En attendant Bloomberg.

[Tyrone Slothrop]

Originally posted by Mmmm, Burger (C.J.)
Because there's competition. They no longer have to pay 20c to the government for every gallon sold. Taxes drive a wedge between price paid and revenue obtained. Oil cos. are producing all they can for revenue of market price less gas tax. So, presumably they're satisfied receiving that amount for their level of production. Put differently, if they could raise prices without a tax, they could raise prices with a tax. Yet they aren't, because of competition and consumer demand.

Let's just set aside imports of refined gas for these purposes, artificial as that is. Under that constraint, with refining capacity maxed out, the price for gas is established by the point at which consumers stop buying. If you reduce the producers' costs by 20c/gallon, there's no reason for them not to leave prices exactly where they are, since they're unable to produce more to capture more of the demand at a lower price.

Obviously, there must be some price at which imports of refined gas are material, but I have no idea what it is. I also suspect it depends on where in the country you are, given the limitations on moving the stuff around.

[Mmmm, Burger (C.J.)]

Originally posted by ltl/fb
The 20 or so companies selling refined gasoline. I don't think they have meetings where they plot to act as a single entity, but I think they do have a tendency to follow one another.

Except that they don't post prices where they can see what everyone is charging. They find it out because wholesalers don't purchase as much and they adjust.

BTW, federal excise tax I've learned is usually paid upon distribution at a terminal. State taxes are paid at the pump by the retailer.

[Mmmm, Burger (C.J.)]

Originally posted by Tyrone Slothrop
Let's just set aside imports of refined gas for these purposes, artificial as that is.

But that's you're problem. What you're positing isn't reality, it's the Soviet Union, where a level of supply is determined and adhered to regardless. You are correct that if supply is fixed at x barrels per day of gasoline, the sole determinant of price is where the demand curve crosses the fixed supply curve, and that the tax will simply raise consumer prices the amount of the tax. But the supply curve is not vertical, because oil companies can sell reserve gasoline and cut back production, especially in the short term. If their wholesale prices increase 20c, then imports would come in, terminals would be drawn down, and production might temporarily be increased (believe it or not a refinery can run above 100% capacity for short periods). That will cause prices to fall somewhat, meaning the equilibrium is somewhere below the full amount of the tax.

[ltl/fb]

Originally posted by Mmmm, Burger (C.J.)
Except that they don't post prices where they can see what everyone is charging. They find it out because wholesalers don't purchase as much and they adjust.

BTW, federal excise tax I've learned is usually paid upon distribution at a terminal. State taxes are paid at the pump by the retailer.

Who owns the terminals?

How do they know when to raise prices?

[Mmmm, Burger (C.J.)]

Originally posted by ltl/fb
Who owns the terminals?

How do they know when to raise prices?

The oil cos. or independent wholesalers. It depends.

They know when to raise prices when they aren't selling their gasoline. ExxonMobil, for example, doesn't distribute only to ExxonMobil stations. They also sell gas to independent wholesalers, who then serve gas stations like "Gus's Gas" and "Gas4Less" and "CheapGas". Those wholesalers don't always supply Gus with ExxonMobil product. They shop around, so if Shell offers them a penny less, Exxon won't get the sale. When Exxon stops getting sales, or getting less, they cut their price.

And it's not like there's one price for gasoline. Each terminal will have a different price depending on its location and distance from the refinery. And then there are multiple grades of gasoline, not just regular/premium, but all the different formulations for environmental specs. Coordinating prices would take a huge effort of computerization, and even then the companies could cheat easily on each other with no way of knowing it was going on.

[Secret_Agent_Man]

Originally posted by Mmmm, Burger (C.J.)
But that's you're problem. What you're positing isn't reality . . .

Now THAT should be the New Board Motto (with or without the apostrophe typo.)

S_A_M

[Mmmm, Burger (C.J.)]

Originally posted by Secret_Agent_Man
(with or without the apostrophe typo.)

S_A_M

Oy. I'm using apostrophe's like they're going out of style.

[ltl/fb]

Originally posted by Mmmm, Burger (C.J.)
The oil cos. or independent wholesalers. It depends.

They know when to raise prices when they aren't selling their gasoline. ExxonMobil, for example, doesn't distribute only to ExxonMobil stations. They also sell gas to independent wholesalers, who then serve gas stations like "Gus's Gas" and "Gas4Less" and "CheapGas". Those wholesalers don't always supply Gus with ExxonMobil product. They shop around, so if Shell offers them a penny less, Exxon won't get the sale. When Exxon stops getting sales, or getting less, they cut their price.

And it's not like there's one price for gasoline. Each terminal will have a different price depending on its location and distance from the refinery. And then there are multiple grades of gasoline, not just regular/premium, but all the different formulations for environmental specs. Coordinating prices would take a huge effort of computerization, and even then the companies could cheat easily on each other with no way of knowing it was going on.

No, when to RAISE prices. I understand how they know when to LOWER prices -- when people won't buy at the price they are offering.

[Hank Chinaski]

Originally posted by Mmmm, Burger (C.J.)
The oil cos. or independent wholesalers. It depends.

They know when to raise prices when they aren't selling their gasoline. ExxonMobil, for example, doesn't distribute only to ExxonMobil stations. They also sell gas to independent wholesalers, who then serve gas stations like "Gus's Gas" and "Gas4Less" and "CheapGas". Those wholesalers don't always supply Gus with ExxonMobil product. They shop around, so if Shell offers them a penny less, Exxon won't get the sale. When Exxon stops getting sales, or getting less, they cut their price.

And it's not like there's one price for gasoline. Each terminal will have a different price depending on its location and distance from the refinery. And then there are multiple grades of gasoline, not just regular/premium, but all the different formulations for environmental specs. Coordinating prices would take a huge effort of computerization, and even then the companies could cheat easily on each other with no way of knowing it was going on.

gas is between $3.30 to $3.80/gallon. Cutting it 20 cents is within that float. No one will notice. Maybe it gets him votes but it is not going to increase fuel consumption.

so let me ask this to change the subject: if you were starting a country how would you structure the fuel refining, distribution and pricing structures?

[Mmmm, Burger (C.J.)]

Originally posted by ltl/fb
No, when to RAISE prices. I understand how they know when to LOWER prices -- when people won't buy at the price they are offering.

Same mechanism. When they sell all their gasoline too easily. If a guy who usually buys 10k gallons/week now wants 20k gallons, and several people are like that, presumably you figure out there's upward pressure on prices.

[Mmmm, Burger (C.J.)]

Originally posted by Hank Chinaski
so let me ask this to change the subject: if you were starting a country how would you structure the fuel refining, distribution and pricing structures?

Like it is in the United States. Seriously.

[Tyrone Slothrop]

Originally posted by Mmmm, Burger (C.J.)
But that's you're problem. What you're positing isn't reality, it's the Soviet Union, where a level of supply is determined and adhered to regardless. You are correct that if supply is fixed at x barrels per day of gasoline, the sole determinant of price is where the demand curve crosses the fixed supply curve, and that the tax will simply raise consumer prices the amount of the tax. But the supply curve is not vertical, because oil companies can sell reserve gasoline and cut back production, especially in the short term. If their wholesale prices increase 20c, then imports would come in, terminals would be drawn down, and production might temporarily be increased (believe it or not a refinery can run above 100% capacity for short periods). That will cause prices to fall somewhat, meaning the equilibrium is somewhere below the full amount of the tax.

You said before that his economics are faulty, but now it sounds like you're taking issue with his facts, not his analysis.*

The supply curve might be vertical after a certain point -- i.e., producers need not operate to capacity, but once they do then prices go up until consumers are unwilling to pay. Also, it might well be the case that bringing gasoline in from foreign refiners is sufficiently constrained (by lack of tankers, e.g.) that it just doesn't have much effect. This is plausible to me, in that I thought what was driving high oil prices, more than anything else, was Chinese demand. At any rate, I don't know much about how this market works.

* If he oversimplified things in a brief blog post, I wouldn't be astonished.

[Mmmm, Burger (C.J.)]

Originally posted by Tyrone Slothrop
You said before that his economics are faulty, but now it sounds like you're taking issue with his facts, not his analysis.*

He said the price of gasoline is determined by demand. That's incomplete.

You can't disregard imports, since they're a source of marginal supply. As you well know, the marginal supplier determines the market clearing price.

[Spanky]

I can't make up my mind if I agree or disagree with him on this. Anyone have any strong feelings either way? (I am mainly talking about the Bear Sterns and Chrysler bailout).

The bad news is that the world is not going to end

By George Will

Some say the world will end in fire,
Some say in ice. ...

— Robert Frost


And some say it will end because of subprime mortgages. But for those who cultivate fears of catastrophes as excuses for expanding government supervision of other people's lives, the bad news is that the world is not going to end — not from global warming or economic cooling or anything else. Today's untethered Federal Reserve will, however, make the muddle-through interesting.


The late Sen. William Proxmire, a populist Democrat who represented Wisconsin for 32 years, wanted all members of Congress to write on their bathroom mirrors, so it is the first thing they read each day, this: "The Fed is a creature of Congress." Congress created the Federal Reserve pursuant to its constitutional power "to coin money" and "regulate the value thereof." Fortunately, Congress has left the Fed free to go about its business.


But suddenly the Fed is undergoing radical "mission creep." The description of the Fed as the "lender of last resort" is accurate without being informative. Lender to whom? For what purposes? Last resort before what? Did the bank "lend" $29 billion to Bear Stearns, or did it, in effect, buy some of the most problematic securities owned by Bear? If so, was this faux "loan" actually to J.P. Morgan Chase? The purpose of the money was to give Morgan an incentive to buy Bear — at a price so low that an incentive should have been superfluous.


In 1979, when the government undertook to rescue Chrysler, conservatives worried not that the bailout would fail but that it would work, thereby inflaming government's interventionist proclivities and lowering public resistance to future flights of Wall Street socialism. It "worked": Chrysler has survived to endure its current crisis. The fallacious argument in 1979 was that Chrysler was then "too big to be allowed to fail."


Today's argument is that Bear Stearns was so connected to the financial system in opaque ways that no one could guess the radiating consequences of its failure — the financial consequences or, which sometimes is much the same thing, psychological.


But what is now the principle by which other distressed firms will elicit Fed interventions in future uncertainties? By what criteria does Washington henceforth determine whether a large entity is "too connected to fail"?


The Fed has no mandate to be the dealmaker for Wall Street socialism. The Fed's mission is to preserve the currency as a store of value by preventing inflation. Its duty is not to avoid a recession at all costs; the way to get a big recession is to engage in frenzied improvisations because a small recession, aka a correction, is deemed intolerable. The Fed should not try to produce this or that rate of economic growth or unemployment.


After the tech bubble burst in 2000, the Fed opened the money spigot to lower interest rates and keep the economy humming. And since the bursting of the housing bubble, which was partly caused by that opened spigot, the Fed has again lowered interest rates, which for now are negative — lower than the inflation rate, which the open spigot will aggravate.


A surge of inflation might mean the end of the world as we have known it. Twenty-six percent of the $9.4 trillion of U.S. debt is held by foreigners. Suppose they construe Fed policy as serving an unspoken (and unspeakable) U.S. interest in increasing inflation, which would amount to the slow devaluation — partial repudiation — of the nation's debts. If foreign holders of U.S. Treasury notes start to sell them, interest rates will have to spike to attract the foreign money that enables Americans to consume more than they produce.


Having maxed out many of their 1.4 billion credit cards, between 2001 and 2006 Americans tapped $1.2 trillion of their housing equity. Business Week reports that the middle-class debt-to-income ratio is now 141 percent, double that of 1983. Because anxiety is epidemic, bipartisanship has reared its supposedly pretty head.


Republicans and Democrats promise cooperation, compromise and general niceness using other people's money. If Congress cannot suppress its itch to "do something" while markets are correcting the prices of housing and money, Congress could pass a law saying: No company benefiting from a substantial federal subvention (which would now include Morgan) may pay any executive more than the highest pay of a federal civil servant ($124,010). That would dampen Wall Street's enthusiasm for measures that socialize losses while keeping profits private.

[Adder]

Originally posted by ltl/fb
In theory it doesn't matter economically, but I think it might matter in reality. I guess they could slowly raise the price? I don't really understand what is causing the high prices right now -- what RT said implies it's underlying oil prices.

My wild-ass guess, if that it is part uncertainty in the Middle East and part the general run up on commodity prices (perhaps stemming from money fleeing other investments).