Monday, July 28, 2008

State of Market Forces, Demand Down, Profits Through the Roof!

Americans responded to high gasoline prices by driving 40 billion fewer miles so far in 2008. May saw the largest drop, with people driving nearly 4% less than last year. So what happened to gas prices, given the mantra that demand impacts price? One might expect gasoline prices to fall, maybe by 4% if there is a direct elastic relationship.

Nope, the cost of a gallon of gas soared while consumers parked their SUV's. Gas is up 110% from last year with the spike roaring through May. Since then the price levelled off, hovering around $4 a gallon.

What about profits from big oil? ConocoPhillips might as well put hose stockings over their head in their press release on second quarter earnings. They had record revenues and profits but never mentioned this fact to their shareholders one time! One shouldn't tell the customer that they're being robbed. ExxonMobil and ChevronTexaco share their windfall numbers later this week. Stay tuned and stay parked!

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