May 14, 2007

The great oil robbery
Free Market News Network
by Dave Lindorff

“In case you’re wondering why crude oil prices are down from last year, hanging around at about $60 a barrel, while gasoline prices have soared past $3.10/gallon nationwide, just check out the latest profit reports from the oil companies. They are at record levels. The answer for this seeming contradiction is simple: Americans are being robbed blind by the oil industry. Sure, the oil companies, and their PR and lobbying agency, the American Petroleum Institute, will give you all kinds of reasons for higher gasoline prices at a time of falling crude prices: problems at two refineries in Texas and Oklahoma, rising demand or whatever. But the real answer is that there is simply no competitive market in this industry.”

Of course, we "all" love to hate Big Oil, so it is very human to figure out a way to blame them for this. And somehow, even FMNN's columnists don't seem to really believe in free markets down deep in their hearts.

But this is conspiracy theory of the grandest sort - that the managers of at least two dozen big (and a half-dozen VERY big) oil companies PLUS the leaders of at least a dozen nations (including the Saud family and the sainted Hugo Chavez) are all in this big conspiracy to:
(1) prevent construction of new refineries,
(2) juggle the price of gasoline enough to maximize profits but NOT trigger massive feedback and ultimately massive reduction in gasoline/diesel use, and
(3) prevent any new competition from entering the market.

Given that some people are EXTREMELY greedy, it is hard to imagine that one or more of these groups would not figure (accurately) that they could make even MORE money for themselves by undercutting everyone else and breaking the cartel - just as has happened with OPEC for decades. And that doesn't even include the fact that really, the conspiracy must include a whole host of very wealthy people on the level of Gates, Buffett, and Murdoch, so that they don't enter the market with their own refining and marketing. There is no law, as far as I know, against anyone buying oil, or even, with enough money, buying one of the small refineries (like that one right there in Mama Liberty’s own town of Newcastle, WY) and launching their own - if the profit potential is there.

It makes far more sense to blame three things:
(1) the free market doing its job when supplies are tight and there are distribution problems: refinery shutdowns, pipeline shutdowns, and even the vicious circle of fuel prices for the very fuel tankers hauling the product around the country.
(2) government laws that (a) favor large, centralized, integrated companies, (b) make any expansion both very time-consuming and very, very expensive, (c) subsidize the status quo and discourage innovation. It is not "conspiracy" that leads government to do these things - these are the unintended consequences of dozens of different factors and groups and goals which boil down to lust for power and fear of freedom.
(3) greed and panic on the part of the investors and secondary markets (futures traders, derivatives and all the rest of the financial garbage that has grown up over the years, in part due to government meddling in the marketplace and the response to that, and the "sumpting for nutting" mentality that fractional banking and fiat money encourages).

Of course, none of these three things really provide a satisfying hatred for Big Oil that this guy's theories do, and don't support a minarchist mindset.

What the FMNN writer really is saying is that Big Oil is evil and must be "controlled." And what is there that can control it, if he believes that the free market does not or cannot? Obviously, this should be a "proper role" even for a minimum government: to FORCE people to sell for what they say - presumably the costs of production plus a "reasonable" (government-defined, of course) profit, instead of what people are willing to pay for, however reluctantly. So his conspiracy theory is really an argument for government - even "more" government, but just the "right kind" of government.

Sick. (And very much like the same argument in a dozen fields: against “those evil: immigrants, homos, gun-lovers, breeders, jingoists, evolutionists, papists, creationists, ______ (insert your own) who will destroy us all if something isn’t done.”)

If this were massive price-fixing, why has the retail price of diesel dropped significantly in relationship to the price of gasoline? Why raise one but not the other? Why give up the higher profits on diesel, if this is all about maximizing profits intentionally?

If this were massive price-fixing, why has the price of 10% ethanol fuel kept pace with pure gasoline? If it is gasoline that is being artificially jacked up, ethanol (which comes from dozens of different producers and is added at various points in the supply chain) would impact retail prices more: a matter of simple math: if 10% of your product does not increase in price, even though 90% does, there comes a point where the price-lines cross. But ethanol-blended gasoline continues to sell for 5 to 10 cents above Regular except in the ethanol producing regions (eastern NE & SD, Iowa) where it continues to remain a nickel or so below Regular.

If production is being deliberately restricted (as he implies) then it would make more sense than ever for a maverick producer like Sinclair or one of the other small independents to produce at maximum capacity, reduce their prices just enough to take a larger market share, and thereby increase their profits AND lower prices. But no one seems to be doing so. Are they being threatened? Or all they ALL part of the conspiracy?

It all points to a shortage of supply and inability to transport enough to the right places on time: classic market problems. And nary a face or cabal or gang to hate with great satisfaction and sic that “tame” wolf named Government on. Life’s rough.

Nathan Barton is writing this from a wonderful place in the West, which might be in the Black Hills of South Dakota or Wyoming, or might be in one of the Four Corners States. Exactly where it is, the breezes blow with the scent of liberty, and the sound of the pines or the pinions is the sound of freedom. For thousands of years, people have fought and died for the liberty that Americans in the great spaces of the West enjoy, and he writes these commentaries in the hopes that continued generations will be able to do so, until the end of Time.

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