The “Price Elevator”
The annual gasoline price see-saw is upon us again. Interestingly enough, for most Americans – as members of the consumer culture – this is all very routine. We tend to accept the irrational rise and fall of gas prices the same way we accept the seasonal increases in the price of produce. However, there is a significant difference in the annual explosion (no pun intended) in the price of a gallon of gasoline and seasonal produce prices. You see; produce costs are based on supply and demand, where gasoline prices are driven by greed on the supplier side and complacency on the consumer side. This typically works out great for oil companies, while we as consumers jump on the gasoline price elevator and pay more and more each year at the pump.
In an effort to keep this information simple, we will use the Chicago gas price index as reported to AAA for the past 12 years as a basis for argument (Chicago Metro / Premium Fuel).
2003 = $1.94
2004 = $2.09
2005 = $2.61
2006 = $3.10
2007 = $3.25
2008 = $3.94
2009 = $2.41 (Thank you Great Recession)
2010 = $3.44
2011 = $4.37
2012 = $4.49
2013 = $4.27
2014 = $4.53
As you can easily see, prices have gone nowhere but UP. Republicans like to point to Democrats as the cause, and Democrats blame Republican administrations. However, it’s clear that the “political party in charge” doesn’t seem to matter much. The Bush administration witnessed and overall increase of roughly $2.00 per gallon from 2003 to 2008, while another $2.00 has been added under the Obama-watch, although there is some confusion as to whether the Democrats should be getting whacked for the recession adjustment in 2009. Still, there is some telling information in this historical evidence.
The Memorial Day Dance
Here is a question that needs to be addressed. Why, roughly a month or so before Memorial Day, do prices begin to climb? This is a trend that we can traced back at least a decade, and it is piece of historical data is usually explained away as the result of refineries being taken off-line for maintenance or “retooling” for seasonal blends, thereby interrupting supply and driving prices up. Do we buy this explanation, or is it more likely that prices head up because the Memorial Day weekend is synonymous with road trips and increased fuel consumption?
For example…why exactly did prices fall 38% in mid-April 2009? The annual maintenance and retooling still took place. Was it a significant drop in demand at that point in time? If so, wouldn’t prices have stayed level due to a corresponding supply decrease? Or…was it more likely that oil companies realized the recession would significantly curb spending across the board; that “stay-cations” would replace vacations; and that increasing the cost of gasoline in a recessionary environment would likely reduce demand even further, thus lowering sales…and profits? Demand certainly did drop during the recession, but it is more likely prices stayed low because oil companies played the “safe bet”.
The Effect On Transportation Providers
In the limousine industry, these price spikes can play havoc on the ability to maintain profitability, since most companies work on meager margins to begin with. With wild swings in the price per gallon of gasoline, it is difficult for operators to recoup fuel costs without passing some of the cost to their clientele. Yet although everyone is aware of the anomalies associated with fuel pricing, most people pay little attention to how it might affect someone in the transportation industry. When prices first started to surge in the early part of this millennium, some companies chose to add a fuel surcharge while others chose to eat the difference in a good-faith effort to keep their customers happy. Since then, most of the latter have either had to increase prices or add surcharges in order to stay profitable.
In The End…
If you ask ten experts about the ups and downs of gas prices, you’re likely to get ten different answers, so it’s really no wonder we as consumers are confused. It would almost be better if oil companies would openly admit that they plan to raise prices 20% a month before every holiday…and will drop prices a month afterward. But that wouldn’t attain the desired result, because if we knew what they were doing and why, we would just delay unnecessary driving until pricing came back down. However, pretending there is some unusual influence at work keeps the situation just cloudy enough that we don’t hesitate to “gas up”, completely oblivious to the fact that some of the richest corporations and individuals in the world are associated with “Big Oil”.
I wonder how THAT happened?