Studying how gas prices change - They shoot up, but flutter down
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Verne Kopytoff, Chronicle Staff Writer Sunday, March 16, 2003
Don't hold your breath for gasoline to get cheaper if and when oil prices tumble from near their 12-year highs.
Costs at the pump may rise like a rocket, but they fall more like a feather.
At least that's the view of some economists who have found a curious disparity in gas prices. Sudden spikes at the pump because of higher oil costs are usually followed by leisurely declines, their research shows.
"Firms are pretty quick to raise gas prices," said Severin Borenstein, director of the Energy Institute at UC Berkeley and co-author of one of the studies. "They try to hold onto them even when crude prices go down, until customers force them down by shopping around."
Borenstein and his co-authors found that a rise in oil prices is fully passed on to drivers in two to four weeks. But declines in oil prices take six to eight weeks to reach the pump.
For example, California's gas prices rose roughly in step with oil prices in the winter of 2000. But the pattern changed substantially when prices began to decline.
Oil dropped sharply during March. Gas prices, following the usual lag of up to a month behind oil, also began to drop, but far more gently, over two months instead of one.
A couple of somewhat similar examples occurred later in 2000.
It's too soon to say whether the current gas spike will follow the rocket and feathers theory. That will become evident only after oil prices decline significantly.
Gas prices have become a burning issue for drivers now that a gallon of regular unleaded has soared to record highs across the Bay Area. As of Friday, a gallon of unleaded averaged $2.27 in San Francisco, up 71 cents from a year ago, according to the AAA of Northern California.
The increase in oil costs is partly to blame amid tensions over Iraq and a worker strike in Venezuela. But local issues are also a factor.
In California, refiners are switching from making their winter blend of fuel to a summer blend, which causes less smog in hot weather. Production usually drops during these annual adjustments.
In addition, the state's refineries are changing from the smog-reducing fuel additive MTBE to ethanol. The retooling and the inherent properties of the new fuel blend add some extra costs.
At such times, consumers tend to suspect that they are being gouged. Indeed,
oil companies such as ChevronTexaco, based in San Ramon, usually have bigger profits when crude prices jump.
But the reason for prolonged high gas prices is complex, defying simplistic accusations of collusion. Researchers disagree on whether the rocket/feathers phenomenon exists at all and on whether anyone actually profits much.
It's unclear who first suspected that gas and oil prices sometimes get out of whack. What is certain is that a forest of trees has been felled on the topic by researchers who have looked at every step in the petroleum supply chain over a range of different periods.
Borenstein's study -- which used the Gulf War era of 1990 and 1991 as a model -- reveals a market that is out of kilter. And because of the imbalance, consumers end up paying a few cents more for a gallon of gas during periods associated with falling oil prices than they otherwise would.
Who's responsible? Borenstein said the price disparity arises between the time service stations buy gas from wholesalers and when they sell it to consumers. The service station owners, many of whom operate independently, resist lowering prices for the short run simply because they can, Borenstein said.
What allows this temporary latitude is that consumers don't immediately know where to find cheaper gas. Furthermore, drivers are confused by the frequency of changing gas prices.
"The retailers aren't absolutely competitive," Borenstein said. "It costs drivers money and time to shop around, so they don't do it."
Contributing to high fuel costs is the wholesale spot market for gas. Spot prices take up to two weeks to catch up with declines in oil, Borenstein said.
But he added that such a lag isn't unusual. Spot prices are equally slow to rise when oil gets more expensive, he found.
Eventually, gas prices catch up with the falling cost of crude oil, Borenstein said. The entire cycle then repeats itself during the next price spike.
Gas is not the only commodity whose prices sometimes become unbalanced when rising rather than falling. Others with similar tendencies include oranges, some fresh vegetables and some meats, according to various studies.
But John Felmy, an economist for the American Petroleum Institute, an oil industry trade association, disputed that gas prices fall within that category.
He said many researchers have in fact failed to find a lag in gas prices, or at least lags that have a financial impact on consumers.
Despite what consumers may think, the oil industry is not engaging in price gouging, Felmy said. Drivers, he said, are simply confused because they pay more attention to rising prices than declining prices.
"Prices going up generate such a visceral reaction in people," Felmy said. "Prices going down are a different story."
Felmy's more benign views of gas prices are corroborated by other independent sources. Among them are researchers from Texas A&M University, the Federal Reserve Bank in St. Louis and the Energy Information Administration, an arm of the Department of Energy.
All of them have found that fuel prices move in concert with oil or other parts of the petroleum food chain. The links in the chain sometimes do get tangled, some of them said. But it all evens out in the end, they say.
"It seems to wash out," said Michael Burdette, a senior analyst for the Energy Information Administration.
Borenstein agrees, to a point. He said that service stations make only modest amounts of money from the rocket and feathers phenomenon, not a bundle.
Service stations don't make as much money during spikes in gas prices, Borenstein said, but they recover those profits -- and a little more -- by cutting prices slowly when their supplies become cheaper.
In any case, Borenstein said the effect of temporarily higher gas prices on drivers is relatively minor. He said a typical driver spends only a couple of extra dollars because of unbalanced prices as a spike runs its course.
"In the grand scheme of things, this isn't a big deal," Borenstein said. "The fact that gasoline prices go down a little less than they go up doesn't cost that much money."
He said he's more concerned about limited competition among California's oil refiners, of which there are only seven major players.
Borenstein also said another problem for Californians is that these refiners are capable of producing only just enough to satisfy demand. If a few of the refineries are shut down because of an accident or maintenance, prices can skyrocket.
E-mail Verne Kopytoff at vkopytoff@sfchronicle.com.
AG opens investigation into charges that MVR deputies have US$ bank accounts
www.vheadline.com
Posted: Sunday, March 16, 2003
By: Patrick J. O'Donoghue
The Attorney General’s Office has opened an investigation into opposition charges raised December 26 that Movimiento Quinta Republica (MVR) deputies have US dollar accounts in North American banks and did not declare the fact in mandatory sworn declarations of assets to the Comptroller General’s Office.
During a national stoppage “war bulletin” last December, opposition leaders accused William Lara, Nicolas Maduro, Iris Valera, Dario Vivas, Adan Chavez and Tarek William Saab of having accounts at the First Union Bank of Florida. The case is currently in the hands of 28th state prosecutor, Rosa Memoli Bruno ... who must proceed to check the veracity of the deputies' declared assets declarations.
The Attorney General has also approached the Foreign Ministry (MRE) to draw up a request to the US government for access to the deputies' bank account details ... even though traditional front agents may have opened and administered the accounts.
National Assembly (AN) deputy Tarek William Saab has denied having bank accounts in any foreign country ... “much less the USA where I have been refused an entry visa.“
Saab recalls that the complaint had its origin in an anonymous Internet slur that was taken up and published in Roberto Smith’s column in the weekly tabloid “Reporte" and subsequently read out at one of the opposition’s daily “war bulletins” in December.
Deputy Saab says he's been trying to get the US bank to issue a denial certificate and had asked Venezuelan consul Antonio Hernandez Burgos in Miami for assistance.
The Attorney General and the Venezuelan President
www.vheadline.com
Posted: Sunday, March 16, 2003
By: Gustavo Coronel
VHeadline.com commentarist Gustavo Coronel writes: According to Article 285 of the Constitution, the Attorney General of Venezuela has to guarantee that public officers who have committed criminal acts against the State (as defined by the Law) are rapidly and diligently brought to trial.
During the Presidency of Carlos Andres Perez, then Attorney General Ramon Escovar, did just that, bringing the President down by means of a legal action without violence. That was democracy in action. The crime committed by Perez was to give money from a secret account, traditionally handled by Presidents (including Chavez) to the President of Nicaragua, Mrs. Violeta Chamorro, to be used for her physical safeguarding ... the amount involved was some $4 million.
During this administration the Attorney General has received 11 accusations against President Chavez and ... so far ... has not acted on any one of them. Some of the claims against Chavez are quite substantial, and have even been publicly admitted by the President. For example, he admitted having diverted the immense amount of $4 billion away from the Macroeconomic Stabilization Fund (FIEM) to pay Christmas bonuses and salaries to public employees ... against the laws of the country ... this money did not even belong entirely to the Government.
According to the law which regulates the fund, this money was partly owned by PDVSA and by the governments of regional States.
The arbitrary, unilateral decision to use the money is technically considered as theft in Venezuelan Law (Peculado de uso).
Nevertheless, the Attorney General did not act ... he is an unconditional follower of Chavez. His performance has received widespread criticism due to his lack of independence and integrity.
Another open (and proven) violation of the Law by the President, of having received one million dollars from a Spanish bank ... a year after becoming President ... has not been acted upon by the Attorney General. This is what impunity means ... and it is one of the many reasons why this government of Hugo Chavez is no longer legitimate.
However, something is starting to happen.
A Mr. Pedro Sanoja, an Attorney General subordinate, in charge of looking at the Venezuelan-Cuban petroleum agreement, has just sent a letter to his boss telling him (this is a free translation of rather obscure legalese):
"I am respectfully writing to you to inform you that, based on my investigations related to possible irregular actions related to the supply and sale of crude oil and products to Cuba, within the framework of the Agreement of October 30, 2000, I have reached the conclusion that, according to the Article 49 of the Constitution and the Article 130 of the Penal Code, President Hugo Chavez Frias should be indicted for having committed crimes described in Law. Given the high rank of the public officer involved, I request your instructions relating to where the indictment should take place....."
The specific crime is not defined in the letter, as it will only be made known at the time of the indictment. However, we can speculate that some of the violations of the law include the decision by the President to go ahead with the agreement without consulting and obtaining the approval of the National Assembly ... as well as the clearly damaging clauses contained in the agreement, giving Cuba huge subsidies at the expense of PDVSA and of the Venezuelan nation. The agreement, in fact, constitutes a clear act of treason against Venezuelan national interests and can only be explained on the basis of the unusual and asymmetrical friendship between Chavez and Castro.
The action by his subordinate puts Attorney General Isaias Rodriguez in a very tight spot. Up until now he has killed all accusations against the President coming to his office as being from "political enemies." Now he has a formal action taken from someone within his own office ... an action already known to the public ... the whole country is watching to see what he will do now.
My guess is that he will probably try to do nothing. He'll call his subordinate to his office and have a "heart-to-heart conversation, either convince him not to rock the boat or, if he can not, will dismiss the subordinate.
Scandals in Venezuela usually last between four days and one week ... the time required for the next scandal to be brought to the limelight. I've been fighting corruption in my country for more than 12 years now, and I know this to be the case.
Today, however, there is a better chance that something will really happen, because the President is already highly-weakened by multiple accusations of impropriety regarding low transparency in the use of public funds, human rights violations, unduly friendly relations with the Colombian guerrilla and a tolerant stance regarding terrorism.
Many of his followers ... including the shrewd and unprincipled Attorney General ... might be starting to feel that the time to break away from the President is getting near, and it might be better to secure a place in future political scenarios.
This feeling of uncertainty among Chavez' followers is growing as August gets nearer.
The Referendum that can not be denied will come around that month, no matter how hard the government tries to delay it. And ... when it comes ... the President will be soundly rejected by an estimated 75% of the population.
The government is already claiming that, if that happens, the President should be able to be a candidate for elections that should immediately take place.
Obviously this is preposterous ... it would be equal to say that the husband who is divorced by his indignant wife would be eligible to compete for her hand in the next wedding. The bride does not want him! Why is it so difficult for some people to understand they are not wanted?
The President and the Attorney General are coming closer to their moment of truth.
Will the Attorney General indict the President and save whatever remains of his highly damaged reputation?
...or will he go down with him, faithful to the end, like the little guy in Francis Coppola's Dracula?
Gustavo Coronel is the founder and president of Agrupacion Pro Calidad de Vida (The Pro-Quality of Life Alliance), a Caracas-based organization devoted to fighting corruption and the promotion of civic education in Latin America, primarily Venezuela. A member of the first board of directors (1975-1979) of Petroleos de Venezuela (PDVSA), following nationalization of Venezuela's oil industry, Coronel has worked in the oil industry for 28 years in the United States, Holland, Indonesia, Algiers and in Venezuela. He is a Distinguished alumnus of the University of Tulsa (USA) where he was a Trustee from 1987 to 1999. Coronel led the Hydrocarbons Division of the Inter-American Development Bank (IADB) in Washington DC for 5 years. The author of three books and many articles on Venezuela ("Curbing Corruption in Venezuela." Journal of Democracy, Vol. 7, No. 3, July, 1996, pp. 157-163), he is a fellow of Harvard University and a member of the Harvard faculty from 1981 to 1983. In 1998, he was presidential election campaign manager for Henrique Salas Romer and now lives in retirement on the Caribbean island of Margarita where he runs a leading Hotel-Resort. You may contact Gustavo Coronel at email ppcvicep@telcel.net.ve
CTV’s Cova advised not to push Ortega’s case too far in Geneva
www.vheadline.com
Posted: Sunday, March 16, 2003
By: Patrick J. O'Donoghue
CTV general secretary and fellow AD member, Manuel Cova says he's traveling to Geneva to visit the International Labor Organization (ILO) to discuss Ortega’s case and has given his full support to Carlos Ortega’s "diplomatic asylum" claim.
“Ortega’s decision is completely justified because of threats against his life from some sectors of the government and the closing dragnet of security forces … legal insecurity and the total bias of the public powers, combined with the action of paramilitary groups are sufficient reasons to prevent a crime being committed against our leader.”
The CTV general secretary confirms that he has received calls from trade union leaders throughout the world expressing solidarity with Carlos Ortega. Some political observers forecast that Cova will take over from Ortega as CTV president.
The government had questioned Ortega’s legitimacy as top CTV leader accusing him of vote-rigging ... whereas in Cova’s case, the CNE had ratified the construction workers’ union leader as a legitimately-elected trade union official.
It would seem that Ortega’s removal has given the CTV more legitimacy to confront the challenge of a new trade union central from the left and it is expected that Cova will advise in Geneva not to press the issue of Ortega’s alleged political persecution too far, since European trade union members had expressed concern after April 11 about Ortega’s blatant monopoly of the CTV for unclear political and personal objectives.