# Gas Jumps 10 Cents: Define Price Gouging? **URL:** \ **Category:** Factual Questions\ **Created:** [May 17, 2004, 10:10am UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564 "2004-05-17T10:10:23Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![ftg](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ftg/32/2801_2.png) [@ftg](https://boards.straightdope.com/u/ftg)\ **Post date:** [May 18, 2004, 2:19am UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/21 "2004-05-18T02:19:44Z")
> [@Crafter\_Man](#): > > That ?something? is the free market in action. > > I suppose we could all don our tin foil hats and pester the FTC to look into it. But the FTC will not do anything unless it has reasonable suspicion. For the record, a case cannot be made for collusion based on ?high prices? alone, especially when there?s ample evidence the high prices are due to an effective decrease in supply. Note that the most obvious colluders are OPEC countries which are outside US jurisdiction. The point I was making is that Some People had prior knowledge of the price rise. If those people are US citizens, etc., there _might_ be some US anti-trust/SEC type violations. But I was really trying to address the issue of how one would go about finding out the real cause of this bizarre jump. (Which based on oil futures, it expected to get worse at least thru June!) Fun fact from an article on Google News today: All the OPEC countries except the Saudis are producing at max. capacity. “So say there Saudi Prince, what’s behind the recent rise in crude oil prices?” “Look, over there, a rabbit!” ---
**Author:** ![Ringo](https://avatars.discourse-cdn.com/v4/letter/r/779978/32.png) [@Ringo](https://boards.straightdope.com/u/Ringo)\ **Post date:** [May 18, 2004, 4:44am UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/22 "2004-05-18T04:44:27Z")
> [@](#): > > If anything, that should mean the US can’t buy as much as oil as it needs and prices should fall. I’m not sure I follow your logic there. I, along with thousands of other people, knew of the coming increase in the price of oil. It was easy enough to see, with the growth in demand outpacing supply. From a post made in March of 2003: > [@](#): > > From the Energy Information Administration’s Short-Term Energy Outlook – March 2003 page: > > > [@](#): > > > > **World Oil Markets.** February crude oil prices moved higher than expected pushed by fears of a war in Iraq, low inventories, slow recovery in Venezuelan exports, continued cold weather and sharply higher natural gas prices in the United States. West Texas Intermediate prices averaged close to $36 for the month (Figure 1), a level not seen since October 1990. Oil inventories continued lower through the month resulting in a cumulative reduction in total commercial stocks of 101 million barrels since September 30, 2002, the beginning of the heating season. Total OECD inventories reached an estimated 2,424 million barrels at the end of February, which would be the lowest level since March 2000. The current situation reinforces our view that, even without additional disruptions to world supply in the near term, prices are likely to remain on the high side and subject to substantial volatility through 2003 because of the abnormally high stock build rates that would be required to bring about the kind of oil market balance that is consistent with WTI prices well below $30 per barrel. > > I’m going off the top of my head here, so figures may be slightly outdated. We consume ~18-19 MMBOPD of which, in recent history, ~55% has been imported. Middle East oil has been around 15-20% of the total. OPEC includes, of course, Venezuela, who can not presently deliver. That’s part of it. Domestic drilling has only recently started to pick up, and only by a little bit. The rig utilization rates for most of last year were static, in the mid to low 800s. It was ~928 a week ago, and I didn’t catch yesterday’s rig report. > > In 2000-2001, North American rig rates were 1100-1200, and in 1981 we had 4500 rigs working at one point. Product prices have been up for several months, but activity has failed to commensurately climb. The general feeling in my part of the oilpatch is that this is due, largely, to 1.) a lack of investor confidence (i.e., the requisite money dosen’t believe prices will remain strong, and based on the increasing frequency of price swings, there may be some merit to that perception) and 2.) an absence of investor funds, due to the pummelling many have taken with both the [dot.com](http://dot.com) collapse and the corporate imaginary economy scandals of late. > > In another thread in the last week or so, I did go through the exercise of comparing gasoline prices from 20 years ago to now. IIRC, the average price of a gallon of gas then was $1.28, and that would be $2.40 in today’s dollars. So, even though supply is tightening in the present context, which is why prices have risen recently, a gallon of gasoline still isn’t relatively any more expensive than other consumer goods. The Energy Information Administration’s current _Short-Term Energy Outlook_ tells a continuing story of low inventories, with increased production and acquisition costs. And another one, from this past February: > [@](#): > > _Nobody_ controls energy prices. OPEC can and does influence prices. But OPEC hardly knows solidarity; some of it’s members are notorious cheaters on production allocations. The overwhelming majority of wells drilled in this country (U.S.) are drilled by independents who can’t do diddily about the price. > > And the oil and gas industry is composed of internal markets that compete with each other. When the market is tight, refiners and pipelines must pay more to producers for their feedstocks. If the price of their feedstocks are high, then the price of their products will reflect that. As prices increase, demand on infrastructure may increase (but not always - see below) and you may have a situation such as existed a couple of years ago. Demand increased to the point where you could not get a rig on less than about four months notice, and the rig rates had increased to a point that a well that seemed economically feasible in 1998 was not in 2001. So that well didn’t get drilled in 2001. Rig rates were too high because the rig fleet had shrunk after the drop in North American drilling that led to the historic low of 488 rigs working in April of 1998. By contrast, there were ~4500 rigs working in North America in 1981, and the rig rate has been stagnant at ~1100 recently. So, while they could, the drilling companies charged the exploration and production companies more than some could see paying. > > Was demand for energy high in 1998? Sure it was. That was during the days of the [dot.com](http://dot.com) boom and the high-rolling days of Enron and WorldCom and the like. While we later saw the mythical proportions of that economy, at the time investor dollars were hard to direct away from that market towards drilling. > > Seismic crew activity is a leading indicator in the oil and gas industry, and it’s not a pretty picture right now; although there are signs of recovery. There are probably about 20 seismic crews operating in North America right now. Once again, by contrast, there were ~750 working in 1981 and ~100 in 1994. Guess what? Exploration companies are finding that new seismic data acquisition costs can be rather high. Too high to do some things, in fact. > > While OPEC does attempt to influence prices, and their effect is mostly at the margins, they have gone both ways historically. That is to say that they have both attempted to raise the price as well as lower the price. Almost everybody in the energy business understands that if runaway prices get too high, it stifles economic activity, and that is ultimately good for no one. But all OPEC can do is beat around the edges. > > To think that anyone controls the price of oil and gas is to wholly misunderstand the energy market. > > And to think that supply and demand are not an integral part of that market is equally misguided. > > I’ve often thought that the above described misconceptions stem from both a failure to grasp some economic fundamentals as well as the apparently widely held perception that the energy business is some kind of monolithic entity with uniform goals that deliver common rewards. It’s not. It’s like any other business with thousands of competing interests. The present U.S. working rig count is 1162, and the rig fleet is working at near capacity. I believe there’s actually a couple less seismic crews than there were in February. The world’s tanker fleet is busy, and there’s pressure on that as the single hulled boats will not be able to enter U.S. ports as of 2010. Iraqi oil will perhaps ease things somewhat as 2005 approaches, but the U.S., with its own growing demand, will be competing with other markets whose demand has historically been relatively low but where their industrial revolution is now underway. And from just last month: > [@](#): > > Since I don’t feel like writing a history book tonight, I’ll only go back a few years - to the industry crash of 1999. When energy prices tumbled then, investment dollars became extremely hard to find and activity dropped to record lows. While the market recovered to a degree, terrible damage was done to infrastructure. The seismic companies were largely wiped out and drilling rig numbers shrank. > > When prices recovered to a degree that allowed prudent asset managers to delve once again into energy (in 2000), a real concern was rig availability. While there were a ~1600 rigs reported available, we never could muster more than ~1300. The rest just didn’t really exist as viable units. We could top lease a competitor when their fuse ran down to four months because we knew thay couldn’t get a rig in that window. > > Our rig fleet is now working at near capacity, hovering around 1100 working for most of the past year. Seismic crew activity is a leading indicator of future drilling, and there’s a worrisome picture on that front. AFAICT, there are only ~18 seismic crews active in N. America at this time. > . > . > . > Now we’re seeing a market where the economy is expanding and the energy industry is struggling to catch up. Hence, price increases as demand starts to outpace supply. The subject _does_ seem to come up from time to time. ---
**Author:** ![Ringo](https://avatars.discourse-cdn.com/v4/letter/r/779978/32.png) [@Ringo](https://boards.straightdope.com/u/Ringo)\ **Post date:** [May 18, 2004, 4:47am UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/23 "2004-05-18T04:47:06Z")
It was an oversight to not identify myself as the source of those quotes from previous threads. ---
**Author:** ![ccwaterback](https://avatars.discourse-cdn.com/v4/letter/c/df705f/32.png) [@ccwaterback](https://boards.straightdope.com/u/ccwaterback)\ **Post date:** [May 18, 2004, 5:11am UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/24 "2004-05-18T05:11:47Z")
> [@biqu](#): > > The current shortage might be [short-lived](http://www.economist.com/agenda/displayStory.cfm?Story_id=2665178), so one would hope that gas prices fall when OPEC members raise their production levels. If motorists don’t see a corresponding drop in prices when they refuel their vehicles, then Big Oil becomes an attractive target for their complaints. It’s pretty simple really. If in the next few quarters Big Oil companies profits soar, case closed. ---
**Author:** ![Ringo](https://avatars.discourse-cdn.com/v4/letter/r/779978/32.png) [@Ringo](https://boards.straightdope.com/u/Ringo)\ **Post date:** [May 18, 2004, 5:41am UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/25 "2004-05-18T05:41:14Z")
> [@](#): > > It’s pretty simple really. If in the next few quarters Big Oil companies profits soar, case closed. I’ll agree that that statement is pretty simple. Oil companies are in business to make profits. Nobody controls the price of oil. Nobody controls the oil business. The whole industry is made up of many competing interests that attempt to survive the swings of that industry’s internal markets. I’m not sure what interpretation of [the article **biqu** linked](http://www.economist.com/agenda/displayStory.cfm?Story_id=2665178), with the synopsis: > [@](#): > > **Just three months after calling for OPEC’s oil-production quotas to be cut, Saudi Arabia is now calling for them to be raised. The U-turn may not be enough, however, to reverse the surging price of oil** caused him or her to describe the current supply situation as possibly short-lived. So, what case is closed? ---
**Author:** ![Declan](https://avatars.discourse-cdn.com/v4/letter/d/ecae2f/32.png) [@Declan](https://boards.straightdope.com/u/Declan)\ **Post date:** [May 18, 2004, 5:54am UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/26 "2004-05-18T05:54:26Z")
> [@Jinx](#): > > I filled up on Friday, and gas was $1.85/gal for 87 Octane. By Sunday, if not sooner, it jumped to $1.95/gal as the low! C’mon, like our own (USA) refineries and local owner/operators aren’t raking us over the coals? Why isn’t more being done by our local officials to guard against price gouging? (At least, why don’t we HEAR about mroe being done?) > > Also, you cannot tell me within a stretch, the owner/operators are not price fixing? How magically NOW are all their prices are exactly the same??? > > - Jinx :mad: There is the possibility that they are spiking the price now , so they can lower it by memorial day. As for the price gouging , no one can really be expected to believe the oil corparations that they are not fixing the price to maximise their pofits , but they are doing so in a manner that claims to be competitive. I live in a small town thats just 50 miles north of Toronto and work in another small town , thats maybe 20 miles from Barrie. If filled up the car at 84.3 cents a liter , or in real dollars , 30 bucks to go from just under half a tank , to full. Down the street , the price of gas was 93.5 cents a litre ,and entering barrie , one of the local stations prices was 79.5. So looking at this , big oil can claim that province wide ,the price of gas is different enough that there is no fixing. Declan ---
**Author:** ![Ringo](https://avatars.discourse-cdn.com/v4/letter/r/779978/32.png) [@Ringo](https://boards.straightdope.com/u/Ringo)\ **Post date:** [May 18, 2004, 6:10am UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/27 "2004-05-18T06:10:17Z")
I’m just not buying the argument that if prices are similar at different stations (Surprise! Surprise!) there must be price fixing, _and_ if they’re different in different places there must be price fixing. ---
**Author:** ![Voluble](https://avatars.discourse-cdn.com/v4/letter/v/4af34b/32.png) [@Voluble](https://boards.straightdope.com/u/Voluble)\ **Post date:** [May 18, 2004, 6:26am UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/28 "2004-05-18T06:26:31Z")
Since they have started freeing up their markets their economy is growing by leaps and bounds. I saw one analyst who attributed $0.20 of the rise to increased demand from China and other fast growing economies that formerly had no use for large amounts of oil because their economies were stagnant. Another $0.20 was attributed to having to re-tool refineries to meet more stringent clean air standards. Additionally, summer is the driving season and gasoline prices always go up. You also have to consider that gas has to be priced at a level that will allow a refinery or station to buy its next tank or barrel. It does you no good to make a penny profit by selling $1.20 gas at a $1.21 if you are going to have to pay $1.30 to replace it. You would soon be out of business. This is a risk premium and it is probably pretty high right now. You should expect industry profits to be up because volume is at an all time high. They may still only be making a few cents a gallon but they are selling more gallons. Finally, the only thing the government can do to lower prices is get out of the way. After the last Gulf War they stepped in and raised gas taxes since everyone was used to paying more anyway (this is the only example of collusion you will find in this tale… politicians colluding to gouge the taxpayers). That is why the price never came back down. They could drop their taxes, they could loosen regulatory requirements or they could allow drilling in ANWR etc… or they could allow us to build Nuclear Power plants. There is nothing else they can do that won’t be more detrimental than helpful. ---
**Author:** ![Voluble](https://avatars.discourse-cdn.com/v4/letter/v/4af34b/32.png) [@Voluble](https://boards.straightdope.com/u/Voluble)\ **Post date:** [May 18, 2004, 6:39am UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/29 "2004-05-18T06:39:28Z")
instead of waiting on profit figures. High profits are to be expected when demand is high. If you are making a penny a gallon and then sell two gallons instead of your usual one then your profits double…right? Plus when there is uncertaintly over supply and demand there is a risk premium involved as I referenced in another post. Thus your method for determining “gouging” is insufficient to the task. ---
**Author:** ![Ringo](https://avatars.discourse-cdn.com/v4/letter/r/779978/32.png) [@Ringo](https://boards.straightdope.com/u/Ringo)\ **Post date:** [May 18, 2004, 6:40am UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/30 "2004-05-18T06:40:25Z")
As far as the collusion goes, I can’t help but wonder: what’s the price of a 2 liter bottle of Coke at Kroger? At Safeway? At Fiesta? At AppleTree? ---
**Author:** ![Ringo](https://avatars.discourse-cdn.com/v4/letter/r/779978/32.png) [@Ringo](https://boards.straightdope.com/u/Ringo)\ **Post date:** [May 18, 2004, 6:42am UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/31 "2004-05-18T06:42:27Z")
Welcome to the Board, **Voluble**. Good points. ---
**Author:** ![devilsknew](https://avatars.discourse-cdn.com/v4/letter/d/4da419/32.png) [@devilsknew](https://boards.straightdope.com/u/devilsknew)\ **Post date:** [May 18, 2004, 11:34am UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/32 "2004-05-18T11:34:00Z")
> [@CurtC](#): > > Knowing the price your competitors are selling a product for is just good business. It’s not collusion at all. Collusion is when the price-setters get together and decide that they will all price at a certain point, and of course the agreement is that no one will violate the agreement and sell below that price. Labor unions are allowed to do this, businesses are not. Funny, I didn’t know labor unions sold goods to consumers? Seems like companies have always colluded to pay workers the least amount they could. Guess that’s why there’s minimum wage laws and unions, Thank God! ---
**Author:** ![biqu](https://avatars.discourse-cdn.com/v4/letter/b/7feea3/32.png) [@biqu](https://boards.straightdope.com/u/biqu)\ **Post date:** [May 18, 2004, 12:09pm UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/33 "2004-05-18T12:09:10Z")
> [@devilsknew](#): > > Funny, I didn’t know labor unions sold goods to consumers? Labor unions sell labor, and the “consumers” are the companies that hire members of labor unions. Collusion of labor unions occurs when workers go on strike and demand higher wages. > [@Ringo](#): > > I’m not sure what interpretation of the article biqu linked . . . caused him or her to describe the current supply situation as possibly short-lived. What I gathered from the article was that Saudi Arabia has pushed to raise production quotas just a few months after a decision to cut production quotas. If this effort goes through, and the OPEC nations do increase production, then the current supply situation will see some improvement, though perhaps not much. > [@](#): > > On Monday May 10th, Ali al-Naimi, Saudi Arabia’s energy minister, called on OPEC to raise quotas, by at least 1.5m bpd, at its next meeting on June 3rd. > > Of course, OPEC’s quotas do not mean quite what they say. Its members are already producing at least 2m bpd more than their quotas officially allow. Some doubt whether it could produce much more than this, even if it heeds Saudi Arabia’s exhortations. ---
**Author:** ![LuckySevens](https://avatars.discourse-cdn.com/v4/letter/l/ad7895/32.png) [@LuckySevens](https://boards.straightdope.com/u/LuckySevens)\ **Post date:** [May 18, 2004, 12:26pm UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/34 "2004-05-18T12:26:27Z")
by a hybrid car, and laugh at those who have to pay high prices. ---
**Author:** ![ftg](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ftg/32/2801_2.png) [@ftg](https://boards.straightdope.com/u/ftg)\ **Post date:** [May 18, 2004, 4:44pm UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/35 "2004-05-18T16:44:11Z")
First of all, the hype about hybrids is starting to [fall flat](http://www.investors.com/breakingnews.asp?journalid=21225877&brk=1). Toyota and Honda have really messed up this one. (But I see hybrid taxis in my area now, interesting.) Also, there is a 100% chance that gas prices will go _up_ just before Memorial Day. That’s been a given in the gas market for years. Most of the stuff quoted by **Ringo** was pretty weak when it was posted the first time. It’s still weak. Fact is, the Saudi’s can greatly influence the price of oil by their dominant position within OPEC. The consumers of oil can also affect oil prices by buying more or less, but there is no comparable consumer of oil to match the influence of the Saudis. It’s free market in the “Animal Farm” sense. Some marketers are freer than others. I.e., what they teach you in Business Econ 101 has no relation to the Real World. “Supply and demand” is just a meaningless 3 word phrase. It’s business jargon like “paradigm shift” and “thinking outside the box.” As to US reserves, refinery capacity, etc. We _don’t know the truth_. It’s just like California during their mythical energy crisis. We were told one thing, something else entirely was the truth. And since it’s the same industry… ---
**Author:** ![CurtC](https://avatars.discourse-cdn.com/v4/letter/c/ce73a5/32.png) [@CurtC](https://boards.straightdope.com/u/CurtC)\ **Post date:** [May 18, 2004, 8:49pm UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/36 "2004-05-18T20:49:33Z")
> [@Declan](#): > > As for the price gouging , no one can really be expected to believe the oil corparations that they are not fixing the price to maximise their pofits , but they are doing so in a manner that claims to be competitive. Of course the corportations are setting prices to maximise their profits. Is that gouging in your view? Every company on Earth does this. That’s why they exist. ---
**Author:** ![dantheman](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dantheman/32/9421_2.png) [@dantheman](https://boards.straightdope.com/u/dantheman)\ **Post date:** [May 18, 2004, 9:10pm UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/37 "2004-05-18T21:10:34Z")
> [@ftg](#): > > First of all, the hype about hybrids is starting to [fall flat](http://www.investors.com/breakingnews.asp?journalid=21225877&brk=1). Toyota and Honda have really messed up this one. (But I see hybrid taxis in my area now, interesting.) Not to hijack too far, but in the DC metro area drivers of hybrids get certain breaks, like being able to drive in an HOV lane even if there are no passengers. ---
**Author:** ![Ringo](https://avatars.discourse-cdn.com/v4/letter/r/779978/32.png) [@Ringo](https://boards.straightdope.com/u/Ringo)\ **Post date:** [May 19, 2004, 4:46am UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/38 "2004-05-19T04:46:37Z")
> [@ftg](#): > > Most of the stuff quoted by **Ringo** was pretty weak when it was posted the first time. It’s still weak. I don’t think so. The facts are simple. • The Saudis, while reigning over OPEC, have very little excess supply (~2MMBOPD) with which to attempt to maintain their meager position of market tugboat, and the rest of OPEC can’t muster much more at all; • Infrastructure has been hammerred in the last few years and rejuvenating supply _has_ not kept up with increasing ([sub]psssst[/sub] _worldwide_) demand; • Inventories are down, demand is up, activity is at a feverish pace for a capital starved theater and we get this: > [@](#): > > “Supply and demand” is just a meaningless 3 word phrase. That’s got to be one of the more absurd notions I’ve run across during this (_long_) fight against ignorance. ---
**Author:** ![ccwaterback](https://avatars.discourse-cdn.com/v4/letter/c/df705f/32.png) [@ccwaterback](https://boards.straightdope.com/u/ccwaterback)\ **Post date:** [May 19, 2004, 11:20am UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/39 "2004-05-19T11:20:55Z")
Isn’t it true gas prices ALWAYS go up in the summer during the busy vacation season? “Stick it to them when the need it most”, is somewhat of a travel industry mantra. ---
**Author:** ![AWB](https://avatars.discourse-cdn.com/v4/letter/a/bb73d2/32.png) [@AWB](https://boards.straightdope.com/u/AWB)\ **Post date:** [May 19, 2004, 11:44am UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/40 "2004-05-19T11:44:02Z")
> [@McDeath\_the\_Mad](#): > > $0.11 a gallon, big deal. Try $0.12 a liter! That’s how much gas went-up in my town last week. That’s ~$0.48 a gallon! > > And this is Canada, where we produce a sh!t load of oil! That’s what you get for using Metric! :D:D [Previous page](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564.md?page=1) [Next page](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564.md?page=3)