Necessary Roughness

As oil spikes up to record prices, and gas stations raise their prices to keep up, an email that I sent on March 9, 2004, in response to a question regarding the validity of a plan to boycott certain gas stations becomes topical again:

(answer excerpted and edited)
If we don’t buy from Exxon and Mobil, then we buy from others, who buy from *gasp* Exxon and Mobil. Gasoline is an agile commodities market.

Gasoline companies compete for your dollar. If they collude for higher prices, then it is illegal, and it is up to the States’ and US’s Attorneys General to prove collusion and enforce the law. Law enforcement works (x-ref: Timothy McVeigh, Ahmed Rassam - “just good police work”) when we don’t cripple it (x-ref: INS and Border Patrol).

As they compete then, it is in their interest to produce lower cost gasoline than reachable alternatives. Such reachable alternatives include:

1. Other gas stations. How many people run to Speedway right when they drop their prices and run to Duke right when Speedway raises their prices? I know I do.
2. Not using a car, which means biking or walking, which means more laundry and hygiene bills
3. Buying more energy efficient cars (hybrids like the Toyota Prius), but you can forget high carrying capacity

Forcing a lower price creates shortages. I wasn’t buying gasoline in the ’70s but I hear the lines were pretty long. Also, quality of product goes down as corners are cut, which could harm your car. If it costs more for you to work than it would for you not to work, you wouldn’t work!

In order to provide lower cost gasoline, their costs must be lowered by:

1. Allowing access to oil fields which produce oil more cheaply than more remote sources (Florida, California, and Alaska, versus Saudi Arabia, Borneo, and Iraq). Right now Gov. Jeb Bush is fighting drilling in Florida even when such oil rigs would be beyond the horizon seen by any beaches.
2. Drilling in non-OPEC countries (again, United States!). OPEC deliberately sets an amount of oil that a country can produce, usually in order to force a price up by limiting production.
3. Lowering other costs of production (but service companies like mine have to feed their families too )
4. Removing the municipal, state, and federal regulations that force gas companies to produce special blends for urban areas. There are over 19 gasoline blends (listed in EPA White Paper EPA420-P-01-004 Oct 2001; does not count all premium, midrange, and standard blends) delivered to cities over the same pipelines that used to just deliver Regular and Unleaded. This incurs both transportation and blending costs.

Price is the ultimate communication of what it takes to get something done. It is the number used to reflect the business decisions of, in this market, the gasoline vendors, oil refineries, and those companies that transport petroleum. No one person can determine a “fair price”. We do have a final choice. If it becomes more expensive to power a car than it is to achieve other transportation, our dollars will favor the cheaper alternative, and the oil companies THEN will be forced to lower prices or find other work. Even if we change our behavior to force a change, the change will be reversed when we return to our old behavior to take advantage of cheaper gasoline, and the market allows the gas and oil companies to raise prices again.