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.
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.
The shame is that the government makes more off of oil than the oil companies...and they don’t do a thing for it.
The problems are manifold. We need new refineries. We need to drill in Alaska, the Gulf off of Florida...
No, but such a lack of understanding may reduce an opinion's value significantly.
Refiners do not keep a large permanent maintenance staff. The bulk of their maintenance crews are hired ad hoc and as needed in the spring and autumn maintenance seasons. Due to the volatility of employment in the ''oil patch'', large numbers of temp maintenance workers have left the industry.
Refiners therefore are in the position of fighting each other for crews. If a wildcard such as Katrina comes along, it makes this problem exponentially worse, because everybody wants the workers all at the same time.
Additionally, there is, as in practically every industry, a high degree of variance from company to company in the quality of their maintenance of capital equipment. The recent AK pipe leak? BPAmoco couldn't be bothered to run the pigs. Texas City still mostly down 18 months and counting since the big explosion? BPAmoco, again (although, to be fair, they've had problems getting crews). The Whiting IN outage? You got it, BPAmoco yet again. See a pattern yet? BP, even well prior to the Amoco purchase/merger, has for decades had indifferent-to-rotten maintenance. They just got away with it for a long time, but no more.
I won't even bother elabourating on the other principal cause of price spikes, to wit, how both market and government uncertainty increases price.
FWIW, there are a number of FReepers in and around the industry and the markets (pinged above, and I've surely missed several) who spend quite a good deal of time explaining the whats, hows and whys of the industry. I'd like to think their efforts are raising the FReeper understanding of the industry.
WTG, and FReegards!
In your case, it appears there may be some evidence.
It is, if you wish to be taken seriously.
It seems like since, Katrina TRADERS have been using every excuse in the book. IF you are upset, you should at least be upset at the traders. The prices will eventually come down but not until after summer naturally. That is the time of the year the traders do their doom and gloom that all oil is going to be gone by the end of the summer.
Due to the large volume being sold, the amount of inventory needed to help smooth out the highs and lows, is astronomical. Price fluctuations will end up causing higher prices, but holding more inventory isn’t the answer.
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