Today’s column comes from a comment from Tessa, one of my readers.
Before we go any further, I want to thank Tessa and all my readers or listeners, especially those who take the time to comment. My mission is to create a space where we can discuss the day’s economic issues. So thank you all for listening or reading.
Tessa is responding to a comment I made that our high gasoline prices are due to our “horrific energy policy…” (I can be a little hyperbolic at times.)
“Nothing to do with American energy policy. Gas, and petrol has risen in price in all countries. The reason is simple. Gas/petrol companies have put the prices up so that they can make more profit.
Until profit-making is banned or controlled, there is nothing that anyone can do.”
Tessa’s comment is very similar to President Biden’s speech calling out gas stations the other day. Tessa and the President both see oil companies at the heart of the current gas crisis.
So let’s unpack this argument.
First, is it true that gas prices are rising in all countries?
It may be a surprise, especially for those who live here in the US, but gasoline prices are not rising in all countries.
Gasoline prices are rising dramatically in North America, the US and Canada, and Europe. These countries have seen dramatic rises in the price of gas. Here in this country, gas has more than doubled in price in the past couple of years. And the same is true for many European countries.
But this is not a worldwide trend.
Generally, prices have held steady for years in those counties with their gas production. Look at all the major Middle East Oil Producing countries. The price for their gas is stable as a rock. Saudi Arabia, Kuwait, and Iran haven’t seen a price hike in gas in years. The same is true as you move around the world to places like Nigeria and Venezuela. And oil producer Mexico has only had a slight rise in the price of their gasoline.
So our first observation: those countries which produce their gasoline have little or no price rise, regardless of their gas company’s profit strategy.
There is a second trend in gasoline prices that is occurring right now. Surprisingly, the two largest countries in the world are seeing gasoline prices decline. That’s correct gas prices in China and India are going down. Now we’ve only seen this downtrend for a couple of months. But it is telling.
As you know, Russia is one of the world’s major oil and gas producers. When Europe and America boycotted Russian gas because of the Ukraine War, Russia immediately pivoted and began selling gas to China and India — lowering prices for those two countries. I believe this decline is entirely due to new agreements these two countries have to purchase their gas supplies from Russia.
If you follow my logic here, you may not be surprised to learn that two other countries, Japan and Egypt, are also seeing gas prices decline. Could it be that Russia is also courting those countries? I think so.
So our second observation: cheap supply will lower gasoline prices. At the same time, restricting supply, such as when we boycotted Russian gasoline, will raise prices.
Finally, let’s look at the profit motive. The Free Market provides profits as an incentive for companies to offer society the needed products and services.
It’s not an affirmation that these companies are somehow “Simon-pure” working for the benefit of humanity. Far from it. Many of the most successful capitalists I’ve known are not lovely people.
But if they run profitable companies, it’s because they provide a helpful product or service. Something the rest of us need or want. And without them, we’d be the worse off.
Meeting in Germany today is the Group of Seven Nations. Germany, France, The United Kingdom, Italy, Canada, Japan, and the United States. Yesterday US President Joe Biden made headlines as he pledged $200 Billion US Dollars to support Global Infrastructure. Infrastructure is one of those wonderfully amorphous terms that no one knows the full implication of. Biden tells us it will help countries prepare for any future pandemic. And that seems good enough for the American press. It’s not like we have any issues here in the States.
The G7 Meeting will wrap up tomorrow.
This morning we’ll have a couple of meaningful reports.
First comes the latest on Durable Goods, an essential indicator of businesses’ willingness to invest significant dollars in their future plant and equipment.
Wall Street analysts are looking for a pretty big slide in durable goods.
Next will come Pending Home Sales. You know that’s when the sign on the front of the house says: “Under Contract” or “Pending Sale.” This report showed a fragile Real Estate Market with a 9% drop in Pending Sales in April. Unfortunately, the Street thinks that will continue in May’s statement. Wall Street is looking for a 10% drop today.
In earnings today, all reporting after the markets close. First, off tech company, Concentric, followed by sports company Nike, and then west coast-based investment bank Jefferies and Company.
Thanks again to Tessa!
Have a wonderful day.