Quote:
Originally Posted by Slava
In reference to a few of you wanting me to elaborate on why its a scam. Plain and simple when the price of gas was dropping we heard all about how its a futures market and you have to wait for the cheaper gas to make it through the system.
Of course that doesn't apply here though....I mean sure the company paid for the gas a month ago, and the hurricane that shuts things down is today, but the company couldn't possibly sell based on their buying price?
Last night on the news Michael Irvin was trying to justify this one as well. His comment was that due to the increased prices it would be impossible for the oil companies to sell for cheaper.
btw, the comment about stock prices is not even in the same realm (unless you mean to suggest that some stocks are off the mark with their values...because that is in direct correlation here).
In any event I think that the oil industry is pulling the wool over our eyes in a number of ways. I still have no idea how they can never predict supply and demand correctly despite years and years of running their industry. I also have no idea why the "driving season" catches them off guard every year, and on a consistent basis. We know that people are going to drive more, yet every year the refining capacity is not enough...go figure.
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Driving season catches them off guard because there has not been excess capacity for years now. During "driving season" petroleum product stocks get ravaged and they cannot replenish them in time for the next season because there simply is not enough refining capacity. Building a new refinery or expanding a refinery takes years, and the economics on such only has made sense recently. Currently there is many plans for expansions in the works, but this cannot alleviate demand right now. Oil and gas is no more of a scam than anything else as they charge what the market will bear. No different from Sport Chek's prices on shoes. They don't owe you gasoline at cost, just like any other business doesn't owe you anything at their input cost either. The price of goods and services is the meeting of supply and demand and not refiners cost plus margin. If they can do it significantly cheaper than the input price it's just called good business.
As for anticipated supply shocks and why the price goes up before a hurricane as opposed to after. Once again using the stock price example, in the name of "fairness" would you sell a gold mining stock with producing assets in Canada at the same price as a week earlier after finding out information that there would be a significant chance that materially significant gold supplies would come off stream elsewhere? Of course you wouldn't and its the same thing you would be asking gasoline retailers in Canada to do.
And BTW the stock example does apply because new information can change the price outlook for stocks. When Hurricane Ike was in the middle of the Atlantic the chances of it disrupting refinery row in Texas was much lower than when it was in the gulf and on their doorstep. Gasoline commodity prices adjusted accordingly to projected Ike landfall forecasts. If the refineries are out for a significant amount of time then prices will increase even more, because the price you paid on Friday included the possibility of a scenario where they would not be down for too long. If it plays out that there's a major supply disruption then prices will be even higher.