Read this if you think gas prices are a conspiracy
Kelly McParland May 12, 2011 – 10:51 AM ET
Oh dear. This is getting embarrassing.
On Wednesday, Jonathan Kay praised a column by the Toronto Star’s Carol Goar, directly violating Rule 14-C in the National Post Employee Handbook, “Thou shalt not say nice things about the Toronto Star.” (Yes the National Post Employee Handbook was written by Moses.)
Now, less than 24 hours later, the Star has printed another column worthy of praise, this time by David Olive (who at least has the saving grace of having once worked at the Post). Olive challenges the official orthodoxy of people who know nothing about the oil industry, which evidently includes most of the people on the Star’s editorial board, by stating categorically that high oil prices are not the result of a world-wide conspiracy.
And, he adds, Big Oil, as it is known at the Star, hates high prices just as much as consumers do. Because it’s bad for business.
…on Tuesday, as news reporters covering the price spike visited the same pumps, they saw filling stations bereft of customers, or just one lonely motorist filling the tank. A store empty of customers does not make a profitable business.
Second, profit margins for gas-station operators and the refiners that supply them shrink as the retail price rises. If the refiner is suffering a periodic spike in crude prices, it must pass that extra cost on to the gas stations it supplies or go broke. In order not to scare business away, filling stations pare their own profit margin or operate at a loss to keep the selling price as low as possible.
That’s how it works in banking, an industry that hates high interest rates. Higher rates drive away prospective borrowers. And they reduce the “spread,” or gross profit margin, between the suddenly higher interest the bank has to pay on my guaranteed investment certificate and what it’s able to charge borrowers without depressing demand.
When a retailer’s cost of inventory and its operating expenses are low, it can charge you more for it. That’s the Wal-Mart story in a nutshell.
It’s not a conspiracy.
No conspiracy? Good heavens. One hopes Mr. Olive ensured the Star’s editors were amply supplied with smelling salts before they read his article, the better to avoid falling down in a dead faint. On the day he wrote it, those editors filled two section fronts with stories about the horrors of high gas prices and the mean trick Big Oil was playing on innocent Torontonians, with the usual mindless suggestions for alleviating the pain. (“Buy a scooter.” Yeah, that’s going to work. In February. On the 401)
Luckily for Goar and Olive, they can’t be fired. They work for a union shop.
National Post
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