ECON 101:
When demand rises, prices rise. When demand falls, prices fall.
When supply rises, prices fall. When supply falls, prices rise.
If you plot supply and demand on a graph, they look like an X, with equilibrium of price vs. quantity at the spot where the lines intersect. It's how a free market, which is self-regulating, efficiently distributes goods and services. Worldwide demand, especially from India and China, has been pushing prices up. A decade ago, China was a net exporter of oil, now it's a net importer. Their demand affects our prices because it all comes from the same places.
In the meantime, US refining and production has declined over the last 25 years because of NIMBYism, ever growing environmental regulation, and the fact that oil company profits weren't so high for much of that time. About three months ago, the Baltimore Sun ran an article about how some of the windfall profits were being reinvested in expanded refining capacity. The effects of the hurricanes further disrupted supply.
Regulating prices (or profits) leads to shortages, like the gas lines of the 1970s.
None of the above can be changed by legislation or wishful thinking or complaining by politicians who lack the basic understanding of economics to do their own jobs, never mind an oil company CEO's.
And there are beneficiaries. It's been noted that one of the biggest complainers about gas prices is California's loathsome junior senator, Barbara Boxer. Should the California public employees' pension plan, which invests heavily in oil companies, give back their windfall?
Finally, a couple of numbers:
Oil companies' collective "record" profits in 2004: $43 billion
State, Federal and local gas taxes collected in 2004: $58 billion
Which begs the question: who is doing the gouging here?
