Econo-Cars

Gas in South Jersey was at $2.65 the day in mid-February when my wife and I bought our used 2003 Kia Sedona. By the time I needed my first tank just four days later, gas was $2.85. Now it’s up to $3.30 at most stations, with no end in sight.

Why is gas so high? According to those emails you get every year (and I did believe them and stop buying gas on Tuesday back in 1998) some greedy oil company executives are just raking in money at our expense. They jack up prices for fun and laugh at us as we try to keep up. Is that true? Well, I’m sure there is some truth to it in at least a little form. Oil companies are publicly traded as far as I know (at least in the US; in Venezuela, for instance, they are state-owned) and as such have stockholders and boards of directors. At least in the US, publicly owned corporations have a legal obligation to make the most money possible for their stockholders.

However, there is a lot more to it. Perhaps you once took an economics class, or were alive during the Reagan administration and heard two words that are often left out of those emails: supply and demand. Demand is what happens when you show up at the local gas station to fill up your car. Supply is the gas in the tank. Wait, there’s more! See, the gas station only has so much gas. It needs to get gas delivered. That comes in tanker trucks, which also need gas. With gas prices rising, it costs more money to operate those tanker trucks. The tanker trucks pick up gas at (here’s where my first-hand knowledge starts breaking down) a terminal. The gas comes to the terminal from a refinery. It comes to the refinery from ships. It gets on those ships from where ever the oil is pumped from the ground at.

What happens is, only so much oil is pumped out of the ground. Sure there is more down there, but OPEC only pumps so much at a time. We aren’t using much oil from our own land, but that’s beside the point. Only so much oil is pumped at a time, then shipped, then it has to be refined. There are a limited number of refineries, so only so much capacity can be refined at a time. Then, it has to be transported, through truck and or pipeline. Obviously, the Citgo that I normally use doesn’t have a pipeline coming straight to it, and neither does yours.

Now, out of the limited amount of oil being pumped out of the ground, shipped, and refined, there are an ever increasing number of places wanting that oil. Look at how quickly China and India are coming into the 21st century. Millions of cars are hitting the road in each country every month, and they all need gas. Now that finite amount of oil coming out of the ground has to go not only to us and Europe, but also to China and India and any number of places experiencing economic growth.

Gas prices won’t drop just because you stop buying gas at Citgo or Exxon-Mobile or whatever they are this week. Gas prices will only drop when supply increases or demand decreases. It’s simple economics. Supply won’t increase overnight, however. New wells have to be dug and new refineries have to be built as well as new pipelines. Try getting that through Congress.

I’ve been looking at the Hyundai Accent myself. More to come on that later.

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