Henri Reynard Speaks Out

Gas Who?

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The editor program inside my copy of Microsoft word doesn't understand my use of "who" in this context so it has underlined the word. Since my rules of grammar are different than the ones it tries its best to impose on me I will not comply. The consumers of the USA are being treated to gas price wars. These are not the gas wars of the 1950's where the competition in the oil industry brought prices down. This current shortfall in the availability of gasoline is the byproduct of a lot of maneuvering by the oil industry to wring a few more dollars out of their oligopoly. The companies are vying for which of them will set the price record for gas cost to the consumer. "Daddy, what's an oligopoly"? An oligopoly is control of a product by a few companies who divide up a market and use their market power to derive excessive profits from its sale. Man, is this a boring topic, but then that's how they get away with it, they lull us to sleep with the infinite details of an exceedingly complex industry.

Lets make it simple, you're being ripped off! Is that clear and simple enough? This is only the beginning of the rip-off although some would put the beginning back a while when the government got into bed with the oil industry for the first time, back early in the last century. Yes it has been well over a hundred years since Ida Tarbell exposed Standard Oil to the scrutiny that resulted in the breakup of the Standard Oil Trust. Oil is no longer run by a monopoly, the industry is really too big for that anyway, and too mature. The numbers are staggering enough when you look at what we spend every year on oil in this country. We are only roughly one quarter of the world market for oil. Hmmm, that means that with five percent of the worlds' population we consume twenty five percent of the worlds production of oil. We now import sixty percent of that oil from outside our borders. Those are the only numbers that I will subject you to in this essay. Any more would be too much to absorb at one sitting.

What is the issue here is who controls the flows of oil across these great big wide United States. Where do the costs get added to gasoline, costs that add up to that cost of two dollars at the pump? Who adds each layer of cost? How are oil prices manipulated, by the major oil companies, in order to increase profits above what a competitive model will allow? To answer all of that I would need to write a tome that no one would read. It is bad enough writing essays that no one reads, books that long and dull should be written in Russian and never translated. Follow the bouncing prices and you will get it that nothing is happening at the supply level that should result in this much of an increase at the pump. Oil from the wellhead is sold in a lot of ways, much of it is provided under long-term contracts with suppliers at set prices. This stabilizes costs and since much of demand is predictable it works to everyone's benefit. The rest of it is sold in various short-term commodities markets known as "Spot Markets".

The headlines for the recent spate of days should be, "See Spot Run", the spot market has gone crazy with concerns like the possibility of war with Iraq and the strike in Venezuela. Inventories are low and prices are high. The problem comes when you try to research what oil is really costing based on the volumes of oil bought in the spot market and volumes bought under longer term agreements; you can't get there from here! There is no really simple way to define what the real cost of that gallon of gasoline really cost at the wellhead or port of exit where it was shipped from the initial supplier. So how can you find out when you are being ripped off mightily? You can call your local friendly gas station operator, who is at much at the mercy of suppliers with far greater power than he/she has to set prices, and ask them what the real cost of the oil that made the gasoline he is pumping today really was. He won't have a clue.

So who really knows what the value of the commodity is that was used to make your home heating oil and your gasoline? Only the members of that exclusive club, the oligopoly, know for sure. Various and sundry consumer focused groups try to follow the bouncing price ball but most of them are as hard to read and follow as that book I refuse to write since I don't speak Russian. The only control you have over that price is based on how much fuel you buy, and that is fixed by your need to drive to work and elsewhere. That and the amount of regulation and control your government can exert on your behalf. Of course the oil industry paid for a lot of the cost of electing those folks in the Congress and White House so don't expect them to be much help. Does anyone want to buy a slightly used SUV? It gets nearly eighteen miles to the gallon going downhill. I'm shopping for a slightly used camel, is water controlled by an oligopoly yet? Hmm, maybe I can get in on the ground floor.