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Barry Levinson Headshot

Don't Know Much About Oil

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I don't know much about the business world, I don't know much about economics. So you'll have to take what I say with a grain of salt. It's more about what I don't know than what I do know.

Here's my question: why does the gasoline price at the pump vary from day to day? You see this change on the signs. Suddenly it's up three cents. Up seven cents. Down four cents. It's always in flux. Why?

The answers we're always hearing are, "Government upheavals in the Middle East," or "Issues with super tankers." Or "Nervous about the economic health of the global economy." All those issues may in fact be real, but why does the price of the oil at your nearby station suddenly jump at the first sign of oil company anxiety?

The oil at the gas station is sitting under the pump. It's been bought at a certain price. So why does it change daily, based on the fears of the oil company?

If you went into a car dealership and you were interested in some Buick at a given price, the salesman doesn't suddenly come in and say the Buick went up $36 today because they're having difficulty with supplying enough grills to the front of the car. They bought the car at a certain price, therefore they sell it at a certain price. Sometimes at a lower price. But one thing is for certain, the price of the Buick does not go up and down throughout the course of the week.

To take it one step further, the earthquake in Japan, which disrupted the entire Japanese auto industry, did not set off an uptick in the cost of a Nissan or Toyota or Honda. The oil industry doesn't need a natural disaster to actually happen though. Just their anxiety over the possible disruption of the Straits of Hormuz can cause the gas to increase in your neighborhood by four or five cents overnight.

A slightly wilder analogy. You decide to go for a big purchase. You hear that art is a good investment. You gather your courage and you go to your local gallery. You see a painting, a Julian Schnabel that catches your attention. You're interested. You see the price. You wonder if you could afford it. These are your savings. You could put it in the bank. But this might return a greater investment in the future. Suddenly the gallery gets a phone call. "Schnabel has sprained his thumb on the hand that holds the brush. He may or may not be able to paint full time for several weeks." Suddenly the gallerist quickly hangs up the phone, crosses the gallery, and increases the painting's cost by $183. "Why?" asks the potential buyer. The gallery man responds, "We have anxiety over Julian Schnabel's thumb."

And then the oil industry has the other gimmick they throw in there. Look carefully. Gas is $3.87.04. Or $3.87.05. It is the only commodity I know of that you pay a percentage of a penny on. You don't go for a Big Mac and it costs $3.37.03. Whatever is happening in the cattle markets, cows coming down with diseases or what have you, does not shake the price of the Big Mac or the Big Whopper or whatever Wendy's calls its beef patties on any given day. Same price. Every day. The fries do not fluctuate no matter what's going on in the potato world. Coke and Pepsi hold the price line. Nothing fluctuates daily in price like oil. And for whatever reason, we have accepted it.

One final thing: In your local area, why is all gasoline almost the exact same price? Exxon Mobil. BP. Shell. At the local pumps, almost identical price. Why is that? You would think one of them would be known as "The Low Price Oil Company." Their slogan: "The highest performance gasoline at the Lowest Price." As opposed to other types of companies, oil companies never have special sales. Never the "Winter Sell-off." Never the "Spring Clearance." Never "The Back-to-School Sale." All other businesses have some kind of sale celebrations going on periodically. Not when it comes to oil.

Years ago there used to be price wars. One station undercutting another. But that's when real people used to own the gas stations. That's when hardworking men maintained their service station and provided services, like checking your tire pressure. Your oil. Cleaned your windows. Pumped your gas. And were happy to see you. And actually kept their toilets clean, just as a bonus. Just because they cared. That's when gas was probably around 29 cents a gallon at the pump.

Any way, these are just a few questions. Unfortunately, I have yet to find one intelligent answer. Or at least one that I can comprehend.