Hosing You Down and Down

big-oilThis morning, over a cup of Columbian Coffee I come on here and read refineries and the EPA are our problem?  Man-Man, I must have it all wrong.  I had it the other way, “restriction of product, scarcity in supply (on purpose) to drive up prices.”

When it comes to understanding the volatile pricing of gasoline and upper distillates  who can we trust?  Some people say the free market.  But then again, look at the past history of oil in this country.  Gas/Diesel prices kept climbing even as oil prices dropped, all the while as supplies increased.

Oil prices are supposed to fall back when U.S. inventories of crude and petroleum products grow.  So why is it when U.S. crude supply exceeds demand, prices still rise? There must be something else that is choking the system.

Surely, we should be able to trust the insight of our elected representatives.

Some are quick to point a finger towards Washington D.C.  Lawmakers claim we need new comprehensive energy legislation that would open more public lands for oil and gas drilling and make it easier for new refineries to be built.  Oil companies while idly sitting on thousands of leases, call for more “tax incentives” to the tune of yearly amounts of billions of dollars to alleviate the problems in our country.

Run that one up the flagpole again, and again, and again.  No one is gonna salute it.  

Ah yes, and don’t forget to include those whacky environmentalists preventing oil companies from building new refineries. I wouldn’t be surprised if the U.S. still has the same number today as we had 25 years ago.  Perhaps the oil companies just neglected to notice that American Drivers (and drivers around the world) increased during this period of time?  

EPA adds to the mix, but that can be solved, get rid of the the EPA.  I personally see them doing nothing but restricting instead of encouraging business in this country.  Pardon my French but it aint all them tree huggers causing the problem, that dawg won’t hunt either.

Over the last quarter-century, the number of refineries in the United States dropped to 149, less than half the number in 1981.  Oh, well all those refinieries closing is probably from pressure by liberal lawmakers.  Uh huh, sure.  We used to have ten of them here in Oklahoma now we are down to two, possibly three.  Why were they shut down, to support artificial price controls would be the first guess.  

Then there are those who would blame it on the EPA.  

 From 1975 to 2000, the U.S. Environmental Protection Agency (EPA) received only one permit request for a new refinery. Those bad guys at EPA approved Arizona Clean Fuels’ application for an air permit for a proposed refinery in Arizona. Arizona in turn “speeded up the permit application process to accomodate the builders and speed up the process.”  In addition, oil companies are regularly applying for – and receiving – permits to modify and expand their existing refineries every week in this country.  I have heard that the Arizona deal fell thru the cracks and was shut down.  So we are back to square one.

Why would oil companies want to close refineries?

  • 1981 – 329 refineries operating at 68.6% capacity
  • 2006 – 149 refineries operating at 89.7%

And those figures are clearly years out of date by now.  Oh well, at least that makes good business sense. A refinery operating at 90% capacity should be much more profitable than running at 70%. So I guess we know where all the profits from high gasoline prices are going; to the stockholders of the nation’s biggest refinery companies.

Over and over, case after case, and no one seems to notice.  Refiners in response to falling gasoline demand and rising costs, have cut their production rates.

Then we come to speculators and the price gougers who walk and live amongst us.  “They are mostly described as sitting in a boardroom and colluding, but they can see easily enough where their benefit lies, and it doesn’t lie in a price war.”  In a truly competitive market, you might see some of these providers try to improve their market share by reducing prices. But this is not happening.

They are all better off by restricting production to keep prices up.  

We let them accumulate market power through the wave of mergers, and we’ve been paying the price in the last five years. Here is the bottom line.  “If there is a small number of players in the market, they learn from each other’s behavior.”

So as you can clearly see, there are no easy answers and simple solutions on the horizon.

We are catering to our nation’s oil cartel by blaming the problem on lack of supply and refining capacity, or our governent clearly knows something everybody else doesn’t and it is just keeping the secret to themselves.

In either case … You lose.  Have a good weekend, might forgo the trip to Grandma’s, that is up around $75 one-way in my case, and it just aint gonna happen.


Cartoon courtesy of American Progress Online

One thought on “Hosing You Down and Down

  1. I used to read stats like you’ve provided here DS, back in the ’70’s that is when there were those “gas lines” all over the US of A. Now here it’s 2013 and the only thing different as I see it, is the PRICE we’re paying at the pump.
    Back then, as is the case now there’s two words that describe the “problem” CORPORATE GREED. ‘Nuff said.


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