9/26/2005

Gas Prices - an Example of Arbitrage

I read an article from the California North County Times, and came across a real life example of arbitrage. The article states that currently, the gas prices in California are lower than other parts of the country, due to local oil refineries. Now with refineries out of commission in Louisiana and Texas, refiners in California have the opportunity to ship gas from California to the Gulf Coast, creating an arbitrage.

5 comments:

Liz said...

I am willing to bet that you will see something happen with this. Either the refineries will only keep local prices down and raise that prices of fuel they are shipping. Or by having their production increase, their capabilities of producing more, they may be able to drop their prices. I guess only time will tell.

Dr. Tufte said...

Great post - although I don't think it is grammatically correct to say "creating an arbitrage".

One reason that our gas prices are so high is that regulations have made our gas distribution system very rigid. By mandating different blends of gas for different locations, bureaucrats have made it difficult for people who can buy gas cheaply to legally sell it in places where it might bring in more revenue.

A good college level adjective for this is "ossificiation". This is the word used in medicine to describe the growth of bony tissue around injuries - leading to stiffness, pain and lack of mobility. Economists say that our oil distribution system is being ossified by regulations.

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carter said...

Dr. Tufte said this was a great post. I think that the bureaucrats are using their power to influence the economy in a negative way in this example.

Dr. Tufte said...

Now we just need voters to recognize this.