Anyone who's filled up his gas tank recently has surely noticed the rapid rate by which gas prices are increasing. In the past two weeks, prices have skyrocketed a stunning 33 percent, and gallons may be hitting the $4 mark soon in Buffalo.
Naturally, this has led many to speculate as to why these sharp price hikes are occurring. Many have looked at the crisis in Libya as the culprit.
The argument is that the lack of Libyan oil being produced has increased the demand for crude oil, and therefore increased the price.
While this may be partially true, it seems unrealistic to think that it's the main cause of the price hikes. After all, Libya is not one of the U.S.'s main suppliers of gas, and only 3 percent of its exports go toward the U.S. Taking that into consideration, there would have to be another problem contributing to the high prices.
One other significant problem is the futures market, which always panics when dealing with the price of oil. Oil companies are deathly afraid of losing any profit.
Therefore, if they think oil prices will increase, they will preemptively increase the price of gas, so they don't lose any revenue. That's how corporations like Exxon were able to record profits during the gas crisis of 2008.
If the price of oil actually does go up, companies will simply increase the price of gas even further. It's a lose-lose situation for consumers.
Another factor contributing to the high prices is that old standby – gouging. With a situation like the one that Libya is going through, consumers expect the price to be high. Corporations are aware of this, so they set the price of gas artificially high, hoping that consumers will just think they "have" to do it. In reality, however, it's usually just a case of oil corporations being opportunistic.
Additionally, the gas we are buying now was acquired at the rate that existed before the Libyan crisis, which should raise eyebrows at the oil companies that quickly increased their prices.
Of course, this isn't the only way gas stations take advantage of naïve consumers. There are instances where the readings on meters at gas stations can be inaccurate, leading to people paying more for gas than they should.
Suppose a car's gas tank holds 13 gallons, but the reading on the meter says 15 gallons have been filled. Now, suppose the car owner doesn't know how much gas his tank can hold. He'll probably pay for the 15 gallons, and be blissfully unaware of the way he just got fleeced.
To put it simply, oil companies are not always honest. What's gone on in the past few weeks is another example of that.
While the crisis in Libya may have been a partial contributor to the recent hike in prices, the greed and opportunism of oil companies is almost certainly a contributing factor as well. They know what they can get away with, and they'll do it every time.
