Gas Prices

Where Has All The Gas Gone?

Sounds like a 60’s protest song. But really, where has it gone? The answer is mergers!

In 1991, 189 firms owned 325 refineries and then in 2001, 65 firms owned 155 refineries. What does that have to do with the price? Companies are controlling supply and with that the demand is high, they make lots of cash. The small amount of refineries cannot keep up with supply and that drives prices upward.

Mergers have taken a toll on refineries. When the merger occurs, the company then closes some of the absorded companies refineries in an attempt to cut cost thus making the merger look like a success. Which in turn drives investors to invest–more profit made.

The remaining small amount are operating at 90%, leaving no room for exspansion of production during times of high demand. Then if for some reason a refinery is taken off line the supply decreases even more, driving prices up even further.

Today, in my area the price of gas is $2.90 and when the summer travel system arrives it will jump up and I am looking at about $3.25 per gallon by July.

Ok class–here is your summary of today’s lecture.

Gasoline prices have become very volatile since 2001. While increased crude is a factor, tight supply and reduced refinery capacity plays a major roll in the volatility. Pricing schemes are used by oil companies to maximize their prices and profits.

Is there an answer that will help the American people find some relief from the problem of gas? Yes there is! Buy a bike!

CHUQ

10/05/07

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