If I have 100 shares of XYZ, listed on the NY Stock Exchange at $10 per share, I can sell it at any time and the price is posted there for anyone to see. I'm free to sell it to my dumb brother-in-law for more, but even he's smart enough to check the NYSE listed price & won't pay me more than list.
If there are lots of people who think XYZ is a great company & their hot new widget will make buckets of money, then some of them will bid $11. If I sell for that, the posted price goes up to $11. On the other hand if there's a lot of people who think nobody will want the new widgets, somebody might bid $9. If I sell for that, then $9 becomes the price. That's not collusion by XYZ nor the NYSE, it's just the way a market works.
All around the world, there are oil traders who buy & sell crude in the same way. There is a commodity price posted on various markets that traders can see. They're free to offer different prices. If they think Gulf oil platforms & pipelines will be out of production for longer than estimated, or that Iraqi oil will never get back to pre-war production levels, or any of dozens of events will occur that reduce supply, then they'll bid more for oil. If they think things will get better, they bid less. And that's how "spot" prices change.
Major oil companies are integrated, meaning they explore for oil, produce & sell it to refineries, refine it and sell it to us. They make money at each stage, & can choose to charge their refining division any price they want for their own oil. That way, they can shift profits to whichever division of the business has the best tax break.
Meanwhile, a particular oil field is often owned by several companies. Exxon, Chevron and Marathon might all have a stake in a particular field, and the country where the field is discovered retains a share, often a controlling share. The national company often has a different agenda than the partner oil companies. Each partner may have different interests & outlook on future price, which makes it hard for any particular company to control prices.
Another complication is that there are some companies that only refine & others that only sell retail. There are small companies that only sell crude. They might agree to a longer term contract for a price that is different from the "market". A buyer who thinks it's going to be a cold winter might offer a bit more for a guaranteed supply; a seller might take a lower price to guarantee sales in case the winter is warmer than predicted.
There are a number of ways for the big players to game the system. In that regard the oil business is no different from the real estate business. But meanwhile, world demand keeps going up, Americans keep driving, the Chinese and Indians want to drive more, and nobody knows what the crazies in the Middle East will do to supply. Collusion keeps oil/gasoline prices high? I doubt it. And besides, the longer the price stays high, the sooner we'll see the Hummers sitting on used car lots unsold. The collusion that outrages me is the collusion that lets CEOs rob their companies by getting 400 times the pay of their average worker, whether it's Exxon, HP or Microsoft.
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Comments: 10
Comparing gas and real estate prices is invalid. Demand for gas is pretty inelastic; that is, people have little choice but to pay and bear the costs. Real estate is relatively elastic; people may want to live in a certain locale or area but will seek out other venues should the price be too dear.
It is difficult to prove collusion but there exist many smoking guns. First, rising gas prices are largely driven by a lack of refining capacity. Why, in a competitive industry, would no company not be adding to refining capacity? Second, why are oil company profits soaring? Third, why won't the oil companies even admit to meeting with Cheney as part of his "Energy Tak Force?"
Refining capacity in the US has actually increased over the past 10 years as refineries have expanded. That's actually more cost effective than building a new grassroots refinery. And there are plenty of refineries abroad that export gasoline. Rising gas prices simply are not driven by lack of refining capacity.
I did not mean to conflate real estate prices with gasoline prices. Instead, I expressed an opinion that greed exists across the economy.
Choices in real estate often contribute to oil consumption, too. Buy a house far from work, use more gass commuting,
I'd dispute this.
What is happening WRT refining capacity is that's being concentrated as larger refiners squeeze out smaller ones.
GG, you're getting some of the finest thinking available. For free. Untinged by the educational system of the US South or libertarian pretensions.
Count your blessings.
Yes, to a large extent, people have little choice but to bear the costs. Public transporation, as you note, doesn't exactly abound for most Americans. That's reality.
But if what they are doing is legal, then I must say that they (the oil companies) do not have any patriotic duty to provide cheap gas so people can drive ridiculously wasteful vehicles. We are a very wasteful society, energy-wise. Europeans, who have just as high a living standard, use about half as much energy per capita as we do. The price of gasoline has been much lower here than most of the rest of the world. We're finally catching up, and if the higher prices slow down consumption, which causes acid rain which is killing the boreal forests in Canada and in northern Europe, and emission of greenhouse gases, contributing to global warming, I say that's good.
If you would dispute my assertion that refining capacity has increased, let's hear it. If you want to argue that the SPARE capacity has not increased, then you have a point. But while low spare capacity may contribute to the current high prices, it in no way "drives" it. Low spare inventory capacity throughout the supply chain is far closer to driving price SWINGS than refining capacity. What we're seeing is a swing, that will somewhat reverse when the fear factor reduces. The overall trend, however, will be up for a long, long time.