# Oil companies and cost of fuel to public **URL:** \ **Category:** Great Debates\ **Created:** [August 10, 2005, 6:24am UTC](https://boards.straightdope.com/t/oil-companies-and-cost-of-fuel-to-public/316413 "2005-08-10T06:24:06Z")\ **Posts on this page:** 16\ **Page:** 2
**Author:** ![rjung](https://avatars.discourse-cdn.com/v4/letter/r/45deac/32.png) [@rjung](https://boards.straightdope.com/u/rjung)\ **Post date:** [August 10, 2005, 7:05pm UTC](https://boards.straightdope.com/t/oil-companies-and-cost-of-fuel-to-public/316413/21 "2005-08-10T19:05:08Z")
If we’re going to compare gasoline prices in the US vs. Europe, shouldn’t we also account for related factors such as differences in vehicle sizes, fuel economy, and mass transit (or lack thereof)? ---
**Author:** ![Renob](https://avatars.discourse-cdn.com/v4/letter/r/8c91f0/32.png) [@Renob](https://boards.straightdope.com/u/Renob)\ **Post date:** [August 10, 2005, 7:15pm UTC](https://boards.straightdope.com/t/oil-companies-and-cost-of-fuel-to-public/316413/22 "2005-08-10T19:15:13Z")
> [@BobLibDem](#): > > So they could conspire to keep supply down and I suspect they do. There is absolutely no evidence of this. The FTC even looked into at the end of the Clinton presidency and found absolutely nothing to back up Clinton’s charges that some sort of conspiracy was happening. > [@SuaSponte](#): > > Supply/demand is all about competing for a scarce resource. But if there is, currently at least, sufficient amounts of the resource, why does the price go up? This makes no sense. Of course oil is a “scarce” resource, just like everything else. All “scarce” means is that there is a finite quantity of it and people are competing over who gets to use that finite resource. If it weren’t scarce, there would be no way to sell it. It would be like selling air. Everything that we sell is “scarce.” Prices arise as a way to most efficiently allocate it. Because there is a finite quantity that means that when demand rises for that finite quantity, prices rise. ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [August 10, 2005, 7:17pm UTC](https://boards.straightdope.com/t/oil-companies-and-cost-of-fuel-to-public/316413/23 "2005-08-10T19:17:00Z")
> [@rjung](#): > > If we’re going to compare gasoline prices in the US vs. Europe, shouldn’t we also account for related factors such as differences in vehicle sizes, fuel economy, and mass transit (or lack thereof)? You’d also need to talk about the difference in tax philosophies, population densities/distribution and perhaps the price of tea in China. > [@NurseCarmen](#): > > The oil companies do have a little say over price, considering they are making record profits, and have no inkling to adjust their margins. Do the words ‘what the market will bear’ mean anything to you? In a competetive market companies are going to charge the least they can to undercut competetors while also trying to maximize their profits. If, say, TEXACO or BP COULD lower the pump prices significantly while still maintaining profits you can bet they would. Why? Because they would get a bunch more customers. Example: Here in New Mexico the indian pueblos can sell gas with essentially no tax on it…for about .10 less a gallon than stations not on the rez. Myself, I'll drive out of my way to hit the one on Tramway...and there is always a long line there of other folks who feel exactly the same way. And thats to save 10 cents a gallon. I'd probably jump through hoops to save, say, .15/gallon…and I wouldn’t be jumping by myself. -XT ---
**Author:** ![BobLibDem](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/boblibdem/32/3149_2.png) [@BobLibDem](https://boards.straightdope.com/u/BobLibDem)\ **Post date:** [August 10, 2005, 7:52pm UTC](https://boards.straightdope.com/t/oil-companies-and-cost-of-fuel-to-public/316413/24 "2005-08-10T19:52:12Z")
> [@John Mace](#): > > The incentive to cheat is too great. Unless you have some evidence, you’re just blowing smoke. I don’t and I am. But sometimes if you blow smoke there really is a fire. ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [August 10, 2005, 7:55pm UTC](https://boards.straightdope.com/t/oil-companies-and-cost-of-fuel-to-public/316413/25 "2005-08-10T19:55:41Z")
> [@BobLibDem](#): > > I don’t and I am. But sometimes if you blow smoke there really is a fire. /em Tosses water on Bob There, that should fix it. 😛 -XT ---
**Author:** ![asterion](https://avatars.discourse-cdn.com/v4/letter/a/4da419/32.png) [@asterion](https://boards.straightdope.com/u/asterion)\ **Post date:** [August 10, 2005, 8:23pm UTC](https://boards.straightdope.com/t/oil-companies-and-cost-of-fuel-to-public/316413/26 "2005-08-10T20:23:49Z")
> [@xtisme](#): > > Do the words ‘what the market will bear’ mean anything to you? In a competetive market companies are going to charge the least they can to undercut competetors while also trying to maximize their profits. If, say, TEXACO or BP COULD lower the pump prices significantly while still maintaining profits you can bet they would. Why? Because they would get a bunch more customers. Example: Here in New Mexico the indian pueblos can sell gas with essentially no tax on it…for about .10 less a gallon than stations not on the rez. Myself, I'll drive out of my way to hit the one on Tramway...and there is always a long line there of other folks who feel exactly the same way. And thats to save 10 cents a gallon. I'd probably jump through hoops to save, say, .15/gallon…and I wouldn’t be jumping by myself. > > -XT Why drive all the way out to Tramway and Rainbow? If our point of comparision is the local Philips 66 or Chevron, I bet I can save just as much money by gassing up at Costco or Sam’s. The only time I ever gas up at one of the pueblos is when I’m low on gas and already out there (going to/coming from the casino.) Now there’s a question. How do places like Costco and Sam’s manage to undersell by about the same amount as you’d see if you drove all the way to Sandia to get the low-tax gas? ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [August 10, 2005, 8:28pm UTC](https://boards.straightdope.com/t/oil-companies-and-cost-of-fuel-to-public/316413/27 "2005-08-10T20:28:56Z")
> [@BobLibDem](#): > > I don’t and I am. But sometimes if you blow smoke there really is a fire. At least you’re honest! 🙂 Well, there hasn’t been a new refinery built in the US in 30 years. Add to that the closing of many existing refineries, and things don’t look all that bright. However, the closed refineries tended to be the smaller or less efficient ones, and those remaining have increased their efficiency and have operated at a higher capacity. The US imports, IIRC, about 5-6% of its gasoline (ie, refined petroleum) and could conceivably import more if more were available. So, there would have to be an international conspiracy, not just a conspiracy of domestic suppliers. Add to that the fact that oil companies (the Exxons and Shells of the world) don’t have a lock on building a refinery-- you or I could build one if we could raise the capital-- and a conspiracy just doesn’t make much sense. Bit if there’s evidence of a comspiracy, I’m all ears. I think we can assume, though, that environmental regulations and NIMYism is a factor, although it’s hard to say how much of a factor. Considering that Cato doesn’t think it’s the primary cause, it’s hard to imagine that it is. [High Pump-Price Fairy Tales](http://www.cato.org/pub_display.php?pub_id=3792): > [@](#): > > So what’s driving these high gasoline prices, which now average $2.22 across the country? Conservatives think it’s largely a function of the chickens coming home to roost. In short, bureaucratic red tape, anti-growth environmental extremists, and “not-in-my-back-yard” community activists have long prevented new oil refineries from coming online. This in turn has starved the market of the gasoline and – viola! – record prices are the logical result. > > It’s a convenient story line for the Right. Unfortunately, the narrative is wrong. They seem to think that the capacity problem is: > [@](#): > > Because profit margins in the refining business have traditionally been rather meager. The gasoline refining market is about as close to the model of “perfect competition” as you’re going to find outside of an economics textbook. Rents are competed away and little profit is left for producers, especially when compared to the profits available from investment in oil production. > > Conservatives believe that environmental regulations have a lot to do with those low profits. They’re wrong. A large oil refinery costs $4 billion to $6 billion to build. The installation of “best available control technology” is a very small part of that figure. But they don’t offer a solution to the problem… ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [August 10, 2005, 8:37pm UTC](https://boards.straightdope.com/t/oil-companies-and-cost-of-fuel-to-public/316413/28 "2005-08-10T20:37:22Z")
> [@asterion](#): > > Why drive all the way out to Tramway and Rainbow? If our point of comparision is the local Philips 66 or Chevron, I bet I can save just as much money by gassing up at Costco or Sam’s. The only time I ever gas up at one of the pueblos is when I’m low on gas and already out there (going to/coming from the casino.) Ah damn…I knew someone would be able to figure out what city I lived in if I tossed that out. Ah well. Why the station on Tramway? Well, my office is on Tramway for one thing…and that new station near the new casino is the cheapest I’ve seen gas…pretty consistantly. Why not Costco or Sam’s? Well, to be honest I never shop at either of those places and didn’t even know they sold gas. :smack: I certainly didn’t know it was cheaper still. I’ll definitely have to look into that. > [@asterion](#): > > Now there’s a question. How do places like Costco and Sam’s manage to undersell by about the same amount as you’d see if you drove all the way to Sandia to get the low-tax gas? Not sure why. Could be the quality is not as good I suppose. If they are paying the same taxes as other non-rez stations then the only other thing I could think of is that they are cutting their prices to the bone, selling gas for little profit in the hopes you’ll come in and buy other stuff inside (since you made a special trip there to get gas maybe you’ll buy some lawn furniture or something). As I said, I never shop at either of those places so wasn’t even aware they sold gas at all…even though there is a Sam’s club near Cottonwood mall if IIRC which isn’t too far from where I live. -XT ---
**Author:** ![carnivorousplant](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/carnivorousplant/32/3563_2.png) [@carnivorousplant](https://boards.straightdope.com/u/carnivorousplant)\ **Post date:** [August 10, 2005, 9:08pm UTC](https://boards.straightdope.com/t/oil-companies-and-cost-of-fuel-to-public/316413/29 "2005-08-10T21:08:53Z")
> [@asterion](#): > > Now there’s a question. How do places like Costco and Sam’s manage to undersell by about the same amount as you’d see if you drove all the way to Sandia to get the low-tax gas? Can they afford to buy a bazillion gallons from whoever has the lower price at the time when the other guys are under an obligation to buy from someone else? ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [August 11, 2005, 12:12am UTC](https://boards.straightdope.com/t/oil-companies-and-cost-of-fuel-to-public/316413/30 "2005-08-11T00:12:44Z")
> [@rjung](#): > > If we’re going to compare gasoline prices in the US vs. Europe, shouldn’t we also account for related factors such as differences in vehicle sizes, fuel economy, and mass transit (or lack thereof)? I believe they charge a much higher tax over there. > [@SuaSponte](#): > > 'Course, **JM** , that’s a bit of a problem - demand is not outstripping supply. > > Supply/demand is all about competing for a scarce resource. But if there is, currently at least, sufficient amounts of the resource, why does the price go up? > > Sua “Scarce” in the economics sense means “finite”, not “shortages”. Prices are going up because there is not enough of a supply to meet the demand at a lower price. It’s not like there is a hard number which is the current demand and I hope I didn’t give you that impression. The crude market is about as close to the Econ 101 supply / demand graph as you are going to get. ---
**Author:** ![OliverTwistofLime](https://avatars.discourse-cdn.com/v4/letter/o/b487fb/32.png) [@OliverTwistofLime](https://boards.straightdope.com/u/OliverTwistofLime)\ **Post date:** [August 12, 2005, 1:41am UTC](https://boards.straightdope.com/t/oil-companies-and-cost-of-fuel-to-public/316413/31 "2005-08-12T01:41:14Z")
The figures I have is that China has increased its oil imports only 4% over what it purchased the year before. Our new energy bill does not make it desireable for oil companies to build more refineries. Our present refineries are at full capacity and this aids in great part in keeping the price of oil high. There is NO incentive for the oil companies to build more refineries and make gasoline more plentiful. ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [August 12, 2005, 3:18am UTC](https://boards.straightdope.com/t/oil-companies-and-cost-of-fuel-to-public/316413/32 "2005-08-12T03:18:09Z")
According to that logic, there is NO incentive for anyone to build any new factories to produce any new goods ever. And yet new factories are built. Why is that? ---
**Author:** ![OliverTwistofLime](https://avatars.discourse-cdn.com/v4/letter/o/b487fb/32.png) [@OliverTwistofLime](https://boards.straightdope.com/u/OliverTwistofLime)\ **Post date:** [August 12, 2005, 8:19am UTC](https://boards.straightdope.com/t/oil-companies-and-cost-of-fuel-to-public/316413/33 "2005-08-12T08:19:32Z")
> [@John Mace](#): > > According to that logic, there is NO incentive for anyone to build any new factories to produce any new goods ever. And yet new factories are built. Why is that? You are comparing apples with oranges…Oil companies produce one main commodity= fuel. Factories produce goods of all kinds. As long as the globe is thirsty for oil…And as long as there is no real worry about alternative fuels being serious competitors of oil companies, what is the need for the oil companies to produce more fuel…If too much refined product becomes available, down go the prices. ---
**Author:** ![BobLibDem](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/boblibdem/32/3149_2.png) [@BobLibDem](https://boards.straightdope.com/u/BobLibDem)\ **Post date:** [August 12, 2005, 2:02pm UTC](https://boards.straightdope.com/t/oil-companies-and-cost-of-fuel-to-public/316413/34 "2005-08-12T14:02:50Z")
> [@John Mace](#): > > According to that logic, there is NO incentive for anyone to build any new factories to produce any new goods ever. And yet new factories are built. Why is that? As you said earlier, there have been no new refineries built in the US in 30 years. If there is so much money to be made building refineries, why don’t they? I think part of the answer is that they are far too comfortable making the excessive profits that they do, whether or not the nation’s needs are met is unimportant. ---
**Author:** ![even\_sven](https://avatars.discourse-cdn.com/v4/letter/e/dfb087/32.png) [@even\_sven](https://boards.straightdope.com/u/even_sven)\ **Post date:** [August 12, 2005, 3:53pm UTC](https://boards.straightdope.com/t/oil-companies-and-cost-of-fuel-to-public/316413/35 "2005-08-12T15:53:08Z")
> [@enipla](#): > > Do you live in the US. Many, if not most of the country does not have decent public transportation. And much of the country just isn’t suited to it. This isn’t a law of nature or anything. The US could build a perfectly decent public transportation system, and with the way things are going, one day it will have to. The question is how long are we going to cling to an unsustainable way of life? ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [August 12, 2005, 4:28pm UTC](https://boards.straightdope.com/t/oil-companies-and-cost-of-fuel-to-public/316413/36 "2005-08-12T16:28:25Z")
> [@MadSam](#): > > You are comparing apples with oranges…Oil companies produce one main commodity= fuel. Factories produce goods of all kinds. As long as the globe is thirsty for oil…And as long as there is no real worry about alternative fuels being serious competitors of oil companies, what is the need for the oil companies to produce more fuel…If too much refined product becomes available, down go the prices. Yes, if supply goes up (without additional demand) prices usually go down. But that’s true of all businesses. And I don’t see the apples to oranges comparison. Each factory produces one type of product (or a range of products in a given product family). Oil companies are no different. Gasoline is just one product made from petroleum. But I’ll tell you what. If you see that the oil companies are conspiring to limit supply and keep prices artificially high, why not exploit that business opportunity yourself? Get some investors together, build a refinery, offer gasoline at slightly below the current price, and make yourself rich. What’s stopping you from doing this? Business opportunities like this don’t just hang out there for very long. There are plenty of smart, greedy people out there who would love to undercut the competition and make a fortune. The only way to prevent that from happening is to get the government on your side and somehow prevent competition from forming in the first place. Perhaps you should team up with [Glenn McGinnis](http://www.specialguests.com/guests/viewnews.cgi?id=EEEVyupEykQJGzkren&tmpl=default). He’s a 33 year oil industry veteran who is trying to build a new refinery in Arizona. > [@boblibdem](#): > > As you said earlier, there have been no new refineries built in the US in 30 years. If there is so much money to be made building refineries, why don’t they? I think part of the answer is that they are far too comfortable making the excessive profits that they do, whether or not the nation’s needs are met is unimportant. I’m sure that’s “part” of the problem. Part. If you read the above linked article, it does make the case that profit margins in the refinery business are not very good. But still, it’s a bit misleading to talk of “no new refineries” being built. What is the difference between these two scenarios: 1. A new refinery is built giving the us an increase of 2% in output capacity. 2. Existing refineries are made more efficient resulting in a 2% increase in capacity. #2 has been going on continuously. There’s also the problem that it’s very, very expensive to build a new refinery. At least $1B is needed. Still, I find that unconvincing. It cost much more than that to build a new chip plant, and yet new IC factories are announced all the time. I suspect that when you get to the bottom of it, it’s the comfluence of many factors that is limitting the developement of new refineries in the US: - complacent oil comapanies - a cyclical business and low margins that makes refining less attractive to investors. - Tough environmental regulations - NIMBYism But the market for refined petroluem products is a global one, and refineries outside the US can be used to supply the US market. Afterall, when was there a new factory built in the US for the manufacture of Television sets? Perhaps it’s just cheaper and easier to do it elsewhere. [Previous page](https://boards.straightdope.com/t/oil-companies-and-cost-of-fuel-to-public/316413.md?page=1)