Rising gas prices affect all of us, drivers or non-drivers alike, and in the last few years, we've seen the average price per gallon rise from below $1.50 a gallon in 2002 to nearly double that in 2005, and about $2.50 plus a gallon today. Just this morning, I filled up for $2.57 at Chevron - a fairly average price for the Bay Area.
We've been led to believe that the meteoric price increases are due to several factors - cleaner gas initiatives, Middle East regional strife, scarcity of oil wells in North America, refineries under repair, the War on Iraq, and Hurricane Katrina. But simple economics tells us that there are really two ways that price increases can be sustained in a large economy - the first being that the cost of goods is increasing at the supplier level, which forces them to raise costs in turn to sustain gross margins, or second, that a scarcity of suppliers, through monopoly, collude to uniformly raise costs.
This morning, Exxon reported a quarterly profit of $10.7 billion. On the year, the company's profit (not revenue, mind you) was more than $36 billion dollars, bigger than the economies of 125 of the 184 countries ranked by the World Bank, and a world record for any company in history - period. Does this tell you that the company is simply keeping profit margins in line with rising costs, as mentioned above, or is something rotten in Denmark?
If you believe the company's spin, they'll say that the record revenues will "fuel" investment in the future, and that this is good for all, but do you buy it, and if not, what do you think should be done? Is this just capitalism, and we should be happy that the market has worked?
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