Why are gas prices so low?

Question

Why all the hate for the gas companies. I say they are doing a great job!

It would seem that producing gas would be far more expensive than producing beer, soft drinks, Starbuck's coffee, or orange juice. I am paying $2.69 a gallon for gas at BP in Texas at the time. However, beer is $5.56 a gallon and Coke is $4.12 a gallon.

Remember that gas prices have about 40 cents of taxes already added in. The price being charged by Exxon, Shell etc. is actually about $2.29 before the government gets involved. How can they possibly keep their product cheeper than soft drinks ( just syrup and water)?

.

JC: "Stupider"? You are quite the wordsmith!

Jessica B: I guess you think the President has a nob on his desk that he can turn to "High" when he wants prices to go up?

Scratchy Joe: Chavez runs Citco not Exxon.

US Vet: Please tell me, old man, what precisely did the Democrats do to drop gas prices. And just for the record they starting going back up yesterday to the tune of 8 cents. Remember, I want details of how the Dems dropped prices.

Many of you are missing the point entirely.
. Exxon has to pay geologists and engineers to explore the ocean floor and the polar caps to find potential oil resources. They have to fight environmentalists at every turn. They can not build refineries so there capacity is limited. It is a very long and complicated process, yet they still get it to us for relatively cheap. Coke is easy, by comparison, to produce yet more expensive.

I am not saying that you don't need gas more than Coke, I am just saying that gas is cheap when you consider what is required to get it.

All of you explaining about how the demand for fuel is much higher than for Coke are making the point more impressive. The demand for fuel is higer and that should make the price higher still. Yet, fuel is still cheaper than coke.

In spite of it being more complicated to make and the demand for it being far higher, gas is cheaper.

Answer 1

You are using common sense on the Yahoo! Economics section. Someone is sure to report you.

I too am amazed that crude oil coming from below the Gulf of Mexico or a desert on the opposite side of the world and then converted into gasoline only costs what it currently costs.
We have it too good. That's the real problem.
.

Answer 2

I like the supply/demand concept and trying to compare coke and beer to gasoline, but it falls off on the fact that there are many alternatives to coke and beer (like water from a tap).

The point is that the governments (all of them) are allowing the oil and gas companies to make billions of dollars selling something that we all need (not want - NEED). (Exxon Posted a $9.28 Billion net income for the first THREE months of 2007). (Note that 3/4 of the profit is non-US sales).
Government(s) are making only limited demands on the auto industry to build more fuel-efficient vehicles and even less on making vehicles that use renewable energy sources.

They are doing nothing about the pricing that is set by the fuel industry.

Within the next 20 years, gas prices will get to a point that will be very expensive. As the oil/coal runs out the supply/demand principle will take over. The alternative fuel sources that are more expensive now will become the more preferred source.

In the meantime, we pay for the gas we use. When you see the SUVs and Hummers driving around, you know why we pay as much as we do.

Good Luck everyone; we will need it!

Answer 3

Prices are set at the price where the most profit can be made from a single unit. Soft drinks are sold small quantities--well, you don't fill up with 10-25 gallons at a time, advertised heavily and packaged attractively. They require more labor to be displayed and sold, usually that a clerk touch every 12 oz to 2 gallons of the product to have it "rung up" for sale. All of these things add to the cost per unit of soft drinks sold.

If gasoline were sold under similar conditions, the prices would be lots higher.

Answer 4

You are right: Gas prices are too low in the US. Even poor Indians pay $5 + for a gallon with per capita annual income of $800 against US per capita income of $ 41,000. The gas companies are pricing gas at the lowest. It is because of self-interest. If they wanted they could have raised gas prices to $6 a gallon. But that would have resulted in sudden sharp drop in demand.
Even the US government charges a small tax of 40 cents a gallon which is about 12 % of the price. In poor countries the Govt. collects about 40-50% of the gas price as tax.
Because gas prices are so cheap in US, alternative technologies based on environment-friendly solar energy is not getting commercialised for automobiles. It is in the long-term interest that US households shift quickly to sloar energy based autos rather than use gas whether originating from petroleum or from ethanol (which are in any case leading to increase in fodd prices). Earlier we see the writing on the wall the better.

Answer 5

you are absolutely rite Brian, gas companies do an excellent job of keeping petrol cheap

there is no conspiracies about monopolies controlling the prices. People who own cars are the one creating the demand, and this high demand creates jobs and tax revenue.

for those that complain about the price of gas, remember. Back in the day, before cars, we had to walk to get around. Cars are a privilege, a luxery good, not a guarantee. If you don't like it, then don't drive. Take a bus or ride a bicycle, but do not complain.

Answer 6

So rare to hear an aware American. Europeans have been paying up to three times as much as we for decades. They don't complain; they buy sensible cars and demand better mileage.

It's hard to understand American drivers' attitudes. They bought into the ridiculous giant car mentality, they refuse to care about mileage, but then they famously take no responsibility for their decisions.

Personally gas prices could triple and I'd think it was a great think. Everytime I see some blockhead driving an SUV on a city street, and I see that arrogant, road rage look on their face, I shoot them a giant f-u smile. I'm free. I don't even bother with a car.

______________________________

Sarah below, is wrong.

Next time you're in a supermarket, watch as families (sadly usually poorer ones) load up their carts with gallon upon gallon of soda. For many lower caste Americans it is a staple of diet.

Answer 7

You are right that gas prices are not as high as people make them out to be. Proportionately to early times, gas prices are actually cheaper now than they were in the 70's after cost of living adjustments.
However, gas prices are much higher than they should and could be. It is not a perfectly competitive market and they are limiting their supply, driving prices up much higher than they should be. Something should definitely be done to eliminate the power of the cartel, which would drive prices down.

Answer 8

I agree. I think gas is way too cheap. The government gives subsidies to oil companies, which keeps the price of gas artificially low. If gas were 6 or 7 dollars a gallon (like it should be), people would actually change their vehicle choices and opt for vehicles with great gas mileage, press much harder for alternative sources of energy, and gas companies would start losing money. BTW, it's easy to look at their profits and say they are making billions and screwing us. What you should actually look at is profit as a percentage of their business. Obviously huge companies will make huge profits. If you look at the percentages, oil companies make about the same in profits as McDonald's.

Answer 9

The reason gas is lower then a gallon of most other things is because is because we use so much of it at once. you don't drink 25 gallons of beer in a week but you can use that much in gas sometimes more. Plus it isn't that expensive now to make gas from oil. It is only heated until the oil seperates into the different gases collected and condensed and that is it. where as with beer, you have to mix all the ingredients, cook it, let it sit awhile, then they have to distill it and then can or bottle it. where as with gas there are gaint mass container that it is stored and sold.

gas is not as expensive as they tell you because they want to make a profit. you can tell that all they want is profit because the moment a new tech for alt. fuel comes out the buy it for millions.

Answer 10

You don't NEED beer or coffee or coke. They are luxury items, so of course they are more expensive. Tell this to someone who cannot afford to fill up their gas to go to work and drinks tap water. The cost of orange juice is completely and utterly irrelevant to the cost of gas. A ferrari might cost $100,000, but that doesn't impact what bicycle I am buying this summer.

Taxes are irrelevant, too, because they do not directly impact price increases. Tax rates are standard whether or not Exxon is selling their gas for $2.29 or $1.09. Meanwhile, they have beaten profit records every quarter for the last two years, so tell me again that gas cannot be cheaper than it is.