Gasoline Price Gouging

Dennis Putnam dap1 at BELLSOUTH.NET
Thu Sep 1 13:51:59 MDT 2005


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At 09:43 PM 8/31/2005, you wrote:
>Folks:
>
>There is reason to believe that gouging is already taking place.
>Jim Quinn had a caller on his show a couple of days ago who said
>that the fuel at your local filling station was negotiated for six
>months to a year ago. The spot price of crude today is for fuel to
>be delivered next February. Yet, with every daily uptick of the
>futures market, local retail fuel dealers immediately add on to
>their retail price. It's time to find out *WHY*!
>
>John Q.

Because the negotiated price is not a fixed total. It is a flat rate above 
a base cost. In other words a station may negotiate a price of $.10 above 
base. If the base at that time is $1.40 then the station pays $1.50. Should 
the base increase (which is what is happening now) to $2.60 then the 
station pays $2.70. Independents generally just pay the spot rate which is 
a true supply/demand measure. However, they may buy large quantities and 
either store it themselves (Pilot or QT for example) or pay the wholesaler 
to store it for them which is how they are able to compete.

Note that Colonial Pipeline (supplier to most of the NE) is now back to 50% 
capacity and expects to be at full capacity over the weekend. The real 
problem is that enviro-wackos have stopped any new refining capacity for 
more then 3 decades while the economy continued to grow. Now that some 
refineries are off-line it won't matter how much oil is pumped into the 
front end (releasing strategic oil reserves), only a limited amount can 
come out the other. If the Democrats had not succeeded in killing the ANWAR 
bill in 1995 we would already be pumping 1M barrels per day extra and 
refining capacity would have increased as well.

Another piece of information that will endear OPEC to you. It is costing 
them $4 per barrel to deliver oil to the market. They are making $66 per 
barrel profit. That is 1650.0%.

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