American consumers pay much more than usual for gasoline, but economists don’t blame price gouging.
The market is driving prices higher because politicians in Washington have banned imports of crude oil from Russia – the third largest oil producer – following its invasion of Ukraine.
But President Joe Biden and many members of Congress do not see it that way.
“American oil and gas companies should not — not take advantage of this moment to raise their prices to increase profits,” Biden declared during a speech at the White House on February 24.
Even if they are overpaying, there is no federal law that prevents them. However, Senator Elizabeth Warren, a Democrat from Massachusetts, and Representative Alexandra Ocasio-Cortez, a Democrat from New York, are joining the chorus of lawmakers calling for action.
Representative John Garamendi, D-Calif., and 31 other members of Congress sent a letter to House Speaker Nancy Pelosi and Senate Majority Leader Charles Schumer calling for an investigation into “unlawful profiteering, anti-competitive business practices and price gouging within the oil and gas industry” .
They plan to hold public hearings to question industry leaders, an approach that doesn’t make sense for Boston University professor Robert Kaufman of the Sustainable Energy Institute.
“The world price of oil is set on many heavily traded exchanges where there are a lot of buyers and sellers and they determine the price of crude oil,” Kaufman stresses.
He notes that oil-dependent industries, such as agriculture, plastics, chemicals, homeopathy, and healthcare, compete for every barrel during war and a supply crunch.
However, laws against the exploitation of book scarcity exist in 37 states, Guam, Puerto Rico, the US Virgin Islands, and the District of Columbia. Most laws relate to shortages caused by natural disasters or other emergencies.
In most states, guards step in when they see evidence of price gouging.
Rather than craft similar legislation at the federal level, elected officials of all political affiliations prefer to lay the blame.
Democrats plan to publicly question oil company CEOs about prices set by global markets and international traders.
Republicans will continue to blame
Biden for a market-driven price his administration can’t control. Meanwhile, the Republican Party is seizing the opportunity to register voters at gas stations.
What about freelancers? They are just trying to drive to work.
“come on man”
24 of the largest oil and gas companies generated record profits of $174 billion in 2021 (these are symbolic numbers), according to The Guardian. But a deeper look at macroeconomics shows how price fluctuations and drilling incentives affect the energy company’s earnings.
Price margins for oil and gas companies averaged 4.92% in 2021 as the industry rebounded from losses during the COVID-19 outbreak, according to CSIMarket. However, profit margins are volatile because commodities experience sharp price swings.
During the price hike in the fourth quarter of 2021, The sector generated net margins of 31.3%.
In the first quarter of 2021, the segment generated net profit margins of -21%. In the second quarter of 2020, when producers had to pay $32 to have someone take their crude away from their delivery point in Cushing, Oklahoma, net margins were -152%.
The power supply chain in the United States is complex.
Companies pump crude from the ground and then push it through a multidimensional system of pipelines, storage facilities and refineries. As soon as the gasoline leaves the refinery, it is transferred through pipes to huge storage containers. It is then trucked (which use increasingly expensive diesel fuel) to gas stations where it is stored underground in 20,000-gallon drums.
It’s a long journey from the oil field to
four wheel car.
There is a gap between the change in the cost of crude oil and the change in the price of gasoline at the pump. If oil prices fall, gas stations pay a lower price for refined gasoline once it has passed through the supply chain. It just takes time. The gas that plant operators buy from refineries has usually been refined weeks or even months in advance.
Companies do not manipulate
Critics accuse companies like ExxonMobil, Shell and Chevron of tampering with the pump, but about 60% of the industry’s big-brand stations actually operate independently, according to the National Association of Convenience Stores, a convenience and fuel retail trade group. industry.
These operators buy gasoline from the branded oil company in bulk and pay marketing fees. Unbranded operators buy gasoline in bulk and shop at the best prices. Although unbranded gas stations tend to have better margins, they may encounter higher prices when supplies run low.
Most of the independent operators (57.1%) only own one store and therefore face fierce competition in the local gasoline markets, especially in high-traffic areas. Regulators in the state intervene if they suspect anti-competitive practices or collusion. Customers switch to a nearby competitor if prices are a few cents lower.
The biggest surprise about gas stations is that they hardly make money selling gasoline.
About 80% of gas stations in the United States are convenience stores that sell gasoline. IBISWorld, a company research firm, says gas stations generate an average net margin on gas and diesel of just 1.4%. Compare that to the retailer’s pre-pandemic net profit margin of 5%, as calculated by Financialrhythm.com. If a gas station makes a net profit of $0.07 per gallon on 4,000 gallons per day at $5 per gallon, that’s a total daily profit of $280.
On the other hand, merchandise sold inside gas stations accounts for 30% of revenue and 70% of profits.
Cigarettes, soft drinks, and beer are among the top sellers at gas stations and convenience stores, and food service offerings such as hot dogs and microwave nachos.
So, if rising gasoline prices don’t kill you, the list will.
Truth or False?
Continuously high gas prices do not prove higher prices – nor comparisons with 2008 gas prices.
Experts said it takes time for gas prices to respond to drops in crude oil costs, and that doesn’t necessarily indicate price gouging. Publication numbers are carefully chosen; The difference in prices is not as big as it suggests.
The current situation is different from 2008 because rising labor costs, the pandemic, additional taxes and inflation all actually contributed to higher gasoline prices prior to Russia’s invasion of Ukraine in February. Experts said direct comparisons lacked important context.
We classify these jobs as wrong.
How far the CPI jumped in February from the previous year, the largest such rise in four decades.
Average net margin (loss) for oil and gas exploration companies during the second quarter of 2020.
Number of countries that have banned gasoline price gouging.