Down with the evil Gas lords. (yes, i am brave enough to post another from myspace)

[Kaak]

Man, I hate it when foreigners refer to everyone from the US as yanks

[Kidlicious]

Originally posted by Spiffor

I was talking about the supposed rules of a market. In a theoretical market, the costs of raw materials don't have an immediate impact on the price of the final product, because the market price of said final product is dictated by supply and demand (supply and demand being the Econ 101 principles you enjoyed so much remembering to Kaak ).

Yet, in the gas industry, prices are not set that way. There doesn't seem to be particular competition among the suppliers to attract customers. Many Yanks are frowning because of the gas hikes, and many people are considering buying a fuel-efficient car (which is a good news actually), yet in the face of these tendencies that could reduce demand on the long run, no company is launching an aggressive price campaign, where it accepts to sacrifice some of its profit-per-unit in order to increase its market share (and thus in order to increase its total profits).

It seems the gas prices, instead are not being dictated by the rules of competition (supply and demand). Rather, they seem to be guided by a rule of thumb which says that the refiners are entitled to a "tithe" that largely depends on the price of the raw product.

There's a significant lag effect between gas prices and oil prices because of the market conditions of the refining industry. Look at Adam Smiths post on page 6.

[Arrian]

Zkribbler,

Really? Hrm. I did some rough calculations based on (IIRC) a ten-year period of ownership and estimates of what my non-hybrid civic would get per gallon (I think I used 32mpg) and what a hybrid would get (I think I used 45 mpg - which is lower than advertised b/c there are problems with the EPA testing vis-a-vis hybrids and because battery efficiency drops in the cold... I live up north). That's a difference of 13mpg. The hybrid costs a lot more, though, for two reasons:

a) the extra technology/components
b) they've only been around for a few years and so you're buying a fairly new car, even if you find a used one.

I bought a 2004 civic (used) for ~16 grand. The hybrid, IIRC, would've run me over 20, easy. That's a lot of ground to make up, even if you're getting 13mpg better...

I drive the civic about 12k miles/year. Times ten is 120000 miles total, which at 32mpg = 3750 gallons. At, say, $3/gallon (let's say that's the average price, adjusted in 2005 dollars), that's $11,250.

If we go up to 45mpg, it's 2666.67 gallons, which would cost $8000, a savings of $3,250... not enough to cover the initial price difference, nevermind that even if my money just sat in my ING account earning 4% that I'd make more with the money I saved up front...

I think it's gotta be significantly higher before the hybrids make sense from a strictly economic standpoint. There are other reasons, sure...

-Arrian

[KrazyHorse]

yet in the face of these tendencies that could reduce demand on the long run, no company is launching an aggressive price campaign, where it accepts to sacrifice some of its profit-per-unit in order to increase its market share (and thus in order to increase its total profits).

That's an indication that profit margins are small. If your profit on each gallon of gas is only 10 cents then cutting your prices by 7 cents doesn't make any sense. You would have to triple your business, while keeping other costs the same.

[Imran Siddiqui]

no company is launching an aggressive price campaign, where it accepts to sacrifice some of its profit-per-unit in order to increase its market share

Unless they are pricing it low enough to drive other gas stations out of business, they won't increase market share except in the short term (and not make much money to really offseat the price decrease), and when they raise their prices back up again (to try to take advantage of its greater market share), people will just go back to the other gas station across the street, giving it greater market share.

Local gas stations are a very, very competitive market, which is why the prices tend to be similar.

[Kidlicious]

Refining margins usually increase when oil prices increase, but sales margins decrease. Refining margins can go through a period where they are low for a long time though.

[Flubber]

Originally posted by Kaak


lol...right, because they have to pay all of those royalties when they are drilling in international waters

Actually yes they do-- There is an International convention on seabed resources that provides rights to the coastal state but actually sets out a royalty rate that the coastal state must pay to an international body(I'm hazy on the details sice I haven't reviewed it in a while). The convention has been signed by some countries and not by others. But Canada has issued exploration licences outside the 200 mile EEZ (I was the guy that issued them BTW) and all Canadian laws applied to those exploration operations. However there has been no production outside 200 miles so royalties has been a non-issue as of yet

Thanks for playing.

[KrazyHorse]

Unless they are pricing it low enough to drive other gas stations out of business

Illegal, also

Called predatory pricing. If one company has deeper pockets than the other company then they can drive them into the ground. Once the other company's gone the remaining company gets to charge whatever it wants. Ends up being bad for consumers.

[Flubber]

Originally posted by KrazyHorse


Who the **** drills more than 200 miles out from shore?

The 12 mile "International waters" limit doesn't mean that you get to not pay the bordering country. 200 miles is the generally-accepted "exclusive economic zone".

You don't know what the **** you're talking about.

http://www.answers.com/exclusive%20economic%20zone

Sorry Krazy but a consortium that included Petrocanada, Norsk Hydro and Encana drilled at in the Flemish Pass area that is just outside canada's 200 mile limit-- The drilling program was around 2002 or 2003 IIRC

[Kidlicious]

Originally posted by KrazyHorse

Unless they are pricing it low enough to drive other gas stations out of business

Illegal, also

Called predatory pricing. If one company has deeper pockets than the other company then they can drive them into the ground. Once the other company's gone the remaining company gets to charge whatever it wants. Ends up being bad for consumers.

They usually don't have enough pumps to do that sort of thing.

[Wezil]

Originally posted by Flubber
But Canada has issued exploration licences outside the 200 mile EEZ (I was the guy that issued them BTW) and all Canadian laws applied to those exploration operations.

So that's why I haven't received mine yet!!

Is it in the mail?

[Flubber]

Originally posted by KrazyHorse
Arguing oil with any Canadian nowadays is probably a bad idea. We've all become instant experts over the last couple of years...

For me it was 1998-- I have been working in either a petroleum regulator or for oil companies since then

[JohnT]

Originally posted by KrazyHorse

Unless they are pricing it low enough to drive other gas stations out of business

Illegal, also

Called predatory pricing. If one company has deeper pockets than the other company then they can drive them into the ground. Once the other company's gone the remaining company gets to charge whatever it wants. Ends up being bad for consumers.

Not necessarily (the illegal part). If neither company is in a market-leading position, or if the market is too small, "predatory pricing" laws aren't enforced all that often. For example, the local Dojos (martial art school) here in Knoxville are engaged in a vicious price war which will drive out some of them. Nobody is going to concern themselves with this, however, even though they are doing just what you described.

[Imran Siddiqui]

Originally posted by KrazyHorse

Unless they are pricing it low enough to drive other gas stations out of business

Illegal, also

Called predatory pricing. If one company has deeper pockets than the other company then they can drive them into the ground. Once the other company's gone the remaining company gets to charge whatever it wants. Ends up being bad for consumers.

True... but, the only way that 'increasing market share', as Spiffor asked why don't gas companies do, would work in the long run.

[Flubber]

Originally posted by Wezil


So that's why I haven't received mine yet!!

Is it in the mail?

Did you bid? -- They hold open calls for bids-- minimum bid is a 1 million work expenditure (and you must post security for the obligation)