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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They want to break that record every quarter.
If they don’t continually break profit records their investors get angry. The only way to keep the records breaking is to charge more.
Energy has actually become much cheaper to produce over the years due to tech advances, but why pass those savings onto the customer when they can keep it all.
Oil companies sell oil.
Oil is a commodity. The price of oil is based on what people are willing to sell it for and pay for it.
If 2 oil sellers have 40 barrels of oil each, and people want 100 barrels of oil, nobody wants to have no oil, so they bid more for the oil. They can pass the cost on, because their customers need oil too.
If there isn’t quite enough oil to go around, the price goes up disproportionally because it’s much better to pay more than it is to get nothing.
The opposite happened recently, when covid started. Oil prices dropped below $0 because there was too much supply. It may sound like an amazing deal to you if I offered you to take $3 for every barrel of oil I gave you, but that oil needs to be transported and stored. The cost of the oil itself is just one piece of the puzzle.
So, prices are driven by the relative supply and demand. Things that control the supply also control the prices, which can manipulate the market for oil. OPEC has a long history of adjusting oil production to maintain prices for example.
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.
Holy ignorance no wonder the tories are in power when you’ve got people talking like they can’t think for themselves 🤣
Rule 2 forbids whole-topic questions.
No, the supply is reduced so you are not getting same power. The price is just to decide who gets to continue using power and who has to cut consumption. The extra you are paying is to force someone else out of the market, of course the suppliers are tickled pink about the situation.
It’s an auction. Purchasers bid prices up over each other’s offers. If supply tightens, like in any auction market, the purchasers will bid higher. The gas market is currently constricted by Russia cutting supply. Companies selling gas find higher bids for their product…. and reap a greater profit because their cost of production hasn’t gone up.
A lot of the US oil is imported (maybe about 30%). When foreign suppliers (namely Russia in this instance) cut off or get sanctioned, that means a lot more of the oil produced is domestic. In order to expand production capacity, oil producers have to buy new equipment for mining and fracking. Since most of the oil drilling supplies come from American companies (Halliburton being one of the larger ones) we see these companies do very well as a result.
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