Two Views on Gasoline Prices

Michael Giberson

1. Economist Mike Moffat, in the Ottowa Citizen, writing in response to news that the Competition Bureau would again take a look at gasoline prices, reports “There is no gas price conspiracy.” He said, “There have been six Competition Bureau examinations of gasoline pricing in the last 20 years. All six found no evidence of collusion or anti-competitive behaviour in the Canadian petroleum market.”

Moffat explains that world crude oil prices drive most of the changes in retail gasoline prices and notes a few other factors that play a role (including an explanation of the “rockets and feathers” phenomena, a product of normal retailer and consumer behavior seen in gasoline and other product markets and which has nothing at all to do with financial fraud or oil and gas price fraud or market manipulation. So why this?).

2. The Congressional Research Service was asked by Sen. Harry Reid to assess how much proposed tax changes on the oil industry would affect domestic gasoline prices. The May 11 memo issued in response concluded the changes would have little immediate impact on gasoline prices:

The price of oil is determined on world markets and tends not to be sensitive to small cost variations experienced in regional production areas. In the recent market environment, with the price of oil averaging approximately $90 per barrel over the period December 2010 through February 2011, and the current price over $100 per barrel, prices are well in excess of costs and a small increase in taxes would be less likely to reduce oil output, and hence increase petroleum product (gasoline) prices.

Even in the longer term, little influence of gasoline prices is expected. Domestic production may be reduced a bit, but not to worry the report says, we can always import more.

Note that the effects on the oil market would be likely small at the present, given current relatively high oil prices and prices determined in a world oil market. But the tax changes would also affect natural gas producers and the natural gas market is a mostly domestic and regional affair (we import some gas from Canada, but little from elsewhere).

The report said, “Natural gas projects are more likely than oil projects to be affected by the tax changes because they are experiencing low market prices due to the volume of non-conventional gas production that has entered the market in the past several years.”

(HT to (1) Tim Haab at Environmental Economics and (2) Robert Rapier at R-squared Energy Blog, Rapier provides substantial additional analysis of the CRS report.)

2 thoughts on “Two Views on Gasoline Prices

  1. The CRS report is chock full of “weasel words”, almost certainly by intent.

    Comments from “congresscritters” represent a mixture of “x” percent stupidity and “y” percent cupidity.(Actual percentages TBD.)

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