Price gouging: When are we going to make them stop?
The reader board at the convenience store told the story. The day before Hurricane Katrina made landfall, the price of a gallon of gasoline jumped a full dime. The next day, the price of a gallon of gasoline rose more than once in the same day, up three dimes more by the end of the day. On the third day, the price changed twice, up another nickel.Since then, the price of a gallon of gasoline had dropped only pennies. While the forecast for Hurricane Rita’s landfall in Gasoline Alley had the experts predicting another 50 cent surge in the gallon price, thankfully, the damage done by Rita to the Texas oil and gas infrastructure failed to live up to predictions. In retrospect, even the damage inflicted by Katrina on the Gulf Coast oil and gas industry was quite modest; at its worst, only 4 percent of the national capacity for gasoline production was interrupted, about the amount of gasoline that the Gulf Coast would have used had Katrina not occurred.So if the interruption in supply caused by the two hurricanes was small, and matched by a drop in demand, why was there a 20 percent surge in the price of a gallon of gasoline, and a forecast for no drop in the price in the near future?Officially, the President of the United States has a “zero tolerance” policy toward price gouging. Rhetorically, politicians have historically made political hay railing against big oil.
Legally, however, there is no national law against price gouging, and only 23 state laws, typically passed in the heyday of populism at the turn of the 19th century. However, centuries old state laws cannot compete with the resources and reach of the world’s largest corporations in terms of sales and earnings. The largest, ExxonMobil, for example, expects a quarterly profit alone near on $10 billion, so don’t expect any Elliot Spitzer wanna-bes taking them on.You are being gouged at the pump, no mistake about it. By no stretch of the imagination should a temporary 4 percent interruption in production produce a permanent 20 percent increase in price. As the price of gasoline rose hour by hour, the cost of producing the gas already at the pumps, en route to the pumps, or tucked away in tank farms did not go up one cent. The value did, certainly, based on speculation, but not the cost of production.Moreover, most consumers don’t realize that they get double pumped at the gas station, because of the way oil is typically extracted, and the gasoline refined and distributed.
ExxonMobil, for example, doesn’t buy oil from ChevronTexaco. ExxonMobil’s refining division buys oil from ExxonMobil’s oil production division, at a profit to the oil division and a cost to the refining division. Once the oil becomes gas, the refining division sells the gasoline to the stations, at a profit to the refining division. There’s no price competition for raw materials; instead of passing the savings on to the consumer of finding their own oil, the oil companies reap a wholesale profit in addition to the retail profit they set at the pump.And no competent oil company will lose money due to hurricane damage. Through insurance and reinsurance, companies will recover much of the cost of the repairs to infrastructure and, through business interruption coverage, a large portion of the revenue lost while production was shut down. The 50 cent price increase in a gallon of gas has no bearing, at all, to any increased cost. It’s all a gouge.What’s remarkable, though, is not that the oil companies are engaged in shameless profiteering at a time of national disaster and tragedy. What’s remarkable is that the political infrastructure doesn’t care. Oh, a few freshmen Congressmen are calling for hearings, and official reviews are under way by at least two federal agencies. But, with no law against price gouging, there can be no penalties.
Washington doesn’t care because, frankly, you don’t seem to care. When the price of gas went up 20 percent from June 2004 to June 2005, before hurricane season, American consumers didn’t buy less gasoline; they bought more! As a result of Katrina and Rita, the cost of driving a car just went up, on average, $400 a year, and the cost of anything delivered or moved, and that’s everything, went up by almost 10 percent, yet more people write to their Congressmen about the lost girl in Aruba than the price of gas.You’re being shamelessly gouged by companies that think very little of your strength of will and your desire to fight for what’s right. Are you going to let that happen?Marc Carlisle writes a Thursday column. He can be reached at email@example.com.
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