Headed to Five Bucks a Gallon?

Increasing prices at the pump seem to be more of a self-fulfilling prophecy than a reflection of the marketplace.  When the media start doing stories saying there are predictions that gas will hit four bucks a gallon by Easter, and five bucks a gallon by this summer, voila!  It happens.

I’m convinced the free market has little, if anything, to do with this.

The “free market”, by the way, is a world market.  The U-S can do almost nothing to control the price of a barrel of oil; that’s done by the countries that produce the oil, a list on which the U-S is way down toward the bottom.  But anyone who’s observed the market can quickly point to many examples of domestic gas prices increasing while crude oil prices are decreasing.

Last week, when the price of gas rocketed up in Madison (and nowhere else in Wisconsin) the usual sources talked some ridiculous crap about a problem with a refinery in Washington state and Iran rattling sabers about the Strait of Hormuz.

I have nothing but a firm conviction to support my belief that oil companies jack up prices simply because they can; and they do it at a whim.

I had a relative (who passed away many years ago) who had more than a nodding acquaintance with the pricing strategies of major domestic breweries – back when big breweries like Anhueser-Busch were actually American companies – and he said back then one of the reasons it was so hard for local breweries to get a toe-hold was that if a local brewery started making a dent in sales of one of the major national brands, that brand would simply drop the case-price and up the advertising in that market, until their market share was recovered. 

This didn’t even nick the big brewery’s bottom line, because it would simply raise the case-price and drop the advertising budget in markets where there wasn’t a challenge.

I think this is what is operating, on a global level, with the oil companies.  Of course, where you buy your gas has more to do with where you are at the time you need it, than any sort of “brand loyalty” that may have existed in the past. 

The five largest private oil companies in the world – BP, Chevron, Conoco-Phillips, Exxon-Mobil, and Shell – are phenomenally profitable entities.  Over the past decade they have booked nearly a trillion dollars in profits.  Yet, here in the US, since the oil companies walk both sides of the street by giving huge donations to the campaign coffers of both political parties, they’re on track to get 46 billion dollars in federal subsidies in the next decade.  Disconnect?  You bet.

So stand by to pay a lot more for a gallon of gas in the next few months.  The gas companies will be hiking prices mainly because they can, and will pocket more windfall profits.

The solution isn’t more drilling and domestic exploration.  The solution is to develop transportation technologies that break the stranglehold the oil companies have.

Don’t hold your breath.