Yet, another reason for oil prices to artificially high. I truly don’t believe that anyone has a good handle on gas prices. There aren’t enough refineries in the US some say. Why not? Because, in my humble opinion, there is no downside for oil companies to choke of gas supplies and allow the price to rise. If they make too much gas then gas prices fall. Therefore, no new refineries. By choking off supply at the refinery level the oil companies build a cushion or a supply of crude just in case something happens. Hugo Chavez goes nuts or a Russian pipeline blows.
In Saudi Arabia gasoline costs about 45 cents a gallon. In Iran it’s 33 cents. Venezuelans pay less than a quarter.
These absurdly low prices are a direct result of massive government subsidies.
While these numbers are not adjusted for cost of living, it’s fair to say that drivers in those countries are getting a good deal.
But it’s straining government budgets. More importantly, it’s not allowing the free market to do its job. Higher prices on the open market are not leading to a drop in demand, which is keeping the cost of oil high for everyone else.
“Roughly two-thirds of new oil demand is coming from countries that have subsidized oil markets,” said Christopher Ruppel, a senior geopolitical analyst with the consulting firm John S. Herold. “So demand is not going to be affected if oil goes from $60 a barrel to $80.” (more…)