Oil Strikes and Gasoline Boycotts

Note to readers: This article contains discussion about the relationship between supply, demand, and price. Check out my other article A cap on the price of gasoline is a bad idea – and the Nintendo Wii can tell us why for a review of the basics if you like.

With the rising cost of gasoline, many motorists are looking for relief. Recent price increase do not seem to correlate with any real visible changes around them – and frustration results. This frustration has turned into attempts at action for many, hoping for any way to reduce the amount of money spent on fuel.

There are many proposed solutions to the issue, however they tend to fall short. Let’s take a look at a few of them.

Strike!

This is a popular one that comes around at the start of every driving season. The premise is that drivers stick together, and for (a day/3 days/a week) decide to say “screw you!” to the oil companies and not fill up at all. This will cause billions of dollars of losses, and force the oil companies to drop prices overnight.

Let’s address the first point, that this will cause the oil companies to lose billions. For simplicity, let’s assume there are two ways this could turn out:

  1. Everyone stays home during the strike, buys zero gas, and then resumes normal activities afterwards. (a “strong” strike)
  2. No one buys gas during the strike, but still goes about normal activities and has to buy gas later. (a “weak” strike)

We can agree that the premise of this strike is to reduce demand – which will cause the oil companies to respond. Let’s see how demand is affected by each of these scenarios.


In the first scenario, it’s like a few days of gas buying dropped off the earth. If we look at a graph of daily (blue bars) and average daily (red line) consumption, we can see that at the end of the gas strike, things are looking pretty good. Average demand has gone down! The companies have to respond!


Well, hold on a second. Time marches on, after all. Let’s take a look at this a few days later. Well damn, it looks like average demand is marching right back up again, since we really haven’t changed our habits for the long run, just for a few days. So demand is the same as it was before!


Now lets look at the second scenario a few days after the strike. Like before, at the end of the strike things look pretty good. But it gets even worse than before. Since we didn’t stay home and just kept driving, now we really, really need to fill up our tanks. So daily demand shoots through the roof as we play catch up, and our long term average demand spikes up (the exact opposite of what we wanted!) and then settles down to where it was before. Again, no change in the long run.

Well, you’re missing the point Geoff, some would say. The “weak” strike definitely wouldn’t work, but the “strong” strike still took out a few billion dollars for a few days, didn’t it?

Well yes, of course it did. Unfortunately, this is spread out over many companies – you’re a rounding error. If this loss continued for months and years, companies would start to feel the pain – but at this point, you’re no more aggravating than a large supply contract that was settled a few days later than expected. These companies are very good at not being bullied. Oil is a very cyclical industry, those companies than cannot weather a storm quickly fail.

Boycott!

Well fine! That won’t work, but let’s change our strategy. Instead of a gas strike, let’s pick a specific company (say Shell), and simply not purchase gasoline from them. Shell will watch it’s profits sink while the other companies make tons of money, say “screw this!” and reduce gas prices so they don’t go under.

At first this seems reasonable. The only problem arises when you ask yourself what the real change in supply and demand is. Supply hasn’t changed, the companies aren’t doing a damn thing. Demand hasn’t changed, we’ve just switched gas stations. Hrm, how is this going to work? But regardless, we aren’t buying from Shell! They’ll have to reduce prices, then the other companies will follow! Right?

Well, not quite. Let’s take a simplified look at the “flow” of gasoline between companies. The “futures market” (like a stock market that trades gasoline contracts instead of companies) prices gasoline, and matches sellers to companies that need gas. These companies then sell gas to you.

So let’s take away one of those arrows. Assume a perfect boycott, and not a soul purchases gas from Shell. Everyone is now buying from other stations, but there’s only one problem. Overall demand is the same, but our new “per station” demand is higher.

The immediate reaction to this higher per station demand is higher prices. “Wait!” you say, in the long run demand hasn’t changed! Gas prices should stay the same at worst! Well, you’re right – in the long run. In the short run prices spike up as gasoline stations experience temporary shortages. Now, these stations need to get more gas from somewhere to sell to all the new customers they have. It’s obviously available, it just needs to get to the station – but where from?

The answer is of course to buy it from Shell. Our only hope at this point is that Shell will panic, see that it has this excess gas, and dump it on the market at a reduced rate. Let’s assume that Shell does exactly that. Huzzah! We finally did it! Reduced gas prices!

Well, unfortunately for you, Shell is not run by idiots. They know that overall supply and demand hasn’t changed, just that no one buys from Shell anymore (assuming our perfect boycott is still going strong). So, prices end up stabilizing back at the old market rate (since there’s the same amount of people buying gas, and the same amount of gas available, we’ve just changed companies), and Shell ends up selling gasoline to the other companies (assuming best case of no excess transportation costs).

So assuming the best case scenario, we get a price spike, followed by a price dip, followed by the same damn price as before. Since we haven’t changed overall supply or overall demand, the overall price will not change.

Lessons

The current energy situation is a deeply complex mess. Proposing simple easy solutions that require little effort makes everyone feel better – but does nothing. If internet petitions and email forwards worked on their own, world hunger would have already been abolished.

To those proposing a gas strike – I propose to you a different solution, the public transit swarm. Get everyone you know to give up a car for a workweek and take public transit. Get enough people so that it’s a huge goddamn mess, subway stations are tied up, buses are jammed, and the situation is so bizarre that the media is forced to pay attention. Shout as loud as you can that the reason we drive so much is because the alternatives frankly suck. Have you tried walking to get your groceries in a suburb? Does the bus stop anywhere near your workplace? Does it bother to show up on time?

We need real alternative solutions that will reduce our overall demand on gas. Bringing attention and social acceptance to faster, cleaner, and more efficient public transit systems is a great start.

To those proposing a boycott of a specific company – I propose to you a different solution. Boycott car manufacturers who insist on producing cars with poor gas mileage. Buy an efficient car, or don’t buy one at all. A more efficient fleet of cars on the road reduces demand, and Ford can’t simply sell excess cars to Toyota that magically become greener – so a boycott of lazy companies who are more focused on bells and whistles rather than green technology is more effective.

I don’t mean to insult anyone proposing these solutions – but simply to make you think them through. Your motivation is admirable. Let’s work together to create cost effective sensible approaches to energy policy.

19 thoughts on “Oil Strikes and Gasoline Boycotts

  1. Hi Geoff,
    great analytic writing, however, there seems to be no resolution to the conflict. For most of the fuel efficient cars or so called “green” cars, there is also a disadvantage.
    Cars with battery will need the energy to manufacture these batteries and also the toxic effects of these batteries can linger when they have reached their useful life.

    Ethanol cars? How much gas do we have to burn to produce a certain amount of ethanol? The farmer has to drive his tractor to plant those ethanol.

    For Hydrogen cars, how would we derive the hydrogen? Electric? we need energy to produce electric.

    What I would say is produce cars that do not all depend on 1 type of fuel. Any fuel which is in great demand will create a limit and increase in price. I would say using BioDiesel from used vegetable oil would be nice. So is planting Desert plants for thier oil in nuts can help. BioDiesel can be an alternative.

    JC

  2. Wow, I’m impressed. It reads great… maybe you should think about getting into teaching or writing… anyway, thanks for that, I learned something today….

  3. I think the best solution is to boycott all gas companies at once and permanently. Get a bike and ride it as often as possible. Ride the bus if it’s available, even take a greyhound if you need to get to another city, or else carpool. Try to depend on cars as little as possible. Also, electric and hybrid cars are still greener than gasoline even if the electricity is made from coal and batteries can be recycled. Electric isn’t for people who drive very long distances, but a hybrid will drastically improve your mileage.

  4. Jen there are a few problems with your argument.

    “Cars with battery will need the energy to…”
    -Many car batteries are made to last over 100,000km. Now try that verses the effects coming from thousands and thousands of liters of some sort of petrol. The technology is a work in progress but is still improving and the environmental impact is far less then gasoline engines.

    “For Hydrogen cars, how would we derive the hydrogen? Electric? we need energy to produce..”
    Derive the electric? Simple hydrolysis. Electricity you say? You do know in the current day that mere energy isn’t the problem it is the dependence on non-renewable fuels such as gasoline. There are many places to get electricity from: hydro, wind, solar, nuclear, whatever. Once again the technology is out there and is getting more efficient on a daily basis but will only be sustainable once people quit the dependence.

    “What I would say is produce cars that do not all depend on 1 type of fuel. Any fuel which is in great demand will create a limit and increase in price. I would say using BioDiesel from used vegetable oil”
    Alas, another ethanol. If everyone took your advice there would be the same situation as ethanol. Simply not enough supply.

    .

  5. Pingback: Oil Strikes and Gasoline Boycotts | The SpeakEasy
  6. Just curious, where do you get your supply figures?

    But hey, great demand reduction ideas. You should share them with the DEA.

  7. I think you’ve got it: long-term demand reduction. Not just for oil, but for energy in general. Technology is not our main limitation. The big roadblocks are policies and habits and lifestyles. We commute an hour to work every day, we can’t walk to shops and restaurants, we ship food and goods across the country and back rather than buying locally, we pour grain and land into factory-farmed animals for a greatly reduced food output (the amount of food you get from a cow is much less than the food you fed to the cow).

    The solution is not to make gas prices go down, it’s to find another way of doing things.

  8. Great Info! i agree if the demand does not change, nothing will change! The France has implemented a plan to improve the environment. This plan go back to a time before the automobile. Riding bikes. The bikes are provide by the government at a finominnal low rental fee, with docking stations though out the city. I did hear Washington D.C will be receiving from the French the docking bikes for the cit of Wash. D.C.

  9. The Ultimately Boston Tea Party Against High Gas and Oil Prices! Imagine a block of 50-100 cars and trucks travelling down the freeway at 20 mph below the posted speed limit in all lanes disrupting traffic flow patterns during rush hour. My ultimate form of protest to which I am using is to reduce my motor vehicle travel speed to less than 20 miles per hour (mph) below the posted speed limit when I drive on any roadway—- even the freeway. I have made my gas in my tank last two weeks by doing this. Knowing that not all would do this, if most everyone protested in this manner and drives 20 miles per hour (mph) below the posted speed limit, a reduction in the amount of gasoline will be seen, with a reduction in speed in the amount of traffic that can move along the streets, with a reduction in the amount of tickets that can be issued by the police, with a reduction in the amount of revenue that can be obtained by municipal governments, which will force governments to reduce speed limits on roadways, which could then be met with an additional 15-20 mile per hour (mph) below the speed limit reduction by motorists-if the price is not reduced to the 1.50 per gallon level for purchased gasoline. Ultimately if the government does not limit the price gouging, perhaps the motorists will hit government in the revenue pocket where they belong-since taxes are collected per gallon of gasoline sold. So through this protest, hopefully the word will get out to oil companies and others responsible-lower the price of gasoline or the people will use gas and oil against the same entities that use gas and oil against us. Doesn’t matter who is at fault in the increase in gas prices: OPEC is, or the government is, or the Wall Street speculators are or the local gas stations are-somebody is. If the consumer drives less or drives slower, in a planned, chosen protest day, ultimately this protest or numerous protests around the country or globe will lower the price. What excuse would anyone have then to raise the price of gas? President Bush already said to change driving habits, is this not the ultimate way? Sort of a Boston Tea Party, but on oil and gas. Feel free copy my protest idea as a national protest, but thought I would pass it on. Sure beats not being able to do anything else as others get richer of the money I pay for gasoline these days.

  10. Great article. Thanks for taking the time to write such a well-explained analysis of why the stop-gap measures won’t work. Now I can simply send people to your page instead of trying to explain the shortsightedness of a gas strike/boycott etc.

    +15 million life points to you good sir.

  11. Hey Geoff. I really enjoy this article, it’s top notch in my opinion. I just have a question. What happens to those Shell gas stations if a boycott lasts long enough? Won’t the station owners try and do something to help themselves?

  12. Tyler, station owners actually make little to no money on the sale of gas, it’s seriously penny a litre type profit. The only way they make any money is through the sale of car washes and convenience items inside the snack shop. The only price they should care about in the event of a gas boycott would be advertising deals on red bull and doritos in hopes that people will continue a gas boycott but not a food boycott.

    Geoff, I think you’re handsome.

  13. This is so true. I’m so sick of hearing people talk about about how a gas strike for a day will make such a big difference. The fact is just that so many of them aren’t willing to put in the effort to change their lifestyle. A lot of the people I see making that claim are the same people that drive across a small shopping center’s parking lot because they don’t want to walk, who drive more powerful vehicles than they’ll ever need, who idle their car for ten minutes outside their house.

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