Cynicysm, Part II

Gas prices have been dropping lately, to the point that in some places they have dipped into the $2.20 range, and even under $2.00, which is great. A cynical person might note the timing; leading up to the election.

Exxon-Mobil racked up the highest corporate profit, ever, this year, and the oil companies have all been doing pretty well. We have two oilmen leading the country, and their policies have rewarded their oil company campaign contributors handsomely. It looks to me like the oil companies are returning the favor right before the elections. Watch for prices to stay down until the election, then start moving up.

Gas prices usually go up in the fall, and the reason given is that refiners switch from gasoline to home heating oil, thereby reducing supply, causing prices to rise. I wonder why that isn't the case this year? Why would just the opposite happen this year? The reason given is lowering of tensions and uncertainty. I don't see any that tension is reduced or certainty is increased. Iran is still a problem, the middle east is a mess, Iraq isn't getting better, BP still has part of the Alaska pipeline shut down. Pretty much all the reasons given for prices to be high still apply. The Chinese economy is still growing.

I suspect it is because the oil companies are simply lowering the price. One might argue that oil companies can't just lower the price because crude is so high (around $65 per barrel). Bear inmind that the oil companies own their own oil wells, and these wells were profitably producing at the previous $20 per barrel price.

I saw a full page oil company ad showing a dollar bill cut into three segments. 55 cents represented the cost of crude, costs of production were the next largest part, and the smallest was profit. I suppose that might be true for some gas station owner, but oil companies that own gas stations also get a huge chunk of the crude price as profit. If the crude is profitable at $20, then at $65 they're making at least $45 in profit per barrel. Thus, they have plenty of leeway to reduce the price.