Pumping Cash

Friday morning, driving junior to school past the first gas holdup station, it was noted that the gas price jumped by 10% or 13 cents a liter.
(note to my American readers: “liter” is the unit of measuring liquids everywhere in the world except the US and the U.K. Britain has been in the process of adopting a “rational measure system” since Bishop John Wilkins proposed it to the Royal Society in 1668. The use of non-metric system in U.S. commerce contravenes the Metric Conversion Act signed into law by president Gerald Ford in 1975. 1 liter=0.264172052 US gallon. ).

As is our wont, Gab (my 12-year old) and I speculated on the causes of the sudden jump in the retail price of gas, which as Gab pointed out to me already was proportionately higher on a $106 a barrel than it was on a $147 a barrel three months ago.

Putin bombed the Baku-Tbilisi-Ceyhan pipeline, I offered. Noting instantly the sarcasm in my voice, he dismissed that possibility. “Naw, I don’t think so”, he said confidently, not wanting to get into too much detail in the geography of that supply line. So, what about a coup in Nigeria ? “Is Nigeria an oil producer ?” he asked. “Big time”, I said. “Possible”, he said. “Naw”, I said. “ It is more likely that a Saudi crown prince had dysentery.” “What’s that ?” “Bad case of shits, like you had in the spring.” “Definitely, a possibility”, he said. “Of a connection ?” He gave me a look of disdain, which he sometimes uses when he is unsure what I am saying. “Don’t think so.”, he then said thoughtfully. “ It’s more likely another hurricane.”

“Yep, there is one in the Gulf right now, heading for Texas.” “I think you hit it right on !”

“But, dad, wasn’t it like…. the prices went up after a hurricane and not before ?” “Excellent observation !”. My chest was swelling in pride over my son’s progress in reading out the designs of petro pashas in picking the consumer pockets.

“Yes, you see, even with Katrina, 3 years ago, the excuse was that a large refining capacity was shut down. Therefore, the oil companies said, there is demand for oil that they cannot satisfy with the production being crippled by the hurricane damage, so they have to jack up the price. So, the gas price went up. But, you see Katrina was not the first hurricane and oil price was never that sensitive to weather before. Why ? Because, there is something called a “refined fuel reserves”, which means gas already refined and ready for shipment. So, if the normal forces of the market prevailed and competition existed among the oil companies, they would – and they did in the past – keep enough supplies of refined oil and gas to deal with any short “dips” in production. So, e.g. Shell having more gas ready than Exxon would help Shell to sell more gas than the competitor during bad weather season. But as it is, instead of competing, they start jacking up the wholesale price right away, or even ahead of storms. Which means easy profit, because this does not cost them extra in making the gas. Get it ?”

“Yep, makes sense”, said Gab while stepping through his pre-selected radio stations. He already knows the gas prices are a ripoff, this is too much information.