JACKSONVILLE, Fla. – Gas prices are at record highs and the price at the pump may climb even higher with the U.S. ban on importing Russian oil.
With gas prices skyrocketing, some state lawmakers are calling for investigations into possible price gouging and people are asking if oil companies are padding profits.
President Joe Biden in announcing the ban on Russian oil made clear, “It’s not time for profiteering or price gouging. It’s not an excuse to exercise excessive price increases or padding profits or any kind of effort to exploit the situation.”
Robert Kaufmann, who studies world oil markets, said there are no shenanigans going on.
“Probably not,” said Kaufmann a professor with the Boston University Institute for Sustainable Energy. “The world price for oil is set on several heavily traded exchanges where there are lots of buyers and sellers and they set the price for crude oil.”
“Your local gas station can raise the price a little bit above or a little bit below others,” said Kaufmann.
But consumers search pretty steadily for the lowest price and if you get too far out of line, people are not going to come to your station. And that even reduces revenues further because a lot of these gas stations depend upon coming in and buying drinks and treats for their revenue, he said.
Kaufmann and other oil industry analysts say there is so much competition, retailers can’t really charge what they want. Still, people say, “but the gas in the ground was paid for weeks or even months ago.”
What is really dictating the big fluctuation in price is daily trading on the commodities market.
“Yes, absolutely,” said Kaufmann. “They set what’s known as a benchmark price and all the crude oils are set relative to that benchmark.”
“I would like to remind people that just two years ago crude oil prices were negative,” Kaufmann said. “That is you had to pay if you were an oil company or an oil producer, you had to pay people about $30 to take a barrel from you. So oil companies and consumers live and die with these markets. And prices actually started going up not too long ago.”
Kaufmann said it is all about supply and demand. When the pandemic started demand waned. With the end of the pandemic, demand rose and so did prices.
“I mean we were spoiled, you know because of the pandemic,” he said. “Prices were going up before the war for good reasons. The pandemic was coming to an end. … people were going back to work. So, when I turn on my radio, I hear about traffic jams again and that means people are buying gas and if we could look out my window, we’d see some snow (in Boston), which means we’re using oil to heat our homes. That was driving up the price, not very high, but it was raising prices relative to where they were during the pandemic.”
Industry analysts say they are not defending big oil, but they do have a right to profits. And there is a system of checks and balances to protect consumers from gouging at the hands of big oil, to prevent collusion and price-fixing. And if gouging happens, state watchdogs step in.