Gas Price

I very willingly admit I don't know much about a lot of things. And a lot of things confuse me. Lately I am perplexed by the constantly rising gas prices.

Sometimes I listen to Rush Limbaugh on WBAP-AM, out of Dallas, because that is the only station my cheapo headphone radio will pick up. Rush Limbaugh gets quite riled when people blame the oil companies for the rising prices. Yesterday he went on and on and on along the line of what would we do if the nice oil companies didn't supply us with gas.

I took an economics class, maybe two, in college. I did not get good grades in those classes. I did learn, though, that the price of a commodity is determined by supply and demand. If you have a high supply and low demand, the price is low. Low supply and high demand, the price is high.

I get it that China and India, with their supposedly booming economies, are sucking up a lot more of the world's oil than they did a few years ago. I believe the supply of oil being pumped has increased. Has the demand jumped by an amount that explains the price increase? How would I know? But it seems unlikely.

Rush Limbaugh thinks the oil companies deserve every penny of their multi-billion dollar profits, as do their CEO's deserve their huge salaries and bonuses. This from a man who makes over $30 million a year yapping on the radio for 3 hours a day, 5 days a week, with a lot of time off. Among the many things I don't get, is if demand is outstripping supply and forcing the price to rise, how is it that the oil companies, like EXXON, report quarterly profits in record breaking amounts? Isn't that sort of capitalism run amok?

The airlines are struggling to make a profit. For some reason they can't increase their fares hugely and suddenly have quarterly multi-billion dollar profits. But, for some reason the oil companies can increase the price of their product and get away with having huge profits. The airlines need money to invest in new planes and keep their existing stock in good shape. But they struggle along, while the oil companies make record breaking profits.

Correct me if I'm wrong, but aren't the oil companies generating enough money to cover their operations, and it is the excess cash flow that is being accounted for as a profit? So, EXXON is charging Joe Driver 4 bucks for a gallon of gas. Of that, part goes to pay EXXON's cost of operation, including acquiring the oil, part goes to taxes. The rest is profit.

Doesn't that sort of indicate they've been charging a tad too much for gas and the over charging is showing up as record breaking profits?

Now, Rush Limbaugh will say that these profits are what the oil companies use to hunt for new oil, drill it, refine it and bring it to market. Well, if they are spending money on doing so, how are they reaping such huge profits? Like, in the last quarter if EXXON was plowing $8 billion into some new refineries, where are the new refineries? Isn't a profit, just that? A profit. It's not investement capital, is it? Or are they using these huge profits for something good other than plumping up stockholder's pockets? If so, why don't they let us know? Because these record breaking profits combined with record breaking prices are making people cranky.

Another thing I really don't get is how do the gas stations decide when to raise the price? In my zone there is a QT, a Chevron, a Shell, a Conoco and several other gas stations. Two days ago the QT was $3.85 a gallon, yesterday, when I bought a gallon, it was $3.89. Today I drove by QT and it is $3.95. Now, I know they did not get fresh gas trucked in 3 days in a row. Usually the Chevron is the most expensive in my zone. Today it was $3.92, making it cheaper than QT. By tomorrow I'm guessing Chevron will be back being the most expensive.

How does this work? This constant changing of the price at all the random gas stations. Do they get a call from someone telling them to up it a nickel? QT sells a lot of gas. There is a small independent station across from them. When QT goes up, the other station goes up. Why? Did the supply change? Did the demand change?

I just as well try and understand nuclear fission, or is it fusion, than try and understand how the gas pricing system works.