The prices of oil globally and indeed locally have been fluctuating over the past years. In some instances, the costs would decrease while in other cases increased due to various reasons. This paper focuses on the cause for the sky-high prices in California according to Finley 2015 article.
Finley argued that Americans were, in general, enjoying cheaper gas process due to the shale oil boom across the USA. Finley noted that the national average price had dropped by 25% to $2.76 a gallon in a year. However, that was not the case in California. In the Golden State, the gas prices were at $3.88 per gallon, in Los Angeles, the price rose by sixty-five cents to $4.30, twenty cents higher than 2014. At some point, the gas prices in L.A. surpassed $5 a gallon to retail t $5.49.
Finley noted that consumer activists contributed to the rise through collusion by the monopolistic companies. When firms enjoy a monopoly, they raise the prices above the forces of demand and supply. In this regard, the fact that is no alternative supply of the commodities would force the consumers to buy the goods at inflated prices. However, Finley disregarded this notion and claimed that it was anti-carbon regulation supported by a cartel of green activists alongside liberal politicians that aimed at raising the cost of gas to discourage consumption. Fuel regulations seek to impose charges either in the form of taxes or licensing on goods they consider to produce greenhouse gases.
As Finley, noted, the adoption of cleaner “reformulated” fuel standards raised the production cost. It follows that investors would transfer the extra cost to the consumers. It is because of this that California was paying twenty-three cents more than the national average in 2006. The disparities rose to forty cents by 2014 and was at $1.11 in 2015. Regulations by the government, such as AB32 requiring companies either cut carbon emission or buy permits. In this respect, the extra cost of production would be transferred to the consumers. The drive to adopt up to thirty-three percent of energy to be renewable by 2010 and 50% by 2050 has since influenced the cost of productions.
Moreover, the state and federal regulation have forced several small refineries to exit the market in California. As a result, the disruption in supply and demand occurs because it takes time for the remaining one’s t adjust their production by increasing production or importation. It follows that the prices of gas increases as demand rise due to insufficient supply.
The oil extraction prices would cut the profit margins of the companies, and the money would go to governments. In this respect, the consumer would benefit from better services offered by the government. However, the investors may transfer the added cost to the consumer making the prices of gas even higher. Therefore, the oil extraction tax should accompany a strict price regulations or incentives that would cushion the consumers from higher prices.
Apart from the mentioned causes, the prices of oil could have resulted from the high cost of doing business in the region. The cost of acquiring licenses, poor transportation means, labor, and cost of power could be contributing significantly to the high cost of production. As noted earlier, when the cost of production is high, the products would cost higher than the national average to give the investors a reasonable profit margin.
Works cited
Finley, Allysia. “Sky-high California’s gas prices have a green additive.” The Wall Street Journal July 17, 2015. Available at <http://www.wsj.com/articles/skyhighcaliforniagaspriceshaveagreenadditive1437 174504>
