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Posted by D. Sherman on Thursday, March 27, 2008 at 11:31:05 :
In Reply to: Re: high diesel prices posted by Steve on Wednesday, March 26, 2008 at 21:21:47 :
Most of the price of fuel is the cost of crude oil, which is set by international markets. We can't do anything about that, whether we have nationalize/regulate our oil industry or not. The only part we can do anything about is the profits the oil companies are currently making. The reason companies like ExxonMobil are raking in such huge profits is that they have no serious competition. Sure, there are a couple other oil companies, but they all operate under the philosophy that "Our competitor is not our enemy. The competitor is our friend. The customer is our enemy", as an Archer-Daniels-Midland executive put it when discussing agribusiness. The government should not have allowed the huge oil industry mergers of the past 10 years. Did we forget that the main reason anti-trust laws were passed a century ago was to deal with an oil monopoly?
If we want to see what happens with government-run oil monopolies, there are lots of examples around the world. They're run in lots of different ways, but the results are always bad. There are many such countries where gasoline has to be subsidized at insanely cheap prices to prevent massive riots, which ends up being a huge burden on the federal budget. In some countries, like Iran, even though they export lots of oil, they have to import gasoline and subsidize it. In others, like Iraq and now Venezuela, poor management by political appointees rather than technical professionals has done permanent damage to the oil fields, reducing the amount of oil that can ever be gotten out of them. Even countries like Mexico, which has managed its oil fields reasonably well, end up with the state oil company becoming a corrupt bureaucracy with no incentive to innovate or economize, and even their fields are starting to run dry.
No, the best we can do is restore real competition by either breaking up some of the ill-advised mergers or helping smaller companies to legitimately compete. As for the lack of new refineries, there seems to a widespread misconception that "environmentalists won't let them build any". The truth is that nobody has even applied for permits for decades. Again, some real competition would really help here. Let somebody apply for a permits and then we'll talk about the opposition. It may even be that the big oil companies know that there will really be no significant new sources of crude coming on line and so, if current refinery capacity is enough to refine all the crude that's available, it doesn't make financial sense to build capacity. In other words, current refinery capacity is enough to meet the available supply, even if it's not enough to meet the available demand.
But when far and away the main component in fuel price is crude oil price, something that's determined by international traders and the US dollar exchange rate, not even a state-owned zero-profit oil company is going to be able to reduce the price of fuel much. When crude oil is $2.40/gallon, as it is now, it's mighty hard to turn that into gasoline at the pump for less than $2.40/gallon. The main reason the big oil companies are making so much money is that they have their own crude supplies. If it cost $10 to pump a barrel of crude out of West Texas or Wyoming 10 years ago, it doesn't cost much more than that today. The difference is that today there's a profit of $100, rather than $15, on that barrel.
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