Tuesday, October 14, 2008

Okay... So I Guess I Don't Get It...

Gasoline prices are still very high! Though Americans are glad to see prices inching down towards $3.00/gallon-- and sometimes less-- I don't understand why they're still above $2.00. Here's my thinking:
  • The gas companies say they price their gasoline based on the cost to replace inventory. That's a reasonable accounting method (lifo, or last in first out), but it needs to be consistently applied.
  • Now that oil is below $80/barrel-- less than half it's all time high from just months ago, why haven't they adjusted the price of gasoline down by the cost to replace inventory? It's as though they are using another accounting method-- fifo (first in first out)-- which is just plain wrong.
They've always got the same old excuses about the cost of exploration, etc; but those costs were built in before the cost per barrel skyrocketed, right? Has the cost for exploration increased significantly in recent months? I doubt it. But once again, they've gotten the American people complacent about a methodology that raises their revenues beyond reason. And what does Congress always do? They investigate, which generates income from lobbyists, then declare no wrongdoing found.

I'm ready for a change... are you?


Peter Schott said...

Agreed to a point, but I think the main reason for the insanely high price was the people looking at oil and seeing that it was "running out". I really hope that someone doesn't decide that we need to start instituting any sort of windfall tax or profiteering tax because we'll go back to lines for gas. Supply & demand. If we want real change here, we need not only alternative sources, but more refineries and less foreign oil. (Especially more refineries, like not in the Gulf of Mexico.)

Not defending the oil companies, but I don't think this will be solved with any sort of punitive tax or fine. The tax money would be wasted. The cost for any fine would just be passed down to us.

Best way to reduce the price is to reduce demand and/or increase supply. More fuel efficient cars, more oil exploration within our borders, and always looking for a good source of alternative energy. (And less government involvement - every time our leaders in Congress said there would be no US exploration over the summer the price of oil shot up.)

Nick Nicholaou said...

Well said, Peter. And we the public should not feel good about $2.00+ gas prices; we should be outraged they are not falling as fast as the cost of a barrel of oil.