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May 16, 2006

Black Gold

My favorite news anchor is Hal Fishman of KTLA channel 5 on the WB in Los Angeles. Even when I don’t agree with him, he is still insightful, erudite, and concerned. Last night he had a commentary on the price of gas (not yet posted online, or I would link to it). He mentioned that the price of oil dropped nearly $5 per barrel from Friday to Monday and that supply is up and demand is down. He determined that the price of gas should drop approximately .25¢ a gallon today. He ended his commentary by suggesting we all look at the gas prices this morning and see.

Yesterday when I drove to work the gas was $3.39 a gallon. Today when I drove to work it was… $3.39 a gallon. Big shock.

What I find interesting, and I’m sure Hal does too, is that the moment an oil refinery fire happens in Texas, California's prices jump the next day. A tanker runs aground in Venezuela, and California’s price per gallon jumps the next day. Terrorists bomb a pipeline in Baghdad and the prices in California go up the next day. That Texas oil refinery gas would not reach the consumer for days, at least. The tanker could not have reached a refinery for at least another week, and it would take another few days before the refined oil would be shipped to consumers. The oil lost in the pipeline explosion wouldn’t reach consumers for weeks, at minimum. Yet our prices at the pump always jump the next day.

Yet, now that substantial savings have occurred, the same immediacy is not being shown at the pump. You can bet in the next few days there will be oil executives on the news blustering their way through new lies as to why the prices haven’t declined even as their companies reach new record profits. Or, one of those mysterious oil refinery fires will pop up again, as they always do when the news starts really hitting hard about the price of gas.

Last quarter, all of the major oil companies posted record profits. The highest, ExxonMobil Corp, recorded a $9.92 billion dollar profit on sales of $100 billion. Their profits were up 75% over the previous quarter. That is $10 billion in a quarter. BP announced profits of $6.53 billion and Shell PLC profits of $9 billion. (All figures from the Washington Post article here.)

I’m all in favor of companies making profits. Profits are good. But profiteering is bad. With how quickly the oil companies raise the profits when something “bad” happens (the next day, even if the effects won’t be felt for days or weeks) and how slowly the prices sink when good things happen (like the price of oil falling $5 and supply being up and demand being down), I cannot help but think profiteering is happening.

I would normally recommend that one company dramatically lower its price per gallon and rake in the profits by having so many more people come to its business rather than to its competition. But there really isn’t any competition in the oil business; it is a little known fact that collusion is happening every single day between the oil companies. When one company is a short of supply or demand is unusually high, it gets oil from the other companies to even things out. (See article here.)

Does America need to lower its dependency on oil? Yes. Have American vehicle manufacturers screwed the pooch with how far behind the Japanese they are in hybrid and alternative fuel cars? Yes. Does America need to look at alternative energy resources now, instead of in 5, 10, or 25 years? Or course.

Are oil companies price gouging and profiteering at the expense of the American consumers? Yes!

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