With pump prices stuck above $3 a gallon, Mark in California -- along with a number of other Answer Desk readers -- have decided it's time for a nationwide gasoline boycott. If they ever pulled it off, gas boycotters could be in for a nasty surprise.
HOW ABOUT A GAS BOYCOTT?
Is it true that if the American people decided to stop buying gas – period - the oil and gas companies would have no choice but to lower the price of gas because they produce so much that they would have no place to put or store the gasoline?
Mark P. --Colton, Calif.
A short-term boycott would have little long-term impact on pump prices — even if you could convince everyone in the country to stay put for a few days. (Of course, you’d also have to suspend all deliveries, require police to patrol on bicycles and tell those in need of a fire truck they'll just have to hold on for a few days. You get the idea.) And as soon as demand went back up to “normal” levels, you’d be right back where you started.
In fact, the impact of a widely organized boycott would probably drive prices higher in the short-term, as all the boycotters topped off their tanks to get ready for gasoline fasting. It’s been estimated that on any given day there’s more storage available in the combined empty space in the gas tanks of all the vehicles on the road than there is in the national gasoline distribution system. If we all filled up at once, we’ll likely drain the system dry. Then you could be looking at $10 a gallon gas.
So it’s a better idea to try to conserve as much as possible, every day. That way, you can still get on with your life.
GAS PAINS
How big is current daily nationwide fuel consumption in the USA?
Dmitriy N.,Canyon Country, Calif.
American drivers burned through an average of a little over 9 million barrels a day (that's a little more than 378 million gallons) in the week ending Sept. 2, the latest figures available from the U.S. Energy Information Agency.
But even those 10-day-old numbers were already beginning to show a drop in consumption heading into the Labor Day weekend -- typically one of the busiest driving holidays of the year. With prices up sharply from last year, demand for gasoline that week fell by more than 500,000 barrels (about 21 million gallons) a day from the week before. (That was also about 500,000 barrels a day less than Labor Day, 2004.
Demand always falls off when the summer driving season winds down, and it keeps falling into the winter months: It’s just too cold for most people to go camping in to Yosemite. By last February, consumption hit a low of about 8.8 million barrels a day. With gas prices running roughly $1.20 a gallon higher (on average) than they were a year ago, it’s a pretty safe bet U.S. gasoline consumption will keep dropping this fall.
The question no one can answer is whether demand will fall fast enough to prevent tight supplies from driving prices even higher. Even before Katrina hit, U.S. refineries were barely able to keep up with demand. Now, with some 5 percent of refining capacity still knocked out by storm damage, it's going to take a flood of gasoline imports to take up the slack. A lot will depend on how long it takes to get those U.S. refineries repaired -- and find a place to live for the workers made homeless by the storm.
In the meantime, leave the SUV in the driveway whenever possible. It’ll help cut consumption. And you’ll save a few bucks, too.
THE RIGHT TO CHEAP OIL?
Why do so many people think the world owes us cheap oil? Does Boeing sell aircraft overseas for below market or below production price? Does Caterpiller or John Deere sell overseas at hurtful discounts? How much is a bottle of Coke in Saudi Arabia or Venzuela?
Mike C., Dayton, Ohio
Maybe it’s because the modern oil industry was invented in the U.S. and much of latest technology used to find and extract oil from the ground is still developed here.
But you're right, Mike: Judging from our mail, Americans apparently have a Constitutional right to cheap oil. (I’ve re-read the document a number of times, and I can’t find that particular clause in there. But enough people insist on it that it must be true.)
The framers of the governments of the rest of the developed world seem to have forgotten to include such a clause, however. Europeans pay double U.S. pump prices – largely because their governments have taxed gasoline to keep a lid on consumption. That’s a big reason SUVs and pickups haven’t caught on as well over there. (Smaller country roads and skinny urban side streets also may have something to do with it.)
Even those countries that have take steps to maintaining cheap supplies of gasoline with government subsidies are having a hard time keeping drivers happy at these prices. China, for example, has recently begun allowing pump prices to rise closer to what the rest of the world pays.
The cheapest place to guy gas is still Iraq, where you can top off for about a nickel a gallon, according to recent report by the International Monetary Fund.
As for the cost of a bottle of Coke, we called the company, but they were not able to provide an answer by our deadline. (And their international Web site doesn't list operations in Venezuela or Saudi Arabia.)
Any readers out there who can help us pin down the cost of "making it real" in Caracas or Riyadh?
'OLD' VS. 'NEW' OIL
Why do gas prices rise merely based on hearing that oil prices are rising but the opposite is not true? Aren't dealers bound to sell "old" gas based on what they paid for it?
Luis E., Clifton Park, N.Y.
They are if they’ve signed a contract agreeing to do so. But the price of a barrel of oil -- or a gallon of gasoline -- is set by the last guy who needs to buy one and is willing to pay for it. He doesn't care whether it just came fresh from the refinery or sat in a storage tank for weeks. It all burns the same. (In any case, gasoline isn't "time stamped" like beer, so it's pretty hard to keep track of whether a gallon of gasoline is "old" or "new.")
But there’s an easier way to find out if your local gasoline dealer is overcharging you: check the latest gasoline “futures” price, which is set by traders minute-by-minute based on supply, demand – and fears of prices going higher or lower. Pump prices don't track futures prices in lock step, but they tend to rise and fall together. If you see a sharp increase at the pump, and the futures prices haven't moved in weeks, it's time to shop for a new gas retailer. (For more on who else gets a piece of the dollar you pay at the pump, check out our column from a few weeks ago.)
Keep in mind that much of the oil and gasoline that’s sold every day often changes hands for less than the “spot” prices that apply to the sale of the latest barrel. Mostly, these “futures” contracts end up in the hands of oil suppliers and major commercial users of oil like refiners. Some contracts are bought and sold by professional investors hoping to ride the current trend and pocket a few bucks, a practice that has been going on since the Dutch first started trading commodities like spices more than three centuries ago.
Occasionally, dealers make fixed-price contracts with individual consumers like you and me, usually for a season’s worth of heating oil. With heating oil prices up sharply, and no one able to predict where they’re headed, most heating oil dealers have stopped offering fixed-price contracts this season.
The reason: If you sign up for a fixed-price contract now, and heating oil prices fall this winter, your heating oil dealer is stuck with two unappealing alternatives. Since he's already locked into paying a wholesale price based on what he agreed to charge you (after buying one of those futures contracts), he either has to charge you the higher-than-market price you agreed to, or he has to eat the loss himself.
If that happened too often, we’d run out of heating oil dealers.