Don't Buy Petrol Days

As petrol prices continue to hover around unprecedented prices her ein Australia (around $1.30), it was only a matter of time before the "Don't Buy Petrol Day" email landed in my inbox.  I am sure you've seen it, and if you are like me just tossed it in your recycle bin.  The author of the email reckons that if we protest against high fuel prices by not buying petrol for a whole day we will cause great harm to the mammoth big oil companies, to the tune of billions of dollars apparently.  The email even got some support from an insert in yesterdays Herald Sun.

I suppose a bit of activism is fine, but these types of things are just dumb.  While the oil giants definitely like to make big fat profits, the current oil situation has more to it than simple profiteering. 

In Australia we pay a more than 30% per 'gallon' of petrol than in the US, and most of what we pay is actually government taxes and even the petrol station owner gets a skinny slice of any fuel "profits".  So it would seem as though this protest is misdirected at best.  But further to that, here is a (no doubt) partial list of totally idiotic mistakes in these emails (this one is US based) that Freakonomist Steve Levitt prepared:

1) If nobody buys petrol on any give day, but everybody drives the same amount, then it just means that we either had to buy more petrol in anticipation of not buying any on that day, or that we will buy more a few days later. So even if you believed this would take a $4.6 billion dollar bite out of the oil companies that day, consumers would hand it right back over. If this was "No Starbucks coffee day" it might have some chance of mattering, because people buy and drink Starbucks coffee the same day, so a foregone cup of coffee today may never be consumed. But this is not true of petrol, especially if no one is being asked to reduce petrol consumption. All you will get is longer lines at the pump the day after.

2) A one day total boycott of gas would not reduce oil company bottom lines by anything like $4.6 billion, even if it was accompanied by a one day moratorium on all petrol use. Americans consume about 9 million barrels of gas a day. There are about 42 gallons in a barrel, so that equals 378 million gallons of petrol sold a day in United States, or about one gallon per person. Toss in another 10% for Canada. At $3 a gallon, that is about $1.2 billion in revenues. Profit as a share of revenues in this industry is probably 5% or less, so the bottom line impact is a max of $60 million...about 1/100th of the stated number. And from point (1) above, even this is a gross exaggeration of the true impact.

3) One day of no purchasing of petrol would certainly not cause the oil industry to choke on their stockpiles. Petrol inventories in the US are typically about 200 million barrels, but right now they are on the low side -- a big part of the reason why gas prices are high. 9 million extra barrels would create no problems whatsoever for stockpiles.

Great Analysis.

So, for those of you who think such an idea will work, dream on.

Comments

[Graham Young]

Thanks Shannon, rather than waste my time sending angry emails to the people that I know who spread the oil company email (in my defence I know a lot of people, if only by email, so it's not that I move in particularly dense circles), I'll send them this URL.

[Andrew Leigh]

Nice post. Are numbers like $4.6B being bandied about in Australia? If so, one could follow Levitt's example, and work out the maximum cost of a successful moratorium.

[Idetrorce]

very interesting, but I don't agree with you
Idetrorce