Wednesday, April 02, 2008

Re: Oil price regulation

First, on the 9%, I just have to rely on those sources that I've seen around. I think that the Jacoby column had the average something less than that. But I think that it is the vertical margin he (and others) intends to address. It can't be completely vertical because Exxon/Mobile gets oil from some of its own reserves (at least I think it does) and some (I think the vast majority) from reserves owned by others.

As to the regulation of price, if you mean some governmental regulators out there setting price, then no. In Texas, the insurance industry is heavily regulated and often, as in title insurance, the prices are actually set by the state.

Excluding taxes, the prices are almost solely governed by supply and demand (with some effect that I don't pretend to understand by the speculators). In the 70's the spikes were triggered by the artificial decrease in supply by OPEC. Today, the spikes are due to our own increased demands as well as the increasing demands of two already huge, and growing, economies in Asia.

And why don't these folks rail against big Coca-Cola (a whopping 21% margin) or, what has to be much worse, big bottled-water or big Starbucks (I have no idea but $3.50 for a coffee seems outrageous to me)?

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