Wednesday, April 13, 2011

Gas

I'm trying to figure out gas.

But first, a simple math problem:

Gerald has a 1995 Toyota Camry. It has a 16 gallon gas tank. If, ever since gas prices started rising, Gerald has been putting 10 dollars or less of gas in his tank at any given time in a misguided attempt to spend less on gas, causing him much of the time to drive around with his gas light on and the gas level to get so low that when he pulls into a gas station he has nothing but fumes igniting in there, how much will it cost for him to fill up his tank? Gas currently costs $3.65/gallon. Tomorrow it is likely to be $3.89/gallon, which is why he is filling up his tank today.

First, cross out the information that is not necessary to solve the problem. It does not matter what kind of car he drives. His gas-filling habits do not matter. Nor does the potential cost of gas tomorrow. All that matters is how many gallons Gerald has to put in his tank and how much each of those gallons costs. So,

16 gallons of gas X $3.65 = $58.40

Thus endeth the lesson. But I'm still confused, because what I'm trying to understand is gas.

See, here's my problem: crude oil prices went up yesterday, gas prices went up today. But far more than just gasoline comes from crude oil. For example, motor oil, kerosene, butane, asphalt, tar, grease, propane, and plastics all come from crude oil. Does anyone think that the cost of any of those items went up today? I'm not contesting that the cost of these items might go up in the future as the result of rising crude oil prices. My question is, did the existing, already-produced, in-stock supplies of Quaker State Motor Oil or PVC piping at Home Depot or the throwaway cigarette lighter at the 7-11 increase in price today? And we all know that the answer is no.

But gasoline did. Why?

I took Economics. I understand about supply and demand. And scarcity. I know that because we all (used to) want to drive all over the place in the summer, the increased need for gasoline is going to drive the prices up. I know that if there was a shortage, we’d expect to pay more for what little is available. But we’d also be waiting in gas lines and stockpiling and sweating about the rationing.

No, this is something different. This kind of volatility and immediate response to the market is unlike anything else, as far as I know, including, as I’ve mentioned the other products that come from that same barrel of crude. Did the company spreading asphalt on the highway while I’m stuck in traffic down to one lane call up the state and say, “You know that contract bid we made for this job and you accepted? Well, the price has gone up. Sorry.”

I am also well aware that situation in Libya and other global concerns are driving the price up, but isn’t that kind of like the price of Florida tomatoes or oranges going up, not because of a freeze, but because of the possibility of a freeze! So what is going on? And let’s remind ourselves that sometimes (admittedly, more often in the past than right now) the price of oil drops, sometimes significantly. Even when that happens, the cost of gasoline does not drop with the same alacrity or by the same percentage. I can guarantee you that if the price of oil dropped today to what it cost in 1974, the price at the pump would be nowhere near as low as it was back then.

No, what we’re really talking about is speculation. We are talking about self-fulfilling prophecy. The expectation that the price of oil is going to go up is making the price of oil go up. And you know what that means? It means that while you and I are trying to decide between a tank of gas and a pizza, between a car trip to Atlanta and a pair of pants, between a rock and a hard place, somebody is making a lot of money off our misery at the pump. It certainly doesn’t cost anymore to drill for and to refine this crude oil that continues to rise in price.

So, there is a different kind of math problem at play here. You can do that math, but you do it at your own risk, the risk of blinders coming off.

If you’re looking for a solution, and who isn’t, I can only recommend the plan of my friend John. He’s decided simply to drive less. And it’s working for him. Quite well, actually. Want to know how I know? I drove him to the concert last night.

3 comments:

Daisy said...

My best guess is that the gas gods are cashing in on the fact that to many having a tank full of guess is equal to having freedom. No price is too high for freedom right?

I do like John's plan. I'd be happy as a pig in mud if I had a driver at my disposal!

John said...

Hey, let's go to lunch today. You're driving.

troutking said...

More evidence that oil companies are run by bastards. These are the same ones who are buying up patents on alternative energy technologies and sitting on them so they can maintain their monopoly on energy supplies. Viva la revolution! Let's nationalize 'em!