I thought the reason they were increased is so we could get the same power with reduced supply?
However a fair few power companies are reaching ridiculously high record profits, which goes against the grain of that idea.
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Around 2015, we were hitting the sweet spot of oil supply/demand. In dollars, that would be about $2.50 for a gallon of gas (w/taxes) in the midwest. Oil companies were making profits, consumers weren’t getting crushed, and Russia was getting financially screwed.
Then there was the pandemic shutdown. Instantly, supplies went WAY up, demand went WAY down and with it, prices went WAY down. So oil companies started shutting down their wells and producing less gas – as you would expect when demand drops that much. Not surprisingly, oil company profits tanked.
Fast forward to the present. As the pandemic shut down resolved, and as people starting driving again, demand went back up to pre-pandemic levels. What hasn’t gone up is supply. The wells that were shut down haven’t reopened. Some could argue that since demand had returned to normal levels, supply should too.
But let’s say you’re an oil company who just spent the last couple of years taking a bath because you had so much supply and very little demand. And very quickly, that turned around. You could scramble to open your supply up again – this would COST you money – OR you could let the market compete for what supply you had – and this would MAKE you LOTS of money. Add in the narrative being pushed in the media that supply chains have slowed to a halt, that the 10% of the world’s oil that Russia provided is no longer available, and that inflation is affecting everything, and you are in a position to use this opportunity to make back the profits you lost years prior in a very short time. Demand is normal, but supplies are low, so cost is HIGH.
And by the time the public starts getting wise to you or the government reacts and threatens to reign you in, you’ll have done record profits for 3-4 quarters straight. And then you can slowly bring prices back down (which will be celebrated in the media every time it goes down a penny), open up supply again, and eventually return to normal.
And in the end, everyone wins. And by everyone, I mean the oil companies. Definitely not the consumer. They got screwed.
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