Monday, September 17, 2007

FTC: Market Forces Led to Rising Gas Prices

As directed by lawmakers, who accuse oil companies of manipulation and overcharging almost every time gas prices rise, the Federal Trade Commission once again investigated price increases for gas and oil, this time for the increases during the spring and summer of 2006 (see chart above, click to enlarge). The FTC's report was realeased a few weeks ago, and here is what it concluded:

The fact that the price increases were a worldwide phenomenon, coupled with evidence that U.S. refiners increased output once their refineries were repaired and back online, tends to support our conclusion that the 2006 price increases were caused by a confluence of factors reflecting the normal operation of the market, and also tends to explain why we did not find evidence that those price increases were caused by activities that violate the antitrust laws.

The FTC concluded that gas prices rose in 2006 for 6 factors relating to Supply and 1 factor relating to Demand:

Supply Factors:
1. Seasonal effects of the summer driving season.
2. Increases in the world price of crude oil.
3. Increases in the price of ethanol.
4. Declines in the production of gasoline, due to refiners' transition to ethanol.
5. Persistent refinery damage related to 2005 hurricane damage.
6. Refinery outages caused by unexpected events and required maintenance.

Demand Factor:
7. Increased Demand

In other words, the FTC concluded that market forces of decreased supply coupled with an increase in demand caused gas prices to increase in the spring/summer of 2006. As one
commentator said:

"Once again the bogeyman turns out to be nothing more sinister than the law of supply and demand. Sure enough, when supply dwindles and demand goes up, so do prices. Big surprise. But every time gas prices go up, a certain kind of politician is shocked, shocked! And demands an investigation. Which is a lot easier than taking Economics 101 all over again."

I think he's implying that politicians have already taken Economics 101, but I'm not so sure about that.
Also, notice that two factors for rising gas prices are directly related to ethanol, which Congress mandates and subsidizes!


At 9/17/2007 9:36 AM, Blogger Alex said...

Unfortunately it is far easier and more resonating for a member of congress to spout off intellectualy dishonest rhetoric about the evil oil companies and how much the president is to blame than it is to educate their constituents on the real reasons for high gas prices.

It's disgusting.

At 9/17/2007 10:14 AM, Anonymous Anonymous said...

Members of Congress don't get re-elected by telling the truth or educating their constituents. They see their main job as being re-elected. They get re-elected for returning money (spending) in their districts, and telling the people what they want to hear. Sad and disgusting, but true.

People need to educate themselves on the issues and contact their representatives. If enough people care enough to write, they will get noticed. Not a week goes by that I don’t write a federal, state, or local government official, and all of my letters and emails are promptly answered. Oftentimes my correspondence is answered by the representatives themselves. Speak up. Be heard. Present your position well. It’s your government, too.

At 9/17/2007 6:43 PM, Anonymous Anonymous said...

Unfortunately, I live in a deep blue part of Maryland, and I've NEVER had anything answered from my rep, Steny Hoyer, after probably a dozen tries. I can just picture his staffers sorting through letters and tossing the dissents into the trash.

At 9/18/2007 6:19 AM, Anonymous Anonymous said...


Here are a few hints about receiving responses:

If you haven't gotten a response, be creative. Send a letter by registered mail using the representative’s proper title of office. Make sure that you address one issue concisely but with all the details. Whether you like it or not, you credibility is judged by your writing, so make sure that you write as well as you can with correct spelling and punctuation.

Make sure you propose a solution to the problem while trying to avoid ranting and raving. Your representatives know about the popular problems, so what they need are proposed solutions.

Let your representative know where you stand and that others strongly feel the way that you do (if it's true). Be prepared to expand on your solution if you are notified.

You will be noticed! Remember: You have more than 1 representative if he or she does not acknowledge your letter. Don’t give up! It really IS your government.

At 9/18/2007 6:00 PM, Blogger Matt said...

Send a death threat.

At 9/19/2007 8:05 AM, Anonymous Anonymous said...

Walt, I've done all of the above except for registered mail. No rants, no raves, always clear and concise and with presentations of alternatives. No such luck yet! Perhaps I'll try others.

I remember when I lived in Virginia, Sen. John Warner always responded within six weeks, even with his own impressive and clear explainations of his positions if I wrote something in opposition to them (which was rare).

Rep. JoAnn Davis sent replies, but they were either standard or else she sent the wrong one (a "thank you for supporting my position" letter in response to an "I disagree with your position" letter).


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