Skip to comments.We are gouging oil companies – and ourselves
Posted on 07/23/2007 6:17:52 AM PDT by Daffynition
The U.S. House of Representatives recently passed legislation instituting penalties of up to $150 million for companies and up to $2 million and 10 years' imprisonment for individuals found guilty of gasoline "price gouging."
But the real gouger driving up gasoline prices is not the private sector it is our government.
To "gouge" means to extort, to take by force something that oil companies and gas stations have no power to do. Unlike a government, which can forcibly take away its citizens' money and dictate their behavior, an oil company can only make us an offer to buy its products, which we are free to reject.
Because sellers must gain the voluntary consent of buyers, and because the market allows freedom of competition, oil and gasoline prices are set, not by the whim of companies, but by economic factors such as supply and demand.
If oil companies could set prices at will, surely they would have charged higher prices in the 1990s, when gasoline was under one dollar a gallon.
Because oil companies and gas stations cannot set their prices arbitrarily, they must make their profits by earning them by efficiently producing something that we value and are eager to buy. In so doing, they assume great risks and expend enormous effort.
Over the decades, oil companies have created a huge infrastructure to produce and distribute gasoline by investing hundreds of billions of dollars in prospecting, drilling, transporting, stocking and refining oil.
In the absence of political factors like the 1973 OPEC oil embargo or the Gulf wars, the net effect of oil companies' pursuit of profit has been to drive the price of oil and gasoline, not up, but down.
The price of a gallon of gasoline (in 2006 dollars) fell from $3 in the early 1920s to $2.50 in the 1940s to $2 in the 1960s to under $1.50 in the 1990s.
This downward trend is all the more impressive because it required the discovery and exploration of previously inaccessible sources of oil and because it persisted despite massive taxation and increased government regulation of the oil industry.
When we see the price of gasoline today, we should not accuse oil companies of gouging but rather thank them that prices are not much higher.
The true culprit that we should condemn for driving up prices is the government, which has engaged with popular support in the gouging of both the producers and consumers of gasoline.
Federal and state governments have long viewed gasoline taxes as a cash cow. In 2003, for instance, when the average retail price for a gallon of gasoline was $1.56, federal and state taxes averaged about 40 cents a gallon which amounts to a far higher tax rate, 34 percent, than we pay for almost any other product.
(Contrary to popular belief, gasoline taxes do not just pay for the roads we drive on; less than 60 percent of the gas tax-funded "Highway Trust Fund" goes toward highways.)
Along with high taxes, environmental regulations justified in the name of protecting nature from human activity have dramatically increased the production costs, and thus the price, of oil and gasoline.
The government, for example, has closed huge areas to oil drilling, including the uninhabited wilderness of ANWR and the out-of-sight waters over the Atlantic and Pacific continental shelves. This, of, course significantly reduces the domestic supply of oil.
The government also has passed onerous environmental regulations that make it uneconomical for many old refineries to keep producing (50 out of 194 refineries were shut down from 1990 to 2004) and discourage new refineries from being built (no major refinery has been built in the last 30 years).
Regulations such as these push the surviving refineries to operate at almost full capacity, creating a situation where any significant reduction in the production of some refineries (e.g., from a hurricane) cannot be compensated by increased production in others.
Exorbitant spikes in prices, which many attribute to oil companies' "gouging," are actually caused by government constraints.
If we want to stop the irrational forces that have been driving up the price of gasoline and our cost of living, we must demand that our elected officials eliminate the regulations and excessive taxes that restrict the producers of oil and gas.
It's past time to stop gouging oil companies and ourselves.
For those idiots (liberals) who think that taking from private companies doesn’t effect consumers.
I am totally in favor of the free enterprise system, without government interference. However, this week we are once again being told that “down time” at several refineries are resulting in a shortage of supply, and our prices are jumping up again. When will this finally stop? Why can’t the oil companies schedule regular maintenance and build additional or even backup facilities to prevent this from happening on a weekly basis? The Alaska oil pipeline was shut down for a leak, then after the public outcry, they suddenly fixed it quickly. Do the oil companies think everyone else is as stupid as the politicians?
They do schedule regular maintenance, but the infrastructure is huge and you can’t predict everything.
Do you think that the oil companies can just build new facilities whenever they want to? They have to jump through all kinds of legal hoops and fight the environmental watchdogs.
And what about all the fuel the government is using to fight the war? And all the fuel these early-bird politiciams are wasting flitting around the country campaigning a year early! I won’t listen to any of them, I’m so disgusted!
Why the hell should they build more capacity, if they read in the papers that Congress is going to mandate x billion barrels of corn-based ethanol fuel, with the intention of replacing petroleum-based gasoline? If you were operated an Italian restaurant, and Congress was talking about mandated Mexican restaurant expansions and additions, would YOU increase your main eating area, at great expense to you?
The NIMBY environmentalist whackos won't let them.
I realize that they do regular maintenance, I just wish they would stop blaming all of the high prices on the refinery issue, when the politicians won’t drill in Alaska and won’t approve new refineries. I am sick and tired of the oil companies making obscene profits at the expense of working people. Enough is enough. If they continue their current pattern, the next administration could very well step back in and start regulating again. Is that what anyone wants?
Incidentally, Congress should decide whether it’s good to consume lots of oil, or to conserve. If consumption is good, then “gouging” should be punished - but if conservation is good, then companies right down to mom-and-pop gas stations that charge excessive prices should be rewarded with Medals of Honor for discouraging consumption, through high prices. Congress is schizophrenic, just like with tobacco - subsidize, and tax.
If oil companies are gouging by making an 8 to 10% margin, then jewelry retailers should drawn and quartered over their 2000 to 5000% markups.
You think they planned on having that leak?
Another reason they don’t build additional capacity is they are banking on the notion that when public outcry gets loud enough, the government will pay for the exansion, rather than the oil companies paying for it themselves.
Making an 8% margin is not obscene. You are only parroting the ignorant MSM and liberal whinings. That's crazy talk.
No, but they wasted no time in jacking up prices across the board. Funny how prices jump up instantly, but it takes weeks to come back down.
Yeah, a grand conspiracy! /s
In dollar amounts, they are huge. Record profits posted across the board by all the major companies. You are only parroting the oil company talking points.
Make up a graph or chart, making note of when a “crisis” occurs that causes a spike in oil prices. Then graph/chart the decrease later. The delta of the price decrease delays are pure profits.
Now you are being stupid, and talking just my lib/com sister. So, because they are huge companies (and have to be to survive) they should be punished? If they were smaller, their margins would HAVE to be higher, and that would mean higher prices for all of us. Would you prefer they pull a 10% margin or a 40% margin?
It's your point you are trying to make, so the burden of proof is upon you. You want a chart, you go make one. Meanwhile, I will stand in support of big business over governmental control, as I am a conservative capitalist. They make money, that's what they are supposed to do, and as an investor, i'm damn glad they do.
I’m not trying to make a point. I have done that, and it clearly shows that it takes longer for prices to drop than to rise. I am also in favor of free enterprise over government, but that doesn’t make it right.
Most refineries are huge Brobdignagian complexes that incorporate machinery that spans up to 100+ years. It’s a wonder they aren’t all off line at once a dozen times a year. The one that a former coworker of mine is at now still has areas with valves embossed with swastikas on them, they were sold by the Germans to the plant before WWII...
Making a far less than average profit margin is obscene? Besides Walmart, can you name any other businessthat runs on such miniscule margins? So, because they are big (and HAVE to be by nature) they should be penalized?
I don’t get your point. Anti-capitalism is good? Nah. Hundreds of independant businesses are in collusion (and have never been caught)? Nah. I don’t know what that point is you are trying to make. I dout it really matteres anyway, because it has to be anti-capitalist, or showing a profound lack of understanding in market economies.
My dad is a Vice President and Chief Economist for Tesoro, a refining company based in San Antonio. He’s been doing a lot of PR stuff lately trying to explain to everyone why prices are so high. Here is a link to an interview he did for E&E Daily. I think it will answer some of your questions. I just wish more people would realize what he’s saying.
You are so right but Congress has the ability and bully pulpit to make it look as though they are looking out for us when in effect they are robbing us blind with taxes. Their insatiable appetite to tax is only exceeded by American ignorance.
They don't just rob us and that's the end of it.. They use that money to further abuse us. It's like they have a key to your house. Once they've scoped out your lifestyle they make duplicate keys and pass them out to several alphabet agencies headed by their fraudster cronies.
The slave master takes citizens money so he can flog them evermore. Those tax dollars are used for things like passing environmental laws that limit or prohibit full use of private property. The government doesn't compensate the property owner by paying fair market value for their loss.
The FDA uses tax dollars to run miles of red tape so that a drug that has for years been successfully used in Europe is stalled for several years in the FDA's approval process. When approval is finally announced at a press conference the FDA proudly states that the "new" drug will save fourteen thousand American lives a year. Doesn't that mean that the FDA killed fourteen thousand people a year?
And on and on it goes...
Corporate conglomerates and Monopolies don't answer to the people, without government regulation corruption would be just as common here as it is in 3rd world countries.
The FDA APPROVES these drugs, but when the drug is found to be unsafe they blame it on the drug companies.
Typical government, never accepting responsibility for the damage it does.
I can list a dozen oil companies that compete against each other for your gas dollar. How does that meet your description of “Corporate conglomerates and Monopolies don’t answer to the people”?
I guess regulation is working, but the list continues to get smaller over time.
I wasn’t aware that it was a requirement to understand all the economics of an industry to hold an opinion. The general public doesn’t know and doesn’t care about the details. They want the prices lower.
Which invites opportunity for a new small independant!
Yeah, without knowledge, you can have an uninformed opinion, but to discuss a subject intelligently, you should be able to back it up with knowledge and facts.
When you can compare rising profits, to rising consumer cost, what more do you need to know?
The fact is that it takes longer for prices to drop than to rise. That is what people see. That is where the perceived unfairness is to the consumer. As long as the consumer sees his gas prices rising, and the oil companies profits rising, he is not happy. Have a nice day.
Yep, it happens. Do you know why? I didn't think so. Does it happen in any other indstry. Yeah, I thought so.
If the government used Adam Smith's laissez-faire philosophy, we wouldn't be in this petroleum industry cluster-fcuk.
It is the government and the envir-whackos causing these problems. Not the "big evil oil companies."
IMOHO of course.
That part of the feeder line was shut down for several months while parts were ordered and delivered. TransAlaska Pipeline oil shipments were about 1/2 normal for that time.
The FDA APPROVES these drugs, but when the drug is found to be unsafe they blame it on the drug companies. Typical government, never accepting responsibility for the damage it does.
Their accounting is deplorable. Consider the loss of lives versus saving of lives caused by "X" drug. Drug X on net saves twice as many lives as it causes deaths. The FDA chooses over-caution because no FDA employees wants it in their files that drug X caused Y amount of deaths. In part their excuse is that a dead person can be identified by name. Whereas the specific people whose lives were saved is unknowable. In the end the FDA rejects the live-saving drug.
Plus, there's a ton of politics in the FDA. It banned the artificial sweetener Saccharine based on lab test using rats. They fed the rats so much Saccharine the human equivalent would require a person to drink seven-hundred cans of diet soda a day. Heck, just seventy twelve-ounce cans (over six gallons) of plain water a day would probably kill a person.
How many people with heart conditions suffered unnecessarily or died because of FDA politics.
BINGO....... Less inventory is less overhead, volatile trading, and higher prices.
Refineries don’t fake down time. They HATE unscheduled downtime. The prices rise, but the refinery with the downtime doesn’t win. It’s the other refineries that win.
There are two of most of everything at a refinery: two pumps per service, two filters, etc. But the few large pieces of equipment, like a coker, gas compressor, or boiler, are unspared. They are very capital intensive.
Higher inventory means higher prices, because there is a holding cost associated with that inventory.
Which is why their opinion is basically worthless.
This is where consumer inspired government regulation comes into the picture.