The president talked big in his speech, decrying "price gouging." So what is the republican definition of "price gouging"? How can you tell who's gouging? How can it be illegal under a Republican regime? Is it OK for an oil company to raise prices 40% in a few days, when their stock is up and their CEO is still collecting his $40 million per year salary, but a local gas station owner can't likewise take advantage of the catastrophe.
Does anybody know what, if anything, Nero's guitarist meant by what he said?
The oil companies ARE practicing Price Gouging, every single day of the year, and at every step of the process from the well to your gas tank - the only difference being, they have a whole cadre of high priced lawyers making sure they stay just this side of 'legal' when they do it.
There is collusion in the wholesale 'barrel price' of crude at the well - OPEC and the other major oil exporters all collude to restrict the supply to keep the prices up. IIRC someone said it costs between $2 and $6 a barrel to drill for, pump, strain, and deliver the oil to a port for pickup. All the rest of the price is cranked up through artificial restriction of supply.
There is collusion in the refining market - same thing, they refineries that are operating allegedly have just enough refining capacity to meet our current needs, and no more.
It would be trivial to build an extra cracking tower or two at each refinery and double their output, or allow new refineries to be built and operated in other areas (so that a localized catastrophe couldn't take that much capacity out), but they do neither. And there is very little stored back stock of refined fuels, so we feel the pinch much sooner.
And there is collusion in the retail market, as they ration supplies to the retail gas stations and charge "Zone Pricing" to get as much profit as they can out of a geographic area. Ever notice that all stations in an area are within a penny of each other? There's a good reason for that.
And the retail station "owner" for a major brand is only allowed between 4 and 12 cents per gallon markup, depending on his lease contract, and there are people checking up on it. If he tries to increase his markup over the percentage he is allowed (to try and make a small profit for the month), the oil company will simply raise his wholesale price. Though he is free to cut his price and sell gasoline at a loss if he wishes...
If this were a true capitalistic "Free Market", gasoline would be hovering around $1.00 - $1.50, not $3.00 and rapidly climbing. And the wholesale crude price would be around $10 - $20 a barrel, not $70.
In a true Free Market, whenever the price trends showed high enough markups to make exploring and developing a new oilfield profitable, or building a new oil refinery, or a new crude or refined products pipeline and tank farm system, people would invest the money, build them, and then make their investment back.
And in a true Free Market, this would be moderated very effectively by the banking system and stock market - If supply increases and lowers the price of the products to the point where the companies weren't making money at it, the bankers or investors will stop making money available (loans and stock purchases) to these companies to start or expand their operations. A rather effective system if allowed to operate.
There isn't any spare oil pumping capacity whatsoever. OPEC USED TO conspire to limit capacity. They had quotas. However they are now pumping all out.
However the US oil companies did not participate in this. It is illegal to do so. You have absolutely no evidence that they did so. Why don't you provide some other than just your accusations alone?
I'll give you an example. In 1980 oil was $30 per barrel and was predicted to soar to maybe $100 per barrel by 1990. But it didn't. Why? US and other oil companies found more oil, the North Sea, Gulf of Mexico etc. Using your logic they would have proscribed output and the price would have risen. It didn't.
The cost of $5 per barrel is an OPEC countries' cost, and it is irrelevent. What is the cost of NEW oil barrels? Oil was low for so long and they had spare capacity so they never bothered to invest more. Now they may do so, but they haven't discovered new fields even in OPEC countries in decades. partly because they haven't looked hard. Why would they when they were under agreements to limit production.
As for US oil companies it doesn't cost them $5 per barrel to find, extract, etc. oil. In general they haven't been able to find much new oil, for one thing. Secondly much of the oil they have found is in the GOM where they have to build drilling rigs to extract it.
As for refineries, again you don't know what you're talking about. Refinery margins were dirt low for years. Demand has finally caught supply and there is very little refineries can do to increase output. You say they could add a "cracking unit". Maybe they already have over the years and they can't add more. Can they add an infinite number of cracking units to double or triple production over the next 20 years? Why not? You said they can add now, based on what? How the hell do you know?
No new refineries have been built (although there have been capacity increases at existing plants) for 20 odd years. But they could have done so and could do so now, right? They just don't feel like it. They're engaged in a conspiracy to not develop a new one. They say environmental restrictions have completely eliminated the possibility, but again, you know better.
They're engaging in a cartel, but you're the only one who sees it. OK. That's funny, production from refineries is at an all time high (before Katrina). They gov't says they're using 98% of capacity or whatever. Are they in on it too? Only you're smart enough to see through it though right?
So if oil prices are high enough, then capital will flow to find new oil! Brilliant! The market must be being impaired by something. Maybe it's because oil companies have drilled so many dry holes over the past years and so few new discoveries are found, that it's not worth it. Why invest money drilling dry holes, what possible good does that do? That's why they buy back stock or buy each other. But they're probably lying. You could find the oil. You're brilliant! Why hire geologists, etc. They should just use you.
So the evidence that the oil companies are colluding is that they haven't been able to find new oil. No one has. Here's another explanation: All the easy oil has been found. Is that possible? How do you know it's not? You'd like oil to be...hmmm...$1.50 a gallon? Why how very reasonable of you! Therefore there must be a conspiracy if it's not that price.
Bottom line is that high prices above their HISTORICAL costs of finding oil are not sufficient to prove "gouging" or an illegal cartel. There isn't an infinite amount of oil, or if there is it sure seems hard to find.
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