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:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

March 28, 2017
Mike Whitney
Ending Syria’s Nightmare will Take Pressure From Below 
Mark Kernan
Memory Against Forgetting: the Resonance of Bloody Sunday
John McMurtry
Fake News: the Unravelling of US Empire From Within
Ron Jacobs
Mad Dog, Meet Eris, Queen of Strife
Michael J. Sainato
State Dept. Condemns Attacks on Russian Peaceful Protests, Ignores Those in America
Ted Rall
Five Things the Democrats Could Do to Save Their Party (But Probably Won’t)
Linn Washington Jr.
Judge Neil Gorsuch’s Hiring Practices: Privilege or Prejudice?
Philippe Marlière
Benoît Hamon, the Socialist Presidential Hopeful, is Good News for the French Left
Norman Pollack
Political Cannibalism: Eating America’s Vitals
Bruce Mastron
Obamacare? Trumpcare? Why not Cubacare?
David Macaray
Hollywood Screen and TV Writers Call for Strike Vote
Christian Sorensen
We’ve Let Capitalism Kill the Planet
Rodolfo Acuna
What We Don’t Want to Know
Binoy Kampmark
The Futility of the Electronics Ban
Andrew Moss
Why ICE Raids Imperil Us All
March 27, 2017
Robert Hunziker
A Record-Setting Climate Going Bonkers
Frank Stricker
Why $15 an Hour Should be the Absolute Minimum Minimum Wage
Melvin Goodman
The Disappearance of Bipartisanship on the Intelligence Committees
Patrick Cockburn
ISIS’s Losses in Syria and Iraq Will Make It Difficult to Recruit
Russell Mokhiber
Single-Payer Bernie Morphs Into Public Option Dean
Gregory Barrett
Can Democracy Save Us?
Dave Lindorff
Budget Goes Military
John Heid
Disappeared on the Border: “Chase and Scatter” — to Death
Mark Weisbrot
The Troubling Financial Activities of an Ecuadorian Presidential Candidate
Robert Fisk
As ISIS’s Caliphate Shrinks, Syrian Anger Grows
Michael J. Sainato
Democratic Party Continues Shunning Popular Sanders Surrogates
Paul Bentley
Nazi Heritage: the Strange Saga of Chrystia Freeland’s Ukrainian Grandfather
Christopher Ketcham
Buddhism in the Storm
Thomas Barker
Platitudes in the Wake of London’s Terror Attack
Mike Hastie
Insane Truths: a Vietnam Vet on “Apocalypse Now, Redux”
Binoy Kampmark
Cyclone Watch in Australia
Weekend Edition
March 24, 2017
Friday - Sunday
Michael Hudson
Trump is Obama’s Legacy: Will this Break up the Democratic Party?
Eric Draitser
Donald Trump and the Triumph of White Identity Politics
Jeffrey St. Clair
Roaming Charges: Nothing Was Delivered
Andrew Levine
Ryan’s Choice
Joshua Frank
Global Coal in Freefall, Tar Sands Development Drying Up (Bad News for Keystone XL)
Anthony DiMaggio
Ditching the “Deep State”: The Rise of a New Conspiracy Theory in American Politics
Rob Urie
Boris and Natasha Visit Fantasy Island
John Wight
London and the Dreary Ritual of Terrorist Attacks
Paul Buhle
The CIA and the Intellectuals…Again
David Rosen
Why Did Trump Target Transgender Youth?
Vijay Prashad
Inventing Enemies
Ben Debney
Outrage From the Imperial Playbook
M. Shadee Malaklou
An Open Letter to Duke University’s Class of 2007, About Your Open Letter to Stephen Miller
Michael J. Sainato
Bernie Sanders’ Economic Advisor Shreds Trumponomics
FacebookTwitterGoogle+RedditEmail