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Thread: $69.00 Oil

  1. #61
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    The other thing that Daffy needs to look at is those years when there isn't a presidential election in the U.S. Tdvance said that prices always go down after labor day. Well, the presidential election is always two months after labor day - so if tdvance is correct, then Daffy just didn't notice other years when the price went down in the fall (confirmation bias).

    http://www.gasbuddy.com/gb_retail_pr...t.aspx?time=24

    In the above link, you can put together up to a six year chart for U.S. or Canadian gas prices. Every single year, the price peaked over the summer and fell after labor day. It also starts to climb again as December approaches (holiday travel, increase in demand). Daffy just happens to notice it more during a presidential election year. Even every other year could be justified by his theory due to congressional elections. But it wouldn't explain every single year.

  2. #62
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    I am keeping an open mind, guys. I would appreciate it, though, if someone would answer my questions:

    a) How supply and demand operates with no competition.

    b) How it can be supply and demand when higher costs equal higher profits.

    Not being flip; those are serious questions.

    We'll see if gas prices go back up immediately after this election. If they do, that's asking a LOT of coincidence.

  3. #63
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    Quote Originally Posted by Daffy View Post
    However, I will concede your point if, after the election, prices do not immediately start to rise again the way they did last time. If they do, will you do the same?
    Based on the above charts, they will start to climb after the election. Holiday travel demand. Happens every year with our without an election. Happens in both the U.S. and Canada. Holiday season immediately follows election season for those in the U.S. So no concession of point. Overlaying the U.S. and Canadian charts illustrates nicely how much more in gas taxes Canadians pay. Seems to be over $1.00 a gallon more in taxes alone than we pay in the U.S.

    Quote Originally Posted by Daffy View Post
    d) The reasons we are given for gas prices rising (or falling) keep changing. Am I the only one who notices that? Am I the only one who notices that prices are falling even though production is down?
    The reasons keep changing because there exist many reasons along the supply chain than can impact prices. If a refinery goes down when demand is high - that will drive prices at the pump up in the face of falling crude prices. Production is down because demand is down. No sense in producing a bunch of crude that nobody is asking for right now. Prices are also falling because demand is down. They slowed production in order to slow the drop in price, but it wasn't enough to stop the decent, just to slow the rate down.

    If my faucet is running and I turn it off, but don't turn it far enough, it will still drip.

  4. #64
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    Quote Originally Posted by Spock Jenkins View Post
    Based on the above charts, they will start to climb after the election. Holiday travel demand. Happens every year with our without an election. Happens in both the U.S. and Canada. Holiday season immediately follows election season for those in the U.S. So no concession of point. Overlaying the U.S. and Canadian charts illustrates nicely how much more in gas taxes Canadians pay. Seems to be over $1.00 a gallon more in taxes alone than we pay in the U.S.



    The reasons keep changing because there exist many reasons along the supply chain than can impact prices. If a refinery goes down when demand is high - that will drive prices at the pump up in the face of falling crude prices. Production is down because demand is down. No sense in producing a bunch of crude that nobody is asking for right now. Prices are also falling because demand is down. They slowed production in order to slow the drop in price, but it wasn't enough to stop the decent, just to slow the rate down.

    If my faucet is running and I turn it off, but don't turn it far enough, it will still drip.
    We posted at the same time.

    Come on...holiday travel changes the day after the election? And affects the pump prices that quickly? In other words, instantly? Seems a bit of a stretch to me.

  5. #65
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    Quote Originally Posted by Daffy View Post
    I am keeping an open mind, guys. I would appreciate it, though, if someone would answer my questions:

    a) How supply and demand operates with no competition.

    b) How it can be supply and demand when higher costs equal higher profits.

    Not being flip; those are serious questions.

    We'll see if gas prices go back up immediately after this election. If they do, that's asking a LOT of coincidence.
    a) - You're the one saying there is no competition. There is competition, albeit limited. People can carpool and reduce demand. People can take public transportation and reduce demand. There exists ethonal and bio-diesel, which do not depend on crude. Some cars are converted to run on natural gas, which do not depend on crude. Eventually we will get an electric car acceptable for daily use.

    b) - When you're operating on a mark up basis and your costs are limited to Cost of Goods Sold (COGS) - you don't have much else eating at your margins. Let's say you work selling widgets and you work for 5% commission. If you sell 100 widgets for $5 - your comission is $25. Next month widgets are going for $10 and you still manage to sell 100 of them. Your commission is $50. Your profit went up even though your cost did. You have no other overhead to eat at your margins. Let's say you only sold 75 of them because of the higher price, your commission still went up to $37.50. Even if you cut your commission to 4%, your profit still would go up to $30. This the really basic reason oil company profits hit record levels.
    They're never going to pay you to take it off their hands.

    Regarding you're last statement - why? The chart I linked to shows that the price always climbs in anticipation of or during the holiday season, which immediately follows the election. Now why did they put that nasty old election right before the holiday season anyway? Just a bit too coincidental for my taste.

    Just because somethign comes after something, doesn't mean that it caused it.

  6. #66
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    Quote Originally Posted by Spock Jenkins View Post
    Just because somethign comes after something, doesn't mean that it caused it.
    Granted. If it happens again this time, it will be asking a LOT of coincidence, though.

    Also, last year prices did not fall drastically at the same time...there was no presidential election. But you're right...that doesn't prove causality. It is pretty strong evidence, though.

    I mean, really, the very next day?

  7. #67
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    Quote Originally Posted by Daffy View Post
    Granted. If it happens again this time, it will be asking a LOT of coincidence, though.

    Also, last year prices did not fall drastically at the same time...there was no presidential election. But you're right...that doesn't prove causality. It is pretty strong evidence, though.

    I mean, really, the very next day?
    Evidence please. You keep saying this.

    What was the national average price at the pump on November 2nd, 2004 vs. November 3rd, 2004.

    http://www.allbusiness.com/energy-ut...5548715-1.html

    From November 16th, 2004:

    ORLANDO, Fla. -- The national average price of self-serve regular gasoline is continuing to drop after nearing record highs shortly before the U.S. Presidential election, AAA's daily, online Fuel Gauge
    Here it says the price was reaching records before the election and began to drop after it. Even the one example you keep citing disagrees with your memory.

  8. #68
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    Quote Originally Posted by Spock Jenkins View Post
    Evidence please. You keep saying this.

    What was the national average price at the pump on November 2nd, 2004 vs. November 3rd, 2004.
    There you have me, sorta. I am basing it on a survey I did myself of gas stations within a 75 mile radius of where I live. Probably looked at about 25 stations. All of them climbed from .10 to .25 cents the very next day.

    And prices nationally began to shoot up very quickly...I just can't say first hand that it was the very next day. But they rose amazingly fast. In any case, they have not followed that exact pattern in any year except the last presidential election year and (so far) this one.

    Coincidence? Maybe. I don't believe it, but maybe.

  9. #69
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    "a) How supply and demand operates with no competition."

    The Laffer curve might be higher (or lower? I forget which axis is which) in a monopoly than in free competition, but it's still there, and the location of the equilibrium point is determined by supply and demand.


    "How it can be supply and demand when higher costs equal higher profits."

    That's not uniformly true. When something gets priced out of the market, either the price comes down or profits disappear. Demand goes down as price goes up (as happend with oil recently), less so in a monopoly than with competition, but it still does. If the monopoly tries to maximize profits, it will set a price dependent on supply and demand--any higher, reduced demand reduces profits. Any lower, the increase in demand is not enough to make up for reduction in price. I think the curve is roughly quadratic (or it looks that way, those I've seen in textbooks) and there is a definite maximal-profit equilibrium point.

    If you think about it, that has to be true--or else they'd either charge infinity (i.e. refuse to sell it) or give it away for free. The former does happen in cases of too-low supply. The latter happens if supply is very high or demand very low (e.g. you don't pay for the air you breathe). In anything that gets sold, the balance point is somewhere in between. And supply and demand determine that balance point.

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    Quote Originally Posted by tdvance View Post
    "a) How supply and demand operates with no competition."

    The Laffer curve might be higher (or lower? I forget which axis is which) in a monopoly than in free competition, but it's still there, and the location of the equilibrium point is determined by supply and demand.


    "How it can be supply and demand when higher costs equal higher profits."

    That's not uniformly true. When something gets priced out of the market, either the price comes down or profits disappear. Demand goes down as price goes up (as happend with oil recently), less so in a monopoly than with competition, but it still does. If the monopoly tries to maximize profits, it will set a price dependent on supply and demand--any higher, reduced demand reduces profits. Any lower, the increase in demand is not enough to make up for reduction in price. I think the curve is roughly quadratic (or it looks that way, those I've seen in textbooks) and there is a definite maximal-profit equilibrium point.

    If you think about it, that has to be true--or else they'd either charge infinity (i.e. refuse to sell it) or give it away for free. The former does happen in cases of too-low supply. The latter happens if supply is very high or demand very low (e.g. you don't pay for the air you breathe). In anything that gets sold, the balance point is somewhere in between. And supply and demand determine that balance point.
    Thank you for the reasoned answer. I am mulling it over.

    So far, the only limit I see on what they can charge is if they go to high, they drive the economy into recession, or even depression. I don't consider that supply and demand, but maybe that's semantics. As I say, you gave me things to think about.

    Perhaps you can explain for me (serious question) why, if supply and demand is controlling things, the prices at gas pumps are so close from station to station? Back in the days when we really did have competition (even to me), you saw "price wars" all the time. Not so now.

  11. #71
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    Quote Originally Posted by Daffy View Post
    Perhaps you can explain for me (serious question) why, if supply and demand is controlling things, the prices at gas pumps are so close from station to station? Back in the days when we really did have competition (even to me), you saw "price wars" all the time. Not so now.
    I stated earlier, margins at the pump are rather slim. With only a few actual suppliers, many stations are likely getting their gas from the same refineries. Gas stations make their margins on the c-store products inside. You're more likely these days to see price wars on slurpies and hot dogs then on gas.

    Back in the days of $10 per barrel oil and minimal gas taxes, the stations themselves likely had more of a margin to work with when pricing gas.

  12. #72
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    The limit is what people will pay--if gas prices are so high that coal-burning cars are cheaper, that's what will be made and what people will drive instead. Smaller increases in price result in things like, driving less, using the smaller car more and the SUV less, etc. Raising prices lowers demand so prices seek the maximum profit level, which can't be infinite clearly.

    You would expect prices to be similar between stations--as raising prices at one station without doing so at another means people will start moving from one station to the other.

    The reason they are not exactly the same is not everyone moves from one station to another for various reasons: good location, other services/goods besides gasoline, etc. Also, a store that gets its profit mostly from goods and just has gas pumps as an afterthought might charge a lower profit margin on gas to get people to visit the store. These are typically slight differences.

    Price wars might happen if gas stations are charging higher than the optimal price--that can happen temporarily--the farther from equilibrium a price is, the more economic pressure to move it back. One way that pressure is manifest is one station realizing it will make more profit if they drop the price a little, which reduces pressure on that station while increasing on the others. If the price they are charging is pretty close to optimal so cutting prices reduces profits, the station is not so likely to reduce prices.

  13. #73
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    Quote Originally Posted by tdvance View Post
    The limit is what people will pay--if gas prices are so high that coal-burning cars are cheaper, that's what will be made and what people will drive instead. Smaller increases in price result in things like, driving less, using the smaller car more and the SUV less, etc. Raising prices lowers demand so prices seek the maximum profit level, which can't be infinite clearly.

    You would expect prices to be similar between stations--as raising prices at one station without doing so at another means people will start moving from one station to the other.

    The reason they are not exactly the same is not everyone moves from one station to another for various reasons: good location, other services/goods besides gasoline, etc. Also, a store that gets its profit mostly from goods and just has gas pumps as an afterthought might charge a lower profit margin on gas to get people to visit the store. These are typically slight differences.

    Price wars might happen if gas stations are charging higher than the optimal price--that can happen temporarily--the farther from equilibrium a price is, the more economic pressure to move it back. One way that pressure is manifest is one station realizing it will make more profit if they drop the price a little, which reduces pressure on that station while increasing on the others. If the price they are charging is pretty close to optimal so cutting prices reduces profits, the station is not so likely to reduce prices.
    In the case of oil (pun intended), it is NOT what people are willing to pay. It is a commodity that they MUST have (in most cases) to survive. Once again, Supply and Demand is not the controlling factor...they will pay as much as the CAN pay to survive.

    This to me is one of the crucial differences, that makes me question Supply and Demand in this case. It's not what they WILL pay, it's the maximum they CAN pay.

    The whole situation is becoming alarmingly like the old company stores in the 19th century. Workers had no choice but to buy from that store, and ended up in debt to the company. That was not supply and demand (although the owners tried to say it was), either. Although, based on what people here are saying, I guess you would probably say so too.

  14. #74
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    Quote Originally Posted by Daffy View Post
    And prices nationally began to shoot up very quickly...I just can't say first hand that it was the very next day. But they rose amazingly fast. In any case, they have not followed that exact pattern in any year except the last presidential election year and (so far) this one.
    Daffy, Spock's posted article was two weeks after the election and prices were still dropping.

    Quote Originally Posted by Daffy View Post
    Coincidence? Maybe. I don't believe it, but maybe.
    No, it's not even coincidence.
    Sometimes you win, sometimes you learn

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    Quote Originally Posted by SeanF View Post
    Daffy, Spock's posted article was two weeks after the election and prices were still dropping.


    No, it's not even coincidence.
    Still paying $1.50, are we?

    In any case, I only know what I checked out myself...and in California they started rising immediately. The very next day.

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    Since Daffy stared posting on this thread, the price of crude oil has shot up 4%!!!!
    Coincidence? I think not...

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    Quote Originally Posted by PraedSt View Post
    Since Daffy stared posting on this thread, the price of crude oil has shot up 4%!!!!
    Coincidence? I think not...
    You found me out. I control...everything.

  18. #78
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    Quote Originally Posted by Daffy View Post
    Still paying $1.50, are we?
    So now four years later is "amazingly fast."

    Quote Originally Posted by Daffy View Post
    In any case, I only know what I checked out myself...and in California they started rising immediately. The very next day.
    I'm not denying your personal experience. What I'm denying is - first, that it was a nationwide occurance; and, second, that the election had anything to do with it.
    Sometimes you win, sometimes you learn

  19. #79
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    Quote Originally Posted by SeanF View Post
    So now four years later is "amazingly fast."
    Didn't say that, didn't even imply it in that sentence. Was just making a flip remark. Sorry I didn't use a smilie for ya.

    I'm not denying your personal experience. What I'm denying is - first, that it was a nationwide occurance; and, second, that the election had anything to do with it.
    Hardly just a personal experience...it was state-wide. Nevertheless, I cannot prove it was nationwide (and am not going to take time to do the research), so I will concede your point that nationally, it did not start occurring the very next day.

    That doesn't change much. After dropping dramatically just before the election, they rose even higher after.

    The next October/November, and the one after that and the one after that, we did not see the same drop. This time, just before another presidential election, we do. So much for seasonal explanations. But you can believe whatever you like.

    Look, I am not saying that there is a conspiracy. Why would there be? Nothing here is illegal. All I am saying is that to claim gas prices are a direct result of Supply and Demand, is, at best, leaving out some very crucial factors.

    If you would like to know my only real suggestion: enforce the existing anti-trust laws. As I said before, they were originally enacted specifically to control Standard Oil.

    Since I am starting to repeat myself, I will sign off on this topic. See you in December.

  20. #80
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    Quote Originally Posted by Daffy View Post
    Hardly just a personal experience...it was state-wide. Nevertheless, I cannot prove it was nationwide (and am not going to take time to do the research), so I will concede your point that nationally, it did not start occurring the very next day.
    By the way, you can customize that chart linked above to local areas. I pulled one for Orange County, CA for the past six years. It shows a pretty dramatic decrease in price at the pump that appears to have begun some time in October (prior to the election) and continued through year end. I'm just not finding anything to support your claim.

    I'm really looking. Are you?

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    Quote Originally Posted by tdvance View Post
    "a) How supply and demand operates with no competition."

    The Laffer curve might be higher (or lower? I forget which axis is which) in a monopoly than in free competition, but it's still there, and the location of the equilibrium point is determined by supply and demand.
    I think you mean the supply curve.

    Quote Originally Posted by Daffy View Post
    Thank you for the reasoned answer. I am mulling it over.

    So far, the only limit I see on what they can charge is if they go to high, they drive the economy into recession, or even depression.
    In the united state, gasoline consumption was lower during the period of very high prices than it was a year previously.

    Quote Originally Posted by Daffy View Post
    I don't consider that supply and demand,
    I disagree with the premise that the only limit to prices is recession-induced drop in demand, but if it were, that's exactly the operation of supply and demand in a monopolistic market (again, I disagree that it is monopolistic). A monopoly provider sets prices to maximize profits. The slope of the supply curve is different in a monopolistic market than in a competitive market, but as tdvance says, it's still there.

    If the price is whatever the suppliers decide it should be, why was oil $11 a barrel a few years ago? Were they feeling charitable?

    Supply also responds to price changes - as prices increase, suppliers have incentive to explore and devlope new supplies of energy that were not economical to exploit before. THis is happening. Wind farms are being put up in places where they weren't economical before, new oil supplies that were too expensive to exploit before are being developed, and so on.

    Quote Originally Posted by Daffy View Post
    Perhaps you can explain for me (serious question) why, if supply and demand is controlling things, the prices at gas pumps are so close from station to station? Back in the days when we really did have competition (even to me), you saw "price wars" all the time. Not so now.
    If one station charged a higher price than everyone else, very few people would buy their gas there, so the operator of that station has huge incentive to match the prevailing price. This is typical for commodity markets, in which the product produced by one supplier is pretty much the same as the product produced by another. (Maybe there can be some small differences due to things like location effect, a station alongside the highway could charge a slightly higher price because people don't want to take the trouble to drive off the highway to look for cheaper prices.) If products are differentiated, then we wouldn't expect to see the same prices - the Mercedes Benz dealer does not charge the same price for cars as the Volkswagen dealer, because their products are different. But gas is pretty much gas - if someone's price is too high, they lose all their business, if their price is too low, they will be oversubscribed and have an incentive to raise prices.

    Regarding oil being a necessity for survival, how much do people need to survive? Per capita oil consumption in the united states is twice that in switzerland, five times that in chile, seven times that in turkey, and eleven times that in colombia. Per capita oil consumption is much higher than it was in the past. And yet, people in those other countries somehow survive, as did people from the past. There are many things people can do to reduce their oil consumption if they choose to do so. They can drive compact, fuel efficient cars instead of SUVs. They can drive their cars less. They can take public transportation. They can go on holiday close to home instead of travelling across the country or around the world. They can move closer to their workplaces. They can live in smaller houses or apartments, and they can do things to improve the energy efficiency of their homes.

    Energy demand is relatively inelastic (at least short-term), meaning that demand is not very sensitive to changes in price. But to say that people cannot do anything to reduce their energy consumption if they want is simply not true. And even if energy demand is completely inelastic (doesn't change at all with prices), that doesn't mean supply and demand cease to operate.

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    For the benefit of tdvance.

    How are the gas prices in your area, Daffy?

    I've seen as low as $2.11 here recently.

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    Quote Originally Posted by Spock Jenkins View Post
    For the benefit of tdvance.

    How are the gas prices in your area, Daffy?

    I've seen as low as $2.11 here recently.
    Holding more or less steady. If they have not started rising dramatically by December I will readily concede that I was wrong. Believe it or not, that's what I actually hope for.

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    Quote Originally Posted by Daffy View Post
    Holding more or less steady. If they have not started rising dramatically by December I will readily concede that I was wrong. Believe it or not, that's what I actually hope for.
    I fully expect them to rise with the coming of the holiday season. That would be a perfectly normal response to an increase in demand. More shipping of goods, more travel to see relatives, rise in demand for heating oil due to colder temperatures.

    I will be quite surprised if prices don't increase as that has been the historical norm around this time of year. Why one would attribute it to the election - I do not understand.

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    Quote Originally Posted by Spock Jenkins View Post
    I fully expect them to rise with the coming of the holiday season. That would be a perfectly normal response to an increase in demand. More shipping of goods, more travel to see relatives, rise in demand for heating oil due to colder temperatures.

    I will be quite surprised if prices don't increase as that has been the historical norm around this time of year. Why one would attribute it to the election - I do not understand.
    We have already entered the "holiday Season" and prices have dropped dramatically. And they did NOT do so last year or the year before that. They did during the last presidential election, though.

    Why?

    But, whatever, change whatever parameters you like to cling to your viewpoint. As for me, though, if prices stay relatively constant for a while, I will admit I was wrong about the election being an influence.

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    Quote Originally Posted by Daffy View Post
    We have already entered the "holiday Season" and prices have dropped dramatically. And they did NOT do so last year or the year before that. They did during the last presidential election, though.

    Why?

    But, whatever, change whatever parameters you like to cling to your viewpoint. As for me, though, if prices stay relatively constant for a while, I will admit I was wrong about the election being an influence.
    The reason why they've stayed low is pretty obvious: Demand has plummeted. Nobody's projecting a "good" holiday shopping season. Wal-Mart is about the only retailer to see an uptick in sales. Less demand for consumer goods means that there's fewer items being shipped around the world. Which means less demand for fuel.

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    Quote Originally Posted by Tuckerfan View Post
    The reason why they've stayed low is pretty obvious: Demand has plummeted. Nobody's projecting a "good" holiday shopping season. Wal-Mart is about the only retailer to see an uptick in sales. Less demand for consumer goods means that there's fewer items being shipped around the world. Which means less demand for fuel.
    You swiped my point!

    This situation is more like 1985 than 2004. A drop in demand has caused the price drop. The cost of fuel finally got high enough to force conservation. Should the demand stay down, OPEC will have to seriously cut production to get the price to go back up to the maximums we saw this summer.

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    Quote Originally Posted by Tuckerfan View Post
    The reason why they've stayed low is pretty obvious: Demand has plummeted. Nobody's projecting a "good" holiday shopping season. Wal-Mart is about the only retailer to see an uptick in sales. Less demand for consumer goods means that there's fewer items being shipped around the world. Which means less demand for fuel.
    So...demand has plummeted (true) and prices have dropped. That makes sense, of course.

    But in years past, when demand dropped seasonally, prices went up anyway. That right there shows that supply and demand cannot be the only controlling factors.

    Look, I am not saying supply and demand are not influences...of course they are; but to say they are the sole cause of prices being at any given level makes no sense.

    As far as the presidential election being an influence...once again, I am prepared to admit I was wrong if prices stay relatively stable for the next few weeks.

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    Quote Originally Posted by Daffy View Post
    So...demand has plummeted (true) and prices have dropped. That makes sense, of course.

    But in years past, when demand dropped seasonally, prices went up anyway. That right there shows that supply and demand cannot be the only controlling factors.
    There's two kinds of seasonal demands, however. Gasoline and home heating oil. Generally, when the demand for gasoline bottoms out, the demand for home heating oil spikes. A gallon of home heating oil requires more crude than does gasoline, so even though the demand for home heating oil is limited to primarily the northeastern US, it can have a disproportionate affect on energy prices.

    This year, however, things have shifted dramatically. People have either switched to a less costly form of heat (or installed supplimental heat sources like wood stoves), made the mistake of buying early when it looked like energy prices were going to skyrocket (in hopes of beating the higher costs which were expected when winter rolled around), or they're not buying because they can't afford it.

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    Quote Originally Posted by tdvance View Post
    "a) How supply and demand operates with no competition."
    ...the location of the equilibrium point is determined by supply and demand.
    "How it can be supply and demand when higher costs equal higher profits."
    That's not uniformly true. When something gets priced out of the market, either the price comes down or profits disappear...
    So how to explain the major oil companies last quarter's RECORD PROFITS, led by Exxon:
    October 30, 2008
    ...Exxon benefited from the high price of crude oil. Its profits amounted to $162m a day or $113,000 a minute...
    The Guardian
    Why don't their profits remain relatively flat if they are not gouging us?

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