We are gouging oil companies

The U.S. House of Representatives recently passed legislation instituting penalties of up to $150 million for companies and up to $2 million and 10 years' imprisonment for individuals found guilty of gasoline "price gouging."

But the real gouger driving up gasoline prices is not the private sector – it is our government.

To "gouge" means to extort, to take by force – something that oil companies and gas stations have no power to do. Unlike a government, which can forcibly take away its citizens' money and dictate their behavior, an oil company can only make us an offer to buy its products, which we are free to reject.

Because sellers must gain the voluntary consent of buyers, and because the market allows freedom of competition, oil and gasoline prices are set, not by the whim of companies, but by economic factors such as supply and demand.

If oil companies could set prices at will, surely they would have charged higher prices in the 1990s, when gasoline was under one dollar a gallon.

Because oil companies and gas stations cannot set their prices arbitrarily, they must make their profits by earning them – by efficiently producing something that we value and are eager to buy. In so doing, they assume great risks and expend enormous effort.

Over the decades, oil companies have created a huge infrastructure to produce and distribute gasoline by investing hundreds of billions of dollars in prospecting, drilling, transporting, stocking and refining oil.

In the absence of political factors like the 1973 OPEC oil embargo or the Gulf wars, the net effect of oil companies' pursuit of profit has been to drive the price of oil and gasoline, not up, but down.

The price of a gallon of gasoline (in 2006 dollars) fell from $3 in the early 1920s to $2.50 in the 1940s to $2 in the 1960s to under $1.50 in the 1990s.

This downward trend is all the more impressive because it required the discovery and exploration of previously inaccessible sources of oil and because it persisted despite massive taxation and increased government regulation of the oil industry.

When we see the price of gasoline today, we should not accuse oil companies of gouging but rather thank them that prices are not much higher.

The true culprit that we should condemn for driving up prices is the government, which has engaged – with popular support – in the gouging of both the producers and consumers of gasoline.

Federal and state governments have long viewed gasoline taxes as a cash cow. In 2003, for instance, when the average retail price for a gallon of gasoline was $1.56, federal and state taxes averaged about 40 cents a gallon – which amounts to a far higher tax rate, 34 percent, than we pay for almost any other product.

(Contrary to popular belief, gasoline taxes do not just pay for the roads we drive on; less than 60 percent of the gas tax-funded "Highway Trust Fund" goes toward highways.)

Along with high taxes, environmental regulations – justified in the name of protecting nature from human activity – have dramatically increased the production costs, and thus the price, of oil and gasoline.

The government, for example, has closed huge areas to oil drilling, including the uninhabited wilderness of ANWR and the out-of-sight waters over the Atlantic and Pacific continental shelves. This, of, course significantly reduces the domestic supply of oil.

The government also has passed onerous environmental regulations that make it uneconomical for many old refineries to keep producing (50 out of 194 refineries were shut down from 1990 to 2004) and discourage new refineries from being built (no major refinery has been built in the last 30 years).

Regulations such as these push the surviving refineries to operate at almost full capacity, creating a situation where any significant reduction in the production of some refineries (e.g., from a hurricane) cannot be compensated by increased production in others.

Exorbitant spikes in prices, which many attribute to oil companies' "gouging," are actually caused by government constraints.

If we want to stop the irrational forces that have been driving up the price of gasoline and our cost of living, we must demand that our elected officials eliminate the regulations and excessive taxes that restrict the producers of oil and gas.

So much for raping the public. Maybe you should reserve your socialist envy for big beer.

The U.S. government has investigated gasoline prices about 30 times over the last 20 years but oil companies were never found to have “fixed” prices. Most recently, the Federal Trade Commission (FTC) completed an exhaustive study of alleged market manipulation to increase gasoline prices in the weeks following Hurricane Katrina late last summer. The FTC report, released in May 2006, included these findings: No evidence that refiners manipulated prices by running refineries below full production capacity, restricting gasoline production or diverting gasoline from the U.S. market to less lucrative foreign markets. No evidence to suggest refinery expansion decisions over the past 20 years resulted from either unilateral or coordinated attempts to manipulate prices. No evidence to suggest companies reduced inventories to increase or manipulate prices or exacerbate price spikes. No situations that might allow one firm – or a small collusive group – to manipulate gasoline futures prices by using storage assets to restrict gasoline movements into New York Harbor, the key delivery point for gasoline. BTW....I own stock in Exxon Mobil, and Conoco-Phillips. I have a selfish interest in seeing them do well. I have owned these stocks for 25+ years, and in the bad days of the oil bust in the early 1990's profits were down and margins were very low. Also, your referenced website, Public Citizen is also against nuclear power and is pushing for a future course in which the government will decide on how you will travel (and when probably). They are definitely socialist, if not outight communist. Windfall profits taxes are espoused on the oil companies. So that means once big oil is "tamed", how much longer before windfall profits taxes are imposed upon farmers for increasing their profits to obscene levels from the ethanol boom? On ADM for their excess profits from the same boom? On real estate sales in areas where property values have gone up 50%+ in the last 10 years? Where do you draw the line????

People have been fighting in the middle east for thousands of years. We are never going to control the hostilities there. We deposed the evil ruler - we should get out and let them kill each other. We need to protect ourselves, but we are in a no-win situation there.

There was a post this morning about the government not having the resources to deal with the illegal aliens or to train prison officials in Virginia and other states how to start deportation procedings. When we can’t enforce the law in our own country, we shouldn’t be spending a lot of money on other countries. The constitution says that the government exists to protect THIS country and its citizens, and it is not doing a good job of it when they leave the borders open.

I don't dispute the stats quoted, but I do question the reasoning behind the following:

Many industry analysts claim that rising demand in China and India are the big reasons why the price of oil exceeds $60 a barrel. However, they neglect to mention the role U.S. demand plays in setting global crude oil prices. Americans consume 25% of the world’s oil every day (see chart comparing global oil consumption). China, the next biggest consumer, uses less than 7% of the world’s oil each day. America’s huge appetite for oil combined with the fact that the United States is the world’s third largest producer of it (only Saudi Arabia and Russia produce more than we do) creates a strong argument that the United States holds a lot of sway over world oil prices.

Oil price are now set by the margin demands, not the bulk demand. Demand is almost at (or at) the production capacity, so a small amount of increase or decrease in demand is going to cause large price swings for the entire world. The ability of the US to influence world prices is minimal now that we import over 60% of our crude consumption (and ~5% of our gasoline to boot). Refusal by Congress to rescind drilling bans in ANWR and off the Florida and California coasts are one reason.

The energy bill that President Bush signed in 2005 does nothing to address the U.S. factors that are driving oil and gas prices to record highs. Congress and the White House explicitly rejected efforts to improve fuel economy standards for our cars and trucks (which account for 60% of our oil consumption) or adequately fund fossil fuel alternatives.

Government mandated fuel economy standards will do nothing to curb consumption or increase fleet efficiency. Again you seem to want the socialist solution, not the market driven solution. Ditto for adequate funding of fossil fuel alternatives. There are no alternatives to replace the petroleum derived fuels. At best bio fuels would supplant ~10%-12% of gasoline/diesel consumption and drastically raise food prices. (BTW windfall profits taxes on food producers/processors anyone???) Hydrogen?? Another joke, hydrogen production is a worse net energy loser than ethanol/biodiesel. Also your buddies at Public Citizen would have a meltdown over that, since a hydrogen economy would require a massive nuclear fleet expansion.

As Americans shell out more dollars at the pump, the profit margin by U.S. oil refiners has shot up 158% since 1999 (the year Exxon and Mobil merged).

Well, let's see. In 1999, I can seem to remember paying roughly $1.00/gal for regular unleaded in January/February. If they are making margins of 8-10% now, call it 10%, so in money, that means at $3/gallon, the refiner is making 30 cents.(much less than the taxes BTW) Dividing it by 1.58 means they were making roughly 19 cents per gallon back in 1999.

Meanwhile, gas prices continue to go up up up - and no oil company is reinvesting their profits into the things that will benefit motorists.

Since when is it a requirement of a company to invest in things that someone else outside the company decides is of a benefit to their customers???? Good profitable companies base their re-investment decisions upon what brings the best return on investment (ROI). Customers do figure in on these decisions, but stockholders have a vastly greater say and rightly so. Again, the implication is that government as a proxy for the "people" will make these decisions, again socialism.

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