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Historically High Gas Prices Are Greed-Induced, Not Free Market |
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Written by Bryan McCanless
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Public opinion polls show the historically high gas prices at the pump
continue to concern middle class workers and small businesses. Data
from government reports document that the big oil companies have rigged
the price of gas in order to reap the highest and largest profits
throughout the history of the U.S.
If you take the price of gas at the pump, plus the cost of subsidizing
the oil companies with billions of dollars of worker tax dollars, and
add to that the cost of having our military safeguard oil around the
world, you get an average cost of gas at the pump of almost $6 per
gallon.
Congress and the White House have been bought by the big oil companies.
These companies have been allowed to control the oil supply and the
refining capacity in America, and big oil is now setting the retail
price of gas at the highest level ever—a price that has no relationship
to the economic principles of supply and demand.
High gas prices are not the fault of OPEC, environmental regulations,
or reduced refining capacity. The creation of five big, monopolistic
oil companies—have given these companies the resources and the power to
eliminate competition and set the price of gas at the pump at whatever
price they deem in their best interest.
The five largest oil companies operating in the U.S. (ExxonMobil,
Chevron, ConocoPhillips, BP, and Royal Dutch Shell) now control
the U.S. market:
- 50.3% of the domestic refinery capacity
- 61.8% of the retail gas market
We now have documentation that the big oil companies have rigged the
price of gas! There is no market-based, free-enterprise reasons for the
gas at the pump to be as high as it is. The direct anti-competitive
actions of these companies have artificially driven the price of gas to
an all-time high.
The March 2001 FTC investigation proves that the big oil companies have
intentionally hiked the prices of gas by withholding the supply of gas
from the market.[1] The facts prove that the big oil companies will
raise the price of gas at the pump any time there is some small
disruption in the economy, a change in the War in Iraq, or some other
unrelated political glitch. For instance, one company executive told
the Commission that his company would rather sell less gas and earn a
higher profit margin on each gallon than sell more gas and earn a lower
margin. The point is that the policy of intentionally limiting the
supply is price-fixing. But the political leadership has done nothing
about it.
Furthermore, a Congressional Investigation uncovered internal memos
written by major oil companies which explained their successful
strategies to maximize profits by forcing independent refineries out of
business to reduce refining capacity in order to raise the price at the
pump.[2]
How can taxpayers and consumers combat the price-gouging practices of
the big oil companies? There must be a concerted effort to oppose any
new or extended tax benefits or cash subsidies for the companies who
are eliminating refinery capacity and intentionally withholding gas
supplies from the market.
There are seven positive steps that will lower the price of gas at the pump:
- Release some oil from the Strategic Petroleum Reserve to provide
a surplus in the domestic supply, which will have the effect of
immediately lowering the price of gas at the pump. Or stop pumping
excess gas into the SPR.
- Enforce anti-trust laws making it illegal for companies to
intentionally withhold crude oil or gas from the market, which
obviously creates artificial supply shortages and drives up the price.
- Evaluate how recent mergers that created five mega oil companies
have made it easier for these companies to engage in anti-competitive
practices and take legal action to require the sale of some assets to
smaller companies.
- In order to address the extensive control over market share of
production and refining capacity by the largest companies, Congress
should order oil companies to increase the size of storage capacities,
require them to hold significant amounts in storage, and establish the
right to require these surplus supplies to be released in order to
address supply and demand fluctuations.
- Reduce America’s oil consumption by implementing strong fuel
economy standards for combustion engines. Improving fuel economy
standards progressively for all “passenger vehicles” from 27.5 to 40
miles per gallon and for light trucks (including SUV’s and vans) from
20.7 to 27.5 miles per gallon by 2015 would save the U.S. an estimated
54 billion gallons of oil between 2005 and 2012. Combining cars and
light trucks to increase the fuel economy standards of the combined
fleet to 34 miles per gallon by 2015 would save an additional 33
billion gallons.
- Restore transparency (accountability) to energy future markets by
asking Congress to re-regulate trading exchanges that were exploited by
Enron and are continued to be abused by Exxon Mobil, Goldman Sachs and
other energy traders.
- Prepare anti-trust lawsuits against oil companies. Recent mergers
have created uncompetitive markets. Over the past few years, mergers
between giant oil companies have resulted in just a few mega companies
controlling a significant amount of the U.S. gas market, so as to
eliminate competition. As a result, consumers are paying more at the
pump than would be the case if we had a free market, competitive system
for production and distribution of gas.
In summary, requiring oil companies to increase the size of their gas
storage capacities, mandating them to hold significant amounts of
product in that storage, and reserving the right to order these
companies to release this stored oil and gas would significantly limit
the ability of oil companies to intentionally withhold gas supplies in
order to artificially raise the price of gas at the pump.
- Midwest gas Price Investigation, http://www.ftc.gov/ftc/gasinvest.htm.
- “The Oil Industry, Gas Supply and Refinery Capacity: More than Meets the Eye.” By Senator Ron Wyden, http://wyden.senate.gov/leg_issues/reports/wyden_oil_report.pdf.
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