25 May 2007

economics of gas prices

http://www.cnn.com/2007/US/05/25/gasprice.protest.ap/index.html

I read this with some interest this morning. What I find is a couple of interesting lines which are apparently non-transferable intellectually.

"Somebody out there is making money at these prices, but not me,"

That's the gas station owner or operator. Gasoline is distinct from oil. It's a much more expensive product because its a refined object. But what is noteworthy here is that the idea of a profit margin is introduced. "because gas margins are razor thin" - Really. I had no idea that a margin was different than a net profit. The operating principle of gasoline sales in this country is that most stations operate at very close to a net loss on the sale of gasoline, recouping profits by selling large volumes of gas, lowering prices somewhat slowly/raising them immediately, and selling impulse items in the store. What is apparently not understood by the general public is that the overall profit margin of the entire oil industry is relatively low. There are however massive volumes, gigantic. The idea that the oil companies make billions of dollars on the sale of oil/gas does not bother me by itself. There are other things oil companies do which concern me, but how much they make does not. Price gouging, as I understand it, is monitored closely by the government already for oil and gas prices, so new legislation determined to 'end' it is little more than vote pandering (something which passed in the house prior to the weekend).

All this however does not help at all when I look at the price at the pump. I am no more pleased about it than anyone else. But I at least know I am partly to blame because I have need of a limited product. Less to blame than the fool driving the SUV at the pump next to mine, but still. Point the finger at where it belongs here. We need to stop needing to consume as much gasoline and oil and perhaps then price will diminish. Seizing oil corporate profits doesn't help us in the long term.

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