Tuesday, July 31, 2007 - Today, UCAN's Gasoline Survey showed that at $3.01 a gallon for regular grade fuel.

This is the lowest price in 4 months, even as oil prices surged to a new record close of $78.21 today on the NYMEX (source: EIA).  The new average is six cents lower than last Tuesday, and 50¢ cheaper than on May 8, 2007, when gasoline prices reached an all-time San Diego high of $3.50 a gallon. 

What's troubling is that when San Diego's gas prices spiked to $3.50 a gallon, oil was selling for $16 less per barrel.*

The reason gas prices are dropping while oil prices surge isn't because of market conditions; rather the price is dropping out of political fear: This is the time of year when quarterly profit reports are due from the oil industry, which has a justifiable concern that Congress will impose windfall taxes.

 In addition, House Resolution 969 (read text) is up for a vote soon in Congress. If enacted, H.R. 969  will force auto makers to improve fuel efficiency, and mandate electric utilities to generate 20% of their power from renewable sources (see Earth Times).  The last thing the oil industry wants to do is inflame the passions of lawmakers who will be eager to impose higher mileage standards and windfall profit taxes on Big Oil. 

And that's exactly what the oil companies are doing right now: they are are restraining their refinery profits until the heat is off in Washington. And as soon as that happens, you can expect the price of gas to resume its inevitable climb to $4 a gallon. Exxon just posted a profit of $10 billion, while Chevron reported a 24% increase in profits thanks to huge revenues from its downstream (retail)  fuel sales.

Clearly, something is terribly wrong with the market when the price of oil breaks records and the price of gasoline reaches its lowest price in four months. UCAN believes that much of the disparity between the cost of oil and the cost of gasoline is due to intentional price manipulation by the industry. "Certainly no-one is going to complain about low gas prices," says UCAN's Gasoline Project Manager Charles Langley, "but in a competitive market, our gasoline prices would be much lower."

Why would the oil industry limit its profits by keeping the price of gasoline artificially low? Because we are addicts, and Big Oil is treating us like addicts by keeping us hooked.  See our blog "The Algebra of Greed."

When the law of supply and demand is routinely broken, we call it "gougeonomics."  You can learn more about Gougeonomics  here.  

*There are 42 gallons of oil in a NYMEX barrel. Today,  (Tuesday, July 31, 2007), oil closed at a record-setting $78.21 a barrel, or $1.86 per gallon of gasoline.  On May 9, 2007, gas prices in San Diego reached a record high of $3.50 a gallon. On that day, oil cost $61.55 a barrel, or $1.46 a gallon. If the price of oil drives the price of gasoline, then logically, our gas prices should be as much as 40¢ a gallon higher than they were on May 8th.