Gasoline Price Gouging: The Real Issues Part I
On May 23rd, the House approved legislation intended to take a hard line on price gouging. Shortly thereafter, on May 30th, ConocoPhillips Chairman and CEO James Mulva appeared on The Today Show to address criticism of oil company profits and high gas prices. Mulva’s statements throughout the interview illustrate the need to ask one question: who’s price gouging? Of course, politicians tend to blame oil companies, and oil companies tend to blame the market and politicians. To be sure, it’s a complex issue. In the interview, Matt Lauer initially came on strong, saying “A year ago you did an interview and you were asked ‘What can keep the price of a gallon of gas under $3?’ and you said ‘To get below $3 for gasoline it will require a lower oil price. Oil represent 60% of the cost of gasoline.’ So in the last year, oil has gone down from $75 down to $65 and at the same time gas is up $ .35 cents a gallon. Why?” Declining crude prices and rising gasoline prices do seem like a complete contradiction. The public is understandably unhappy, and it’s easy to blame “greedy” oil companies. Here’s the problem, though: Consumers are getting “soundbite” answers to complicated issues. Most of what consumers hear about the price of fuel and oil company profits is likely to make them angry, but it doesn’t necessarily explain how and why these price increases are occurring. Out of the mouths of leaders from here to Russia: the era of cheap oil is over. As mentioned earlier, gas prices have increased despite lower fuel costs. Although gas prices do tend to follow the same direction as crude prices, it would be a mistake to oversimplify this into a synthetic “formula.” Many factors affect fuel prices. According to Mulva, refinery interruptions, decreased import volume and increased demand are behind today’s record prices. To be continued…Published Friday, June 1st, 2007 at 6:30 am and filed under Industry News.