FacebookTwitterGoogle+RedditEmail

They Fix Oil Prices, Don’t They?

by DAVE LINDORFF

 

There is so much propaganda, faith-based economic theorizing and simple ignorance and naiveté surrounding the question of soaring gasoline and oil prices in this country!

For heaven’s sake, of course there is collusion, monopolistic behavior and price fixing in the oil industry. It’s the way this particular industry operates.

Start with the OPEC, that gang of producers, largely in the thrall of the major oil companies, which sets production quotas for most of the major oil producing nations.

Then move to the large companies. There used to be seven. Now there are far fewer mega companies, thanks to mergers like Exxon/Mobil and BP/Amoco.

Even when they were seven those companies aren’t really functioning as independent, competitive enterprises, and it’s only gotten worth with increasing concentration. Because refineries, offshore drilling platforms and pipelines are gigantic multi-billion-dollar capital projects–a typical refinery can cost upwards of $5 billion to construct–most are joint projects involving several oil companies, while others lease the use of them. In such a situation, all those elements of a business which are normally closely-held trade secrets important to maintaining competitive advantage–inventories, crude reserves, pricing, production rates, relative mix of heating oil, low and high-octane gasoline, etc.–are common knowledge.

It’s not like a typical business–say automobiles or television sets–where companies keep those kinds of numbers secret or, if they collude, have to do it by meeting in secret and agreeing on higher prices. The executives of the oil industry never have to get together, whether over a game of golf or in a back office. They know all about each other’s operations without ever talking. Collusion, not competition, is a way of life in this industry.

There is simply no way to use a competitive model to explain what happened to gasoline prices after the Katrina storm hit New Orleans. At best, 10 percent of production was shut down, according to reports. That’s 10 percent of 1/4 of U.S. demand–a tiny amount. Even if it were 10 percent of total demand because of reduced import capability at the Louisiana port, we’re talking about 10 percent, while gas prices rose 25-35 percent and even more in some areas. Not often mentioned in the same articles on this phenomenon was the fact that the world price of oil actually fell by almost 10 percent over the same period.

When the world oil price rises, I notice, as I’m sure most readers also notice, that the price at the pump is up the next day–sometimes the same day that a report comes out. Yet oil from places like Saudi Arabia and Kuwait takes months to go from the wellhead to retail gas stations in the U.S. Even oil from Venezuela takes weeks to become gas at the station in the U.S. What other product do you know of where the retail price in stores jumps immediately when the price of raw materials that goes into it goes up? Does bread go up at the store the day that wheat prices kick up on the Chicago Merc? Does candy in the store go up when the price of sugar rises on the Comex? Of course not! Just gasoline and home heating oil. So if more expensive crude oil doesn’t actually physically get to the pump for months, and the price at the pump goes up immediately, who’s pocketing that money in the meantime? Hint: It’s not your local gas station owner. Just check out the stock prices of the oil companies, and you’ll have the correct answer.

In a competitive model, the kind Milton Friedman likes to celebrate, companies like Sunoco and Exxon would keep their retail prices as low as possible until costs forced them to raise prices–something that simply doesn’t happen. Indeed, it’s a one-way arrangement: When the per barrel price of crude falls, the price at the pump hangs at its high level, sometimes for weeks, but if crude goes up, so does the pump price. Consumers can’t shop for bargains, because all gas stations behave the same way. For the most part, though, it’s not the stations that are doing this gouging–many of them aren’t even independent businesses, but are owned by the major companies–but rather the oil companies themselves. The money that results from this collusive, monopolistic behavior, in other words, is accruing to the oil companies and their stockholders.

The beauty of this arrangement, from the oil industry’s perspective, is that nobody can be fined or jailed for it. Under U.S. anti-trust law, it’s not illegal to have collusive results. The government would have to prove collusive intent, and as long as the oil executives don’t actually sit in a room or a teleconference, and expressly conspire to collude on raising prices or cutting production, that simply cannot be done.

If Congress and the White House were serious about combating price rigging,coordinated production slowdowns and artificial scarcities, they would be changing the anti-trust laws so that the objective existence of anti-competitive pricing and production alone would be illegal, not just deliberate conspiring to fix prices. A simple step would be just to make all the competitive information regarding production and pricing of oil and oil products, all the way from wellhead to pump, public. After all, if the oil companies all know everything about each other’s internal pricing and production, there’s no justification for keeping that information from the public. Instead we have the opposite situation of course: secret meetings by our oil-industry-subsidized vice president and executives of the oil industry, where real collusive decisions were made.

Oil and energy are too crucial to the economy and to people’s daily lives to allow them to remain the private domain of oil company executives and the oilmen–Bush and Cheney to name two–who run this blood-and-oil administration.

DAVE LINDORFF is the author of Killing Time: an Investigation into the Death Row Case of Mumia Abu-Jamal. His new book of CounterPunch columns titled “This Can’t be Happening!” is published by Common Courage Press. Information about both books and other work by Lindorff can be found at www.thiscantbehappening.net.

He can be reached at: dlindorff@yahoo.com

 

 

 

 

 

 

 

 

CLARIFICATION

ALEXANDER COCKBURN, JEFFREY ST CLAIR, BECKY GRANT AND THE INSTITUTE FOR THE ADVANCEMENT OF JOURNALISTIC CLARITY, COUNTERPUNCH

We published an article entitled “A Saudiless Arabia” by Wayne Madsen dated October 22, 2002 (the “Article”), on the website of the Institute for the Advancement of Journalistic Clarity, CounterPunch, www.counterpunch.org (the “Website”).

Although it was not our intention, counsel for Mohammed Hussein Al Amoudi has advised us the Article suggests, or could be read as suggesting, that Mr Al Amoudi has funded, supported, or is in some way associated with, the terrorist activities of Osama bin Laden and the Al Qaeda terrorist network.

We do not have any evidence connecting Mr Al Amoudi with terrorism.

As a result of an exchange of communications with Mr Al Amoudi’s lawyers, we have removed the Article from the Website.

We are pleased to clarify the position.

August 17, 2005

 

Dave Lindorff is a founding member of ThisCantBeHappening!, an online newspaper collective, and is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press).

More articles by:
May 26, 2016
Paul Craig Roberts
The Looting Stage of Capitalism: Germany’s Assault on the IMF
Pepe Escobar
Hillary Clinton: A Major Gold-Digging Liability
Sam Pizzigati
America’s Cosmic Tax Gap
Ramzy Baroud
Time to End the ‘Hasbara’: Palestinian Media and the Search for a Common Story
José L. Flores
Wall Street’s New Man in Brazil: The Forces Behind Dilma Rousseff’s Impeachment
Patrick Cockburn
The Battle of Fallujah: ISIS Unleashes Its Death Squads
John Feffer
The Coming Drone Blowback
Alex Ray
The Death Toll in Syria: What Do the Numbers Really Say?
Richard Pithouse
We Shall be the Prey and the Vulture
Binoy Kampmark
Trump and the Polls of Loathing
Manuel E. Yepe
A Cruise Ship Without Tourists Arrives in Havana
Jack Rasmus
Greek Debt Negotiations: Will the IMF Exit the Troika?
Ajamu Nangwaya
Pan-Africanism, Feminism and Finding Missing Pan-Africanist Women
Howard Lisnoff
Israel, a Palestinian State and Anti-Semitism
May 25, 2016
Eric Draitser
Obama in Hiroshima: A Case Study in Hypocrisy
Ryan Mallett-Outtrim
Does Venezuela’s Crisis Prove Socialism Doesn’t Work?
Dan Arel
The Socialist Revolution Beyond Sanders and the Democratic Party
Marc Estrin
Cocky-Doody Politics and World Affairs
Sam Husseini
Layers of Islamophobia: Do Liberals Care That Hillary Returned “Muslim Money”?
Susan Babbitt
Invisible in Life, Invisible in Death: How Information Becomes Useless
Mel Gurtov
Hillary’s Cowgirl Diplomacy?
Kathy Kelly
Hammering for Peace
Dick Reavis
The Impeachment of Donald Trump
Wahid Azal
Behind the Politics of a Current Brouhaha in Iran: an Ex-President Ayatollah’s Daughter and the Baha’is
Jesse Jackson
Obama Must Recommit to Eliminating Nuclear Arms
Colin Todhunter
From the Green Revolution to GMOs: Living in the Shadow of Global Agribusiness
Binoy Kampmark
Turkey as Terror: the Role of Ankara in the Brexit Referendum
Dave Lindorff
72-Year-Old Fringe Left Candidate Wins Presidency in Austrian Run-Off Election
May 24, 2016
Sharmini Peries - Michael Hudson
The Financial Invasion of Greece
Jonathan Cook
Religious Zealots Ready for Takeover of Israeli Army
Ted Rall
Why I Am #NeverHillary
Mari Jo Buhle – Paul Buhle
Television Meets History
Robert Hunziker
Troika Heat-Seeking Missile Destroys Greece
Judy Gumbo
May Day Road Trip: 1968 – 2016
Colin Todhunter
Cheerleader for US Aggression, Pushing the World to the Nuclear Brink
Jeremy Brecher
This is What Insurgency Looks Like
Jonathan Latham
Unsafe at Any Dose: Chemical Safety Failures from DDT to Glyphosate to BPA
Binoy Kampmark
Suing Russia: Litigating over MH17
Dave Lindorff
Europe, the US and the Politics of Pissing and Being Pissed
Matt Peppe
Cashing In at the Race Track While Facing Charges of “Abusive” Lending Practices
Gilbert Mercier
If Bernie Sanders Is Real, He Will Run as an Independent
Peter Bohmer
A Year Later! The Struggle for Justice Continues!
Dave Welsh
Police Chief Fired in Victory for the Frisco 500
May 23, 2016
Conn Hallinan
European Union: a House Divided
Paul Buhle
Labor’s Sell-Out and the Sanders Campaign
FacebookTwitterGoogle+RedditEmail