The “Bologna” Behind Gas Prices

This makes a lot of sense~ read to the end!!
A man eats two eggs each morning for breakfast. When he goes to the grocery store he pays .60 cents a dozen. Since a dozen eggs won’t last a week he normally buys two dozens at ! a time
One day while buying eggs he notices that the price has risen to 72 cents. The next time he buys groceries, eggs are .76 cents a dozen. When asked to explain the price of eggs the store owner says, “the price has gone up and I have to raise my price accordingly”.
This store buys 100 dozen eggs a day. I checked around for a better price and all the distributors have raised their prices. The distributors have begun to buy from the huge egg farms. The small egg farms have been driven out of business.
The huge egg farms sells 100,000 dozen eggs a day to distributors. Wit! h no competition, they can set the price as they see fit. The distributors then have to raise their prices to the grocery stores. And on and on and on. As the man kept buying eggs the price kept going up. He saw the big egg trucks delivering 100 dozen eggs each day. Nothing changed there.
He checked out the huge egg farms and found they were selling 100,000 dozen eggs to the distributors daily. Nothing had changed but the price of eggs.
The week before Thanksgiving the price of eggs shot up to $1.00 a d ozen. Again he asked the grocery owner why and was told, “cakes and baking for the holiday”. The huge egg farmers know there will be a lot of baking going on and m ore eggs will be used. Hence, the price of eggs goes up. Expect the same thing at Christmas and other times when family cooking, baking, etc. happen.
This pattern continues until the price of eggs is 2.00 a dozen. The man says,”there must be something we can do about the price of eggs”.
He starts talking to all the people in his town and they decide to stop buying eggs. This didn’t work because everyone needed eggs. Finally, the man suggested only buying what you need.
He ate 2 eggs a day. On the way home from work he would stop at the grocery and buy two eggs. Everyone in town started buying 2 or 3 eggs a day.
The grocery store owner began complaining that he had too many eggs in his cooler. He told the distributor that he didn’t need any eggs. Maybe would n’t need any all week.
The distributor had eggs piling up at his warehouse. He told the huge egg farms that he didn’t have any room for eggs would not need any for at least two weeks.
At the egg farm, the chickens just kept on laying eggs.
To relieve the pressure, the huge egg farm told the distributor that they could buy the eggs at a lower price. The distributor said, ” I don’t have the room for the %$&^*&% eggs even if they were free” .
The distributor told the grocery store owner that he would lower the price of the eggs if the store would start buying again. The grocery store owner said, “I don’t have room for more eggs. The customers are only buy 2 or 3 eggs at a time”. “Now if you were to drop the price of eggs back down to the original price, the customers would start buying by the dozen again”.
The distributors sent that proposal to the huge egg farmers. They liked the price they were getting for their eggs but, them chickens just kept on
Finally, the egg farmers lowered the price of their eggs. But only a few cents. The customers still bought 2 or 3 eggs at a time. They said, “when the price of eggs gets down to where it was before, we will start buying by the dozen. ”
Slowly the price of eggs started dro pping. The distributors had to slash their prices to make room for the eggs coming from the egg farmers. The egg farmers cut their prices because the distributors wouldn’t buy at a higher price than they were selling eggs for.
Anyway, they had full warehouses and wouldn’t need eggs for quite a while.
And them chickens kept on laying.
Eventually, the egg farmers cut their prices b! ecause they were throwing away eggs they couldn’t sell. The distributors started buying again because the eggs were priced to where the stores could afford to sell them at the lower price.
And the customers starting buying by the dozen again.
Now, transpose this analogy to the gasoline industry.
What if everyone only bought $10.00 worth of gas each time they pulled to the pump. The dealers tanks would stay semi full all the time. The dealers wouldn’t have room for the gas coming from the huge tank farms. The tank farms wouldn’t have room for the gas coming from the refining plants. And the refining plants wouldn’t have room for the oil being off loaded from the huge tankers coming from the Middle East.
Just $10.00 each time you buy gas. Don’t fill it up. You may have to stop for gas twice a week but, the price should come down.
Think about it.
As an added note..! .When I buy $10.00 worth of gas,that leaves my tank a little under half full. The way prices are jumping around, you can buy gas for $2.65 a gallon and then the next morning it can be $2.15. If you have your tank full of $2.65 gas you don’t have room for the $2.15 gas. You might not understand the economics of only buying two eggs at a time but, you can’t buy cheaper gas if your tank is full of the high priced stuff.
Also, don’t buy anything else at the gas station, don’t give them any more of your hard earned money than what you spend on gas, until the prices come down..
** Everyone should read this and send it on!

Did you guys even read the FTC report? It completely exhonerates the oil industry. Your so called secret pricing scheme “zone pricing” has been a public issue for almost two decades. Did you check the price of real estate in Greeenwich, Conn? Any business owner would sell his property if he can’t charge more to cover the higher investment sunk into the property.

“No single refiner has a large enough market share to manipulate prices unilaterally…”
That’s why it’s called “collusion,” because they all get together and determine what the prices will be. Certainly, singularly, these companies cannot control the market, but by teaming up they, in essence, become one all-powerful company–which can easily determine pricing unilaterally because they have no competition.
The only issue is finding proof of collusion.

But remember the FTC also found that Enron did nothing wrong and found no price manipulation in the way they nearly bankrupted California with electricity and natrual gas pricing schemes. We all know what happened there. I have little faith in anything the FTC says about price gouging.

To the egg guy,
People put gas in their cars because they drive their cars! They would have to drive less for them to buy less gas. If they fill up 10 dollars worth of gas three times as often as they previously filled up, all it would do would cause lines at the pump as people are refueling more often. What sensible person would wait in line and then partially fill their tank? People choose not to or are unable to drive less, your scenario doesnt address that.

The egg story makes some sense, and I agree with it to a limit. The problem is that the chickens couldn’t stop laying the eggs. Unlike the chickens the oil industry can stop the output of gasoline. Egg manufacturing is by nature, gasoline manufacturing is not and therefore is a controllable item. The “big egg farm” could have reduced the egg output by killing the chickens and selling them as parts. Gasoline manufactures could shutdown the plants and send everyone home.
Lets face it, we all know it is a supply and demand situation. We demand gasoline to continue driving our gas ineffecent vehicles, gasoline manufactures see the need we have and are willing to sell it to us, but not at a price we want to pay.
I currently get right at 25 MPG, not as good as some better than others. I’m more than willing to only put $10.00 in at a time. Don’t know how much it will help in the “grand scheme” of things, but enough people ACTUALLY do it, who knows.
BTW I fully support free enterprise and makeing a profit, but really 9+
Billion profit in a quarter. And the public isn’t on the short end of the stick…..Right!

Get over it. Gasoline is a great deal – try pushing a car at 70 mph for 20 miles. Three bucks, even six bucks is a deal.

It’s a good time to write a film script about a secret group of patriotic Americans who set out to make oil tycoons scalping Americans dissapear.

we got anoilman in office, dont ya know hes buddies with the arab”s.and the vice resigned as ceo of haliburton.the whole white house needs to be firedget rid of thetrash lets start a new.and watchem like hawks.we been sold out and someone needs to pay

Just recently I read a report about the consumtion of gasoline by the US government. Did you know that an Abrams Tank consumes more than a gallon/mile and that an F-14 consumes 28 gallons / minute with its afterburners on. How many jets do we have in the air today?

A question-how much are oil companies charging for a barrel of American Crude oil? It does not really cost anymore to produce today than it did 18 months ago, so how do those prices compare as well?

The FTC’s investigation into price fixing was to short to be conclusive. It was merely a sham to shut up angry consumers who are tired of being taken advantage of.

And when you eat your eggs a strip of bacon and a side of hash browns are on the plate, and… ya gotta have ketchup on the hash browns, and what do they give ya? Heinz ketchup, the money goes to Tereza and she loans enough to John and next thing you know,JFK is President. We see right through the little plan being hatched here. NO eggs for me, Thank you!

The price of crude oil, the raw material from which petroleum products are made, is established by the supply and demand conditions in the global market overall, and more particularly, in the main refining centers: Singapore, Northwest Europe, and the U.S. Gulf Coast. The crude oil price forms a baseline for product prices. Products are manufactured and delivered to the main distribution centers, such as New York Harbor, or Chicago. Product supplies in these distribution centers would include output from area refineries, shipments from other regions (such as the Gulf Coast), and for some, product imports. Product prices in these distribution centers establish a regional baseline. Product is then re-distributed to ever more local markets, by barge, pipeline, and finally truck. The fact the oil markets are physically inter-connected, with supply for a region coming from another region, means that of necessity even local gasoline prices feel the impact of prices abroad.
Oil prices are a result of thousands of transactions taking place simultaneously around the world, at all levels of the distribution chain from crude oil producer to individual consumer. Oil markets are essentially a global auction — the highest bidder will win the supply. Like any auction, however, the bidder doesn’t want to pay too much. When markets are “strong” (when demand is high and/or supply is low), the bidder must be willing to pay a higher premium to capture the supply. When markets are “weak” (demand low and/or supply high), a bidder may choose not to outbid competitors, waiting instead for later, possibly lower priced, supplies.

My main beef is that today’s cars get lower mileage than the Model-T. Yes, it’s true! Industry could make a 100 MPG car if they wanted to.

The egg story is the most convoluted economic analysis I’ve ever seen.
The cost of a product cannot be raised unless the consumer agrees to purchase it at that price. If the consumer does so, then that’s the correct price. The seller is always trying to get the most for his product and the buyer is always trying to buy it as cheap as possible. If a product gets very profitable, it attracts competition which puts downward pressure on price. The buyer/seller give-and-take and competition assures the right price. It has nothing to do with the cost of manufacturing the product. If you buy a house and then sell it ten years later for double your cost are you gouging because you sold for a lot more than your cost? As economist Tom Sowell said a while back “The cost of the product is history, the value of it today is economics.”

The FTC under the last 5 administrations never found any connection with Enron like behavior. Enron was also a big promoter of Al Gore’s global warming scam to drive up energy costs by controlling and selling carbon permits. A crook is a crook. That doesn’t indict a whole industry or political association.

Ken
The FTC’s investigation into price fixing was to short to be conclusive. It was merely a sham to shut up angry consumers who are tired of being taken advantage of.
In fact
It was 250 pages long and they spent 6 months using the top experts.

One thing that serves to artificially jack up crude prices is the system in place that allows “trading” in the futures markets for this commodity. Under this scheme, anybody and everybody can buy and sell through their broker, and affect the price of, a barrel of crude oil. Every little snippet of news that could possibly affect supply, refining, shipping, distribution, etc. is immediately blown out of proportion in the day’s trading in the commodity markets, sending the price on a roller coaster, mostly with more ups than downs. If we were to restrict the involvement in the oil market to only those people who buy it in order to ship or refine it on its way to its final destination, we could do a great deal to reduce the emotional, reactionary market swings we see so often. This in turn would stabilize, and probably reduce, the prices we see at the pump.

As regards the original subject of zone pricing, the ones who are truly being hurt are the station owners who just happen to operate in the “wrong” zone.
I frequently drive through a small community that has two stations, both independents, branded differently, but supplied with gas from the same distributor, from the same truck. The community sits at a crossroad of two rural highways that happen to be in different zones. Invariably, the station on the north-south highway has prices that are about ten cents per gallon less than the one on the east-west highway, as well as bout a 20:1 ratio of customers, compared to the higher-priced station.
These stations are about a mile distant from each other, so it’s no inconvenience whatsoever for most people to fill up at the cheaper one. The only people who use the more expensive station are those traveling through without any knowledge of what’s off the main route. Yes, this takes more money from these non-locals’ pockets, but the greater effect is that the station owner on the e-w highway has a much greater struggle to make ends meet. The elimination of zone pricing would help to level the field a bit.

26 years ago we had our first oil embargo,gas went from 25 cents a gallon to 75 cents a gallon, then coincindentely came the great recession. We knew then we needed a different energy policy, in 26 years there has’nt been an energy policy. Brazil has mandated a energy policy for all cars and trucks to run off of sugarcane converted to ethanol by 2010.70% are currently running on it according to this news organization.The oil companies and the middle east,and a lot of wealthy investtors would’nt like us doing something similar in the U.S.A..They can’t make the record profits that way, the guy with the egg story has a point because if you pay attention gas prices usually drop by tuesday and rise by friday, just in time for the weekend when we are not working and trying to enjoy life. As far as the FTC investigation beleive it along with Iraq having weapons of mass destruction.

If OPEC produces the majority of the oil today and they had set the price of oil at around $35-40 a barrel, then why is oil at $70 a barrel? Oil is a commodity but not the same as grain, oranges, beef,etc. The producers of those commodities can not set their own price but the oil producers like OPEC did so who or what has caused oil to double?

To Soothsayer:
BTW, gas does go bad, problem is, most of us don’t leave it in the tank long enought for it to happen. Try parking a car for a few months with a 1/2 tank of gas and starting it again….won’t happen! And the smell of the gas when drained will be worst then all those eggs gone bad!

WHO IS GOUGING WHO?
ABC reported today that in the USA we consume 364 million gallons of gas per day. 48 cents per gallons goes towards govt. taxes. STOP RIGHT THERE AND GET YOUR CALCULATORS OUT AND THINK!!!!
.48 cents times 364 million gallons = $ 174 million dollars PER DAYin TAXES. Multiply that by 365 days = OVER 63 BILLION DOLLARS IN TAXES!! THAT IS MORE THAN THE COMBINED PROFITS OF ALL THE OIL COMPANIES. WAKE UP AMERICA! The poor retailer makes less than 7 cents on a gallon from which he must pay his rent, utilities, payroll etc. 7 cents a gallon is less than a 2 percent gross profit margin. Pretty soon these stations will close down and be converted to pharmacies and banks and then we will all be lining up at Walmart and Costco to fill gas.

The egg story is so flawed it is absurd. Simply buying eggs two at a time rather than by the dozen only changes how often you go to the store. If you assume you consume the same amount of eggs per week, then nothing would create a surplus of excess eggs just laying around. The whole story is just a farse.
Same with gas. Buying a half tank at a time does not change the supply/demand ratio — at least if you are stil going to drive the same amount and end up buying a second half of a tank a little while later….

The egg story could be true, but to only spend $10 at the pump each time? I am a commuter and spend at least $100 per week on gas. I am extremely upset about this, and have no choice in the matter. I am now allowed to Telecommute in my job, as my job requires me to be here 5 days a week. No, I’m not a factory worker but a project manager, but sometimes wish I were a programmer so I could work from home.
Let’s all get “real” here…this “analogy” is ok for stay-at-home moms, or telecommuters, but not ok for us people that actually have to drive to work 5 days a week.

Egg story: The logical leap of faith is that the egg farmers wouldn’t just throw away the excess eggs and ride it out.
Patient consumers is an oxymoron.

The egg story is nice. The problem however is that as we conserve more and more fuel with increased mileage standards and smaller cars the price of gas still goes up. Conservation isn’t working to lower the gas prices now. Do you want me to believe that more of this losing scenario is the answer?

Someone suggested lowering or eliminating federal, state, and local taxes during peak driving seasons. Nice try, but wrong. With so many states teetering on bankruptcy as it is, they need the revenue to balance their budgets.
RAISE the taxes, use the money to fund education and elderly medical care and people WILL cut back. Our taxes per gallon are low in comparison to Europe. The Europeon consumer looked for ways to improve their plight and viola……more gas efficient vehicles !!!
Correct answer…..RAISE the taxes.

So many things to say… 1) when you adjust for inflation gas was more expensive in the 70′s during the oil embargo. 2)The reason US car industries don’t sell fuel efficient cars is because when they tried Americans didn’t buy them. 3) I would say Big oil is “partially gouging” obviously any oil amount purchased from foreign state cartels costs them an arm and a leg. However oil gathered in the US has a real cost of $20-$25 a barrel to refine thus it is a higher profit margin when it is still priced to the market at $72 a barrel for “cost” (as determined by the market). 4) Sugar ethanol is 8x more efficient than corn ethanol 5) This administration has vastly outspent prior administrations in alternative research (including solar tech as well as the smaller grail of bio ethanol as examples)

What many people do not understand is that crude oil is a commodity, traded on the open market. The oil companies do not raise and lower the price of oil- the market does as it is traded. Oil companies merely set a baseline, from which oil is then traded, and based on the buyers’ fears and expectations, along with supply and demand the price of a barrel is determined. Its much like any other commodity. Gold is not really worth $650 per ounce, however the price fluxuates based on fears of shortages, which in turn cause more demand by the buyers, thus a price increase. Like all other commodities, the market corrects itself. Every study concerning price gouging throughout the years has stated that prices fluxuated due to supply and demand.
Diesel cars are great. I have a Golf Tdi and average about 50mpg. The problem, however, is that US emissions are far stricter than Europe concerning diesels. Most will not pass California emissions. This fall, the standards become even stronger throughout the US, thus WV will not be selling 2007 Bug, Golf and Jetta models with diesel engines in the US. They will reappear in the 2008 models when they will meet the new standards. What I do not understand is that although they do pollute slightly more than gasoline engines, they get about 33% better fuel economy, so it should even out. Ethanol is really the way to go, even though ethanol engines are less efficient than gasoline ones. Corn deriven ethanol only costs $1.30 to produce, and 1 acre of corn can produce 300 gallons of fuel.
Although many think there is some conspiracy between the oil companies and the government and US car manufacturers, this is simply not the case. American car companies would love to crank out Suv’s that get 100 mpg, but that is simply not possible . If you look at car ads in the paper, all the foreign dealerships will list a model with their fuel economy numbers next to it. The American cars do not, as their feul efficiency lags behind. With the financial messes that GM and Ford have put themselves into with the legacy costs, they simply do not have the money to develop new engines and transmissions that can achieve better gas mileage. Mercedes is developing a diesel hybrid SUV that will seat 7, have loads of horsepower, and get 40 mpg.
Yes, oil companies are making record proffits, but they do so off 9 cents per gallon proffits. Its simple, you sell more than ever before because demand is up, and your proffits increase. For this I am grateful, as my mutual fund portfolio is padded with energy stocks. Dividends are up, and investors are happy. These record proffits end up in the pockets of most Americans, at least those with 401k’s , or mutual funds.
Other reasons for the high cost of gasoline arer the lack of new refineries in the US- due to the not in my backyard mentality, the industrial boom in China and India, tensions in the Middle East, and lack of drilling in the US and off the coast.
Where can I buy motor oil for 75 cents a quart? Last I checked, house brands were $1.50. Motor oil is actually more difficult and expensive to produce, which is why it is generally 2x the price of gasoline per gallon.
Also, as backwards as France is, they do do something right- they produce 72% of their energy through nuclear power. Alas, this will never happen, as there has not been a new facility built in the US due to the not in my backyard groups, as well as those who have unfounded fears about nuclear energy.

The egg analogy is like comparing apples to oranges, or eggs to gasoline. If Americans cut gasoline consumption by 10%, there would theoretically be a 10% abundance of gasoline in the marketplace. This would never happen, however, as China and India would gladly by up the extra 10% on the market. The US government would also resume stockpiling the strategic patroleum reserve. China also has plans to establesh a reserve. Say, there really is a 10% surplus of fuel. OPEC would simply cut production by 10%. Then, when consumption went back up, there would be a 10% shortage, and the price of gas would surge. Maybe OPEC would increase production by 10%. Maybe not. Most likely they would increase production by say 8%. Thus the price of gas would be 2% higher than before. Gas would then average $3.06/gallon, rather than $3/gallon.