wake of Hurricane Harvey. They included the two Bains Brothers, owned Texaco stations in the Dallas-Fort Worth area, including one in Arlington and the third was a Laredo-area Chevron station. Many complaints of gas gouging came from those gas stations.

Paxton said in a written note, “It’s unconscionable that any business would take advantage of Texans at their most vulnerable times—those who are displaced from their homes, have limited resources, and are in desperate need of fuel, shelter and the basic necessities of life.” unquote That applies to anyone no matter where they live.

No gas companies were spared, with the hundreds of complaints coming in against Chevron, Conoco, Exxon, Mobil, Shell and Valero. Convenience and grocery stores that sell gas were targeted as well, including Wal-Mart, QuikTrip, Big Willy’s and Kroger. They were all out to gouge their customers in their hours of need.  Many of those victims were complaining of prices at the pump that were different from what was posted on the outside signs. Imagine if you will how they felt after standing in long lines and then to discover that they are being ripped off. Some even said they saw prices change as they pulled up to the pump. While sitting in line and next up, the attendant came out and changed price of gas from $2.69 to $3.99 gallon. One person wrote of a station in Mansfield. Several said they saw prices in Tarrant County as high as $9.99 a gallon. Cowtown Petroleum in Fort Worth was among the hundreds of Tarrant County gas stations reported to the state for alleged price gouging.

Another motorist said, “The station was advertising unleaded gas for $2.99 a gallon at 2:23 pm on 8/31/2017 but when I filled up at the pump price was $5.99. 11.2 gallons of unleaded gas cost me $67.00. One complainant asked why the gas price was so high. The attendant replied that he raised the price because he could.

These unscrupulous corrupt crooks who are owners of these stations should have been punished far more seriously, such as losing ownership pf their gas stations. If a man abuses the use of his gun, it is taken from him. Why can’t this apply to crooked owners of gas stations that are gouging the motorists?

As a result, the State of Texas was seeking potentially more than $1 million in penalties, for consumer redress, attorneys fees and other costs, according to the lawsuit. They should have asked for more and bankrupt the gas companies.

Motorists ought to first consider why it is that gasoline prices are so high. The usual explanation is that oil companies are greedy and want to screw over the hapless drivers. After all, oil companies were greedy during all the years in the 1980s, when the price of a barrel collapsed to under $11.00 in July 1986 and remained that low for years.

The general causes for high oil prices are pretty straightforward.  Supply was restricted because of the uneasiness in the Middle East (not to mention environmental and other regulations), while demand was booming as China and other developing countries grew much more quickly than people had anticipated years ago when oil infrastructure decisions were made. On top of these "real" factors, the general uncertainty about the Middle East especially the possibility of war with Iran had caused speculators who control the prices of oil to push up the price even higher.

The speculators will explain to us that the rise of gasoline prices in part by saying in effect that if oranges are really expensive, you can bet that orange juice won't be cheap. But what is particularly strange is that oil prices are actually a lot lower than they have been in the past and yet prices at the pump are at all time (inflation-adjusted) highs. This means that everyone in the gasoline business other than gas attendants is getting richer at the expense of the families who have cars.

But regardless of the specifics, the thing to remember is that market prices are not arbitrary. The market price is the one that tends to equate quantity demanded with quantity supplied. If a gas company can charge whatever the market will bear —it will do it. 

However, if people buy more gasoline at lower prices, then government efforts to reduce prices below their current  market levels will cause shortages, and that means (as in the 1970s when President Nixon imposed price controls) long lines at the pump and arbitrary rationing schemes will come about.

Currently, this isn’t a problem. Increasing production from American, Canadian and even from non-Opec countries means the growth in oil supply will outstrip the demand in 2018.  The world’s oil glut is likely to persist next year in efforts by major producers to shore up the oil price by cutting output, according to a leading energy authority. This way, these corrupt companies  can increase the price of gasoline at the pumps.

Oil prices have fallen by about 10% since Opec and non-member countries including Russia recently agreed to extend production cuts until the end of March 2018. The deal was meant to prop up prices, but markets have been unimpressed by the continued curbs.

The price of a barrel of oil fell further to $47.12 on after new data from the American Petroleum Institute showed US crude stocks had risen 2.8m barrels in the week to the ninth of June 2018.

The number of American oil rigs has climbed to 927, according to the oil services firm Baker Hughes, up from 414 this time last year. The rise has been driven by the oil price climbing back up after an initial deal by Opec and allies last year to cut production by 1.8m barrels of oil a day from January 2017.

As you can see from the aforementioned information, the production of oil is not decreasing, it is increasing and so is the price of gasoline at the pump which makes no economic sense at all unless of course you are in the gasoline business and are unscrupulous and have no qualms of ripping off the general public.