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The Great Oil Gouge Burning Up that Tax Rebate

Burning Up that Tax Rebate

by DAVID LINDORFF

Remember that $400 family credit that you got from the IRS (assuming you weren’t one of those 8 million poor families that the Republicans and the president decided didn’t deserve a tax rebate)?

Well, if your family has the typical two cars and two drivers, and you each drive the typical 15,000 miles a year and get the typical 20 miles per gallon, that windfall will be more than eaten up by New Years by what might be called the Bush/Cheney oil price surcharge, which has seen gas prices soar in recent weeks to the high they reached last March on the eve of the war against Iraq. And that’s not counting the even more additional money you’ll be forking over for heating oil this winter, which for a typical home in the Northeast or Midwest, could be $450-500 (not to mention your higher electric bills, since a lot of U.S. electricity is generated by oil-fired plants, besides which coal and natural gas prices rise in tandem with oil prices).

Think back a bit to when oil prices were surging last March. The oil industry at the time blamed those record high prices on the unusually cold winter, which had depleted crude oil reserves, and on concern over threats to the Middle Eastern oil supply as a result of the coming war–concerns which caused oil traders to bid up the per-barrel price of crude oil.

Of course, the war never did produce any delays in Middle Eastern oil deliveries, and in fact, some Iraqi oil is now being added to the world market, which should be bringing prices down, not up. And there certainly hasn’t been any unusual demand placed upon supplies.

So why the record increase, which the Lundberg Survey says over the past two weeks has been the largest price hike on record since the outfit began keeping records 50 years ago?
According to the oil industry, the problem this time was temporary refinery shutdowns caused by the East Coast blackout, and by a break in a pipeline in Arizona.

Does anyone really believe this malarky? The blackout lasted a couple of days, and was not nationwide. Indeed, it was in an area–the Northeast–not particularly known as a center of oil drilling and refining. There was no blackout in California, or in Texas, or even in the Southeast–all areas with far more refinery activity. And as for that pipeline in Arizona, it is not that crucial to U.S. oil supplies except in Arizona and New Mexico.

What’s really going on here is collusive price gouging by an industry with a history of such behavior, and one that in this current political environment has become almost synonymous with the national government.

In recent years, the number of oil firms in the country, and the world, has been dramatically reduced, with the mergers of Exxon and Mobil, of Amoco and Arco and British Petroleum, and of Texaco and Chevron. That means a lot fewer companies competing.

In addition, the oil industry long ago learned how to collude on pricing without having to technically violate the anti-trust laws by sitting together in a single room or chatting on a single phone hook-up. Because these companies share refineries, share tank farm storage facilities, and share pipelines, it’s easy for each company to know all the details of its "competitors’" production plans, reserves, distribution and pricing. There are few if any secrets among them. That’s about all you need to have collusion in an industry where the main product is a commodity, priced the same the world over. And collusion clearly works far better in this industry’s interest than competition.

Everyone has seen how collusion works at the retail level. In my own community, I have three gas stations all within a block of each other–an Exxon station, a Sunoco station and a Texaco station. Every time one garage raises its price by a penny, the other two follow suit with a speed that makes your head spin. Rarely are any of them out of line by more than a penny.

The other thing you’ve probably noticed is that whenever some incident happens in the news that might logically be construed as crimping oil production or delivery–say a pipeline break or a blackout–prices at the retail pumps jump.

Immediately.

Yet the gas in the tanks underground was put there days ago, and was refined weeks, or even months ago.

Notice what happens when the pipeline gets fixed or the lights come back on though.

Did the pump price drop right back down?

No. That takes weeks, if it happens at all.

That is not the behavior of a competitive market.

And at the producer level, the situation is even more corrupt and non-competitive.

We Americans, who live and die by the automobile and by the oil that fuels it, are quick to condemn the slightest increase in our taxes (and to praise any politician who reduces our tax bill by even a tiny amount). Yet so indoctrinated are we with "free market" ideology, that we accept without a word of protest any increase in our fuel prices as a natural disaster over which we have no power or say.

Not that this Administration, whose key members almost all hail from the oil patch, would ever order an anti-trust investigation of the oil industry, even if we did start rebelling.

Dave Lindorff is the author of Killing Time: an Investigation into the Death Row Case of Mumia Abu-Jamal. A collection of Lindorff’s stories can be found here: http://www.nwuphilly.org/dave.html