Wednesday, November 02, 2005

Not very romantic, but...

An AP article in our local Sunday paper (business section) has had me thinking this week. Some would dispute that, saying they have never yet caught me actually thinking about something. Carol might even be among those. However...

The topic is the price of gasoline.

The headline screamed, ”OIL INDUSTRY NOT LIKELY TO EXPAND PRODUCTION”.

Here’s the first quote: “‘A surplus of supply is not good for the industry,’ Shell Oil Co. president John Hofmeister said. ‘Just as a surplus of demand is not good for industry. We strive for balance.’”

My response: Bullsh**! You strive for profits. Period. And that’s OK in an open, free market.

“Keep in mind, Hofmeister said, that ‘high-priced oil at 60-plus dollars leads people to seriously question their use of energy. And as they question that use of energy, they use less ... let the market do its work.’”

My response: At YOUR salary, you don’t care about $3.00 per gallon gas, but my daughter making $12 per hour DOES care. A lot! YOUR industry thrives on $60 per barrel oil, but few others do.

YOU say, “...let the market do its work.” That might be valid in the market we had ten years ago. But what happened? Now we have Exxon-Mobil, Conoco-Phillips, Chevron-Texaco-Unocal, BP-Amoco, and more. Where are the many small and medium sized oil companies that actually competed with the big guys? GONE! Where are many of the big guys? GONE! Swallowed up in mergers and acquisitions until now there are a relatively few giants who are less prone to compete than to cooperate with prices and production levels.

They can thus manipulate supply and demand, and by extension pricing, without illegal collusion or price fixing. There’re no longer any smaller, maverick companies to under-price them and grab market share.


What is Washington’s response to all this? “Let’s propose a big Windfall Profits Tax and punish big oil for making all that money!”

BAD idea! That just tends to keep prices high to cover the cost of the tax.

So how do you encourage smaller-capitalized entries into the oil business to provide competition? You ease up on both the tax burden, and on the prohibitive environmental cost burden of oil exploration, production and refining.

Uh oh. I just touched a lot of people’s hot button. The Holy Environment just got threatened by me. With all the “education” and scare tactics we press on our children these days from pre-K all the way through secondary school, nobody will touch the environmental folks.

So, what’s the answer? Probably high-priced gasoline (compared to historical levels) for a loooong time.

For a certified optimist, that’s a pretty drastic statement. But on a more typical (optimistic) note, I doubt very much you’ll see environmental disaster or global warming horrors (a la the movie “The Day After Tomorrow”) soon or ever.

OK. Again I apologize for getting all serious on you. Tomorrow will be lighter.

6 comments:

shyloh said...
This comment has been removed by a blog administrator.
shyloh said...

It's ok to get serious now and then.

shyloh said...

I wanted to tell you also that I visited your website. NICE!!!

Christina said...

I have actually seen gas as "cheap" as $2.51 here where I live. I was hoping it would continue to go down, but now after reading this, I have my doubts.

Hale McKay said...

Tomorrow's posting will be "lighter." Don't tell me you use Kerosene lamps.

Duke_of_Earle said...

No, but you're close. Check it out.

John