Thursday, February 24, 2011

The Price of Gasoline

Do you know why gasoline prices rise so fast when the price of crude oil jumps? It's called LIFO (Last In, First Out) accounting. Refiners buy quickly when crude prices rise so that they can charge the highest price possible even though they have lower cost crude in inventory. When crude prices drop, they wait as long as possible to purchase crude until the cost basis of their inventory drops below the current price. Then they'll start purchasing again so they can charge higher prices. And who monitors to make sure they are honest about this? THEIR accountants. The same accounting principle applies to retailers.

What I want to know is whether all these transactions are actual or paper transactions. I expect the latter. Refiners certainly don't take delivery of crude oil from the Middle East and refine it before raising prices. Retailers certainly don't wait until they get delivery of inventory before raising prices. We certainly wouldn't be seeing immediate price jumps so quickly if they were.

The more "honest" way of doing accounting is FIFO (First In, First Out) accounting based on actual delivery of product and not counting paper transactions. Prices would rise and fall more slowly, and consumers wouldn't get ripped off. So, why do our government officials not deal with this exploitation of the consumer? You guessed it! Who do you think bankrolls the coffers of legislators' campaign funds? Consumers? No! Corporations? You bet! And the Supreme Court recently gave rich Corporations the same rights as poor taxpayers.

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