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Re: E-M:/ Oil Indusrty Profits Soaring Through the Roof



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Enviro-Mich message from Rane Curl <ranecurl@engin.umich.edu>
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I don't know enough about the inner workings of the industry now to
provide any answers, except to observe, from my experience in the oil
industry (I worked for Shell at one time), matters are very complicated,
are international, involve parallel vertically integrated monopolies that
do connive - up to a point. In regard to just a couple of points in
William Tobler's message:

On Tue, 24 Apr 2001, William Tobler wrote:

> 1) First of all, last year the big bubble in price increase occurred later
> in the year, more like June and July.  If it was tied to switching over, I
> would think that would be at the same time of year.

We haven't finished seeing the top of the "big bubble". It may still
occur in June and July, when summer travel compounds with the other
factors.

> 3) I don't believe that the laws of supply and demand are very effective
> with regard to short term gasoline prices.  I don't have much discretionary
> consumption for tomorrow or next week, even if they double or triple the
> price.  If there were true shortages, then gasoline stations would be
> closed.  Last year, that was only for a matter of hours, or never, and then
> supposedly because of the pipeline break.

I think the laws of supply and demand are *most* effective for short term
gasoline prices. The system does not have much storage capacity compared
to the consumption rate. If everyone quit buying gasoline for a week, the
price would tumble, as then the glut would work back through the system
and force the refineries to reduce processing, which is *very* expensive.
The problem Bill describes is an inflexibility in demand, not in the
sensitivity of the system to supply and demand. Demand is our fault.

> 4) Reformulation supposedly costs only a few cents per gallon.  How does
> this justify 40 to 60 cent increases that last for months?

It costs only a few cents per gallon in production, but the change over
interrupts processing. This causes a momentary drop in supply - and the
system is very sensitive (as I am claiming) to that, because the demand is
inflexible.

> 5) I read today that the oil companies have huge increases in profits.
> Don't get me wrong, I believe in capitalism, but I also believe in calling
> the shots the way they are.

Reduce your demand and they'll come around.

--Rane




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