February 22, 2006

CFA: Oil Companies Have Us "Over A Barrel"

I recently found two interesting articles researched by the Consumer Federation of America. They provide a perspective to recent articles I have posted about the Big Oil companies (Exxon Mobile and Chevron), and their vision for the future. Both are lengthy PDFs so I have included some excerpts below:


Why Aren't Oil Companies Using Ethanol to Lower Gasoline Prices?

May, 2005

The first quarter of 2005, with dramatically rising crude oil prices presents a stunning example of how domestic oil companies exercise market power over price to abuse consumers. If rising raw material (crude oil) costs were the problem then we would expect the domestic spread to decline as competition and consumer resistance (the elasticity of demand) squeezed the margin between the cost of inputs and the retail price. The opposite has happened because the industry is not competitive. Only in 2002, when demand was very weak due to the recession following September 11, did margins return to their historic levels. The winter of 2002 also taught the industry a lesson, that competition on price lowers profits.

The consumer implications of the refusal to use more ethanol are clear. While gasoline refiners are using as much ethanol as required, the same refiners are not buying lower-cost ethanol in other gasoline markets. Thus, consumers in many parts of the country where ethanol can be delivered to existing storage and terminal facilities are not receiving lower cost supplies and are paying as much as 8 cents a gallon more at the pump than they would if oil refiners purchased ethanol to blend.

The broader public policy implications should not be overlooked because the added abuse of consumers frustrates the nation’s ability to address the fundamental energy problem.


New Report Shows Nearly Three-Quarters of Americans Concerned About Future Gas Prices

Lower-Income and Rural Households Are Most Concerned and Are
Being Hit Especially Hard by Rising Prices

Washington, D.C. -- Nearly three-quarters (74%) of a representative sample of over 1,000 Americans are highly concerned (5 on a 1-5 scale) about gasoline prices over the next five years, according to a very recent national survey commissioned and released by the Consumer Federation of America. In a CFA-commissioned survey conducted earlier this year (February), less than two-thirds (65%) of Americans expressed this level of concern.

Households are conservatively estimated to spend an average of $1,948 this year on gasoline prices (assuming $2.25/gallon), according to a CFA economic analysis. That figure is up from $1,342 only three years ago (2002), an increase of 45%.

No comments: