Ed Brayton is a journalist, commentator and speaker. He is the co-founder and president of 
Or more accurately, their complete lack of journalistic ethics. Take a look at this article, which bears the headline:
Reid: $5-a-gallon gas is no problem
This is a reference to Harry Reid, the Senate majority leader. But read the article and you'll find absolutely nothing to support the claim that he said anything even remotely like what the headline says. In fact, there is only one quote from Reid and it is not about whether he thinks $5 a gallon gas is okay. Here it is:
Asked if he thinks he has the votes to block legislation lifting the moratorium on offshore oil drilling, Senate Majority Leader Harry Reid said: "We will have to wait and see."Wait and see?
Reid and House Speaker Nancy Pelosi oppose lifting the ban on domestic oil drilling - and they are hoping the American people will just quietly accept gas prices topping $5 a gallon or even higher.
What in the world does his comment on whether they have the votes to stop a bill have to do with whether they think $5 a gallon gas is a problem or not? Absolutely nothing. And where is the evidence for what they are allegedly "hoping" the public will accept? There is none. This is journalism at its very worst, brought to you by Joseph Farah.
Politics
Comments
You are right about the journalistic integrity in this post. But the statement could be said about most politicians in general. That is that they are willing to accept 5 dollars a gallon.
There are two reasons for it. Those who seek energy independence seek it to get Americans weaned off of oil and to begin to accept alternative sources. When a critical number do these sources they think will become affordable and we will no longer have to import so much of our energy. The second reason is obvioulsy global warming.
My evidence? The Presidental Debates back when they were really debates last Summer. It came up over and over again on both sides. The Republicans talked about energy indepedence and the Democrats global warming. But almost all candidates agreed. That is until it will begin to cost them votes not they all do not know anything. Right or wrong, good or bad they are in this one together. For one side to hit the other is pure politics.
Posted by: King of Ireland | July 27, 2008 9:34 AM
Of course all of this also hinges on whether or not you actually believe that politicians *can* control the ability of gasoline prices to reach and/or exceed $5/gallon.
Though they are wroth to admit it all too often things in the economy are beyond their control. Or at best can only be affected indirectly, and with an associated delay.
Posted by: Kurt | July 27, 2008 9:43 AM
"Though they are wroth to admit it all too often things in the economy are beyond their control. Or at best can only be affected indirectly, and with an associated delay."
Or with price controls?
Posted by: Gingerbaker | July 27, 2008 9:57 AM
Price controls can make a difference in some important cases, but they can't make more oil. $5/gallon gas is very near, and there is nothing Obama or McCain could do about it, however much they may or may not want to.
What little we can do to slow the rise of gas prices is explained here .
Posted by: llewelly | July 27, 2008 10:09 AM
so will the electorate be. Europe hasn't seen any gasoline riots, despite gas prices far above that level for many years already.
Posted by: Nomen Nescio | July 27, 2008 11:07 AM
The current price in Germany is about $8.60 for a US gallon of petrol. (€1.40 per litre)
Posted by: Thony C. | July 27, 2008 11:27 AM
Price controls distort markets by increasing demand at the same time the market prices are signalling that we ought to reduce demand. The increased demand at a time of limited supply leads to shortages. Shortages result in having to wait in line. Waiting in line is a costly activity--there are other, more personally rewarding, things you could do with your time. So even if you have paid less dollars out of pocket, your actualy cost is still much higher.
Anyway, the price of oil is set on the world market, and anyone who thinks "American" oil necessarily stays in America hasn't yet studied the market. If we limit retail prices, the retailers would need to buy oil for less than the world price. Since they could not do that, oil would flee the U.S.
The biggest effect would be to reduce the world price of gas somewhat because of the collapse of American demand, so price controls on gas would be a benefit only to consumers in other countries. And not even Harry Reid supports that policy. ;)
The lack of basic economic education in the U.S. is surely a consequence of our pathetic K-12 school system, but it's endlessly disheartning to know that people really believe price controls are a simple way to keep prices down and free markets inevitably lead to monpolies. But in my experience, almost none of my college students know this, except the conservatives who simply believe it as an article of faith without actually understanding the causal mechanism.
Posted by: James Hanley | July 27, 2008 11:31 AM
The thing is, $5.00/gallon gas WOULDN'T be a big deal if we had had even remotely rational energy and urban planning policies for the last several decades. Gas has cost more than that in Europe for a very long time without causing any serious hardship. European cities are more compact, have good public transportation, and you can get many basic goods and services (groceries, medicines, laundry, restaurants, bars) within walking distance of your home in most neighborhoods. American cities are ridiculously spread out, very few neighborhoods have anything you need on a daily basis within walking distance, and public transportation is a joke in all but a few areas, making us completely dependent on cars just to get along. We allowed the car and oil industries to push us into this lifestyle and are now paying the price. On top of this, we have continued to build huge, energy guzzling houses way bigger than any reasonable family could need for those who could afford them (and even, as we see now that the housing market implodes, for those who couldn't afford them).
For the record, I have ALWAYS driven small, high-mileage cars (currently a Honda Fit), even when gas was cheap, kept them in good maintenance for maximum efficiency and minimal pollution, and have always lived as close to my job as I could. For the last 18 years I have lived no more than two miles from where I worked. For much of that time I have ridden a bike to work in good weather. I'm embarrassed to say that for the last several years I gave up on that, but I'm getting the bike out of the basement when school starts up again next month. My doctor and my bank account will be the happier for it.
Similarly my wife and I have always lived in more modest houses than we could afford, wear sweaters in the house in winter so we can keep the thermostat low, are gradually installing energy efficient windows as we can pay for them, use a manual push mower (we live in an urban neighborhood--the houses don't actually touch, but they are about three feet apart, and are tall and narrow, so there are many more on a block than in a suburbia, and the lots are small enough that a manual mower is a very reasonable solution).
Our one TV is five years old and has a 19 inch screen. The guts of our stereo (tuner, speakers) are more than 20 years old, but sound great. We use our computers until they die and cannot be resuscitated.
We're not strict locavores, but we patronize the farmers market, eat local or regional food as much as possible, eat little meat and virtually no "factory" meat.
Not only has this helped us tread a little more lightly on the earth (although I'm sure there is more we could do), living like this has kept us completely out of debt (except for mortgage and car payments) and made it possible for us even to save on a regular basis.
I acknowledge that we have it easier than many: we have good jobs, and no kids or other dependents to spend on. We live in a city with a relatively modest cost of living. Winters are fairly mild. I have to fight an unattractive tendency towards smugness, I will confess, but cannot help but think that if more people lived like we do (within the confines of their particular circumstances), the current crisis could have been, if not averted altogether, made much less severe. And if we, as a society, has insisted upon rational cities with good public transportation and walkable neighborhoods, certainly things would be much better now and for the future. Adjusting to the new energy realities will be considerably more painful than planning for them would have been.
Didn't mean to carry on such a long rant, but I've thinking a lot about this recently and this seemed like a good topic to get it off my chest.
Posted by: MS | July 27, 2008 11:32 AM
James Hanley said:
"Oh, yes, let's imagine price controls on gas. I'd love to pay $2 per gallon again. I'd even accept $2.50. But would I ever get to pay that?"
Your argument rests on the implicit premise that oil markets are in fact, free markets. I don't think such a premise would stand much scrutiny.
Exactly what has happened to the oil market between US gas at $2.50 a gallon the $4.00 prices seen today?
And if you answer, please give reasons that counterbalance and account for the 10 billion dollar per quarter profits of Exxon Mobil alone. Thanks.
There is still about the same amount of oil being produced, the same amount of gasoline being manufactured. Demand has stayed on the same slope throughout. The only change in the system is the happy and well-maintained hyperinflation of speculative prices. Driven, no doubt by the oil companies themselves. Witness sustained oil profits like nothing seen in the history of mankind.
But, of course, according to you, nothing to see here, folks, just move on. And, according to you, nothing to be done about any of this, please just move on?
We have hyperinflation of a commodity here. Price controls correct hyperinflation.
Appreciate the ad hominem re K-12, BTW, nice touch, that, heavy-handed though it might be.
Posted by: Gingerbaker | July 27, 2008 11:59 AM
Re Gingerbaker
Although ranting against the evil oil companies and OPAC certainly provides some psychic relief, it ignores the basic issue which is peak oil. The fact of the matter is that the demand for oil for transportation is exploding in China and will soon be doing likewise in India. For instance, China up until about 15 years ago was a net oil exporter; now they must import an increasing percentage of their oil consumption.
By peak oil here, we mean the maximum rate of oil production (barrels/day). If indeed we are approaching peak oil, then the only approaches that can alleviate the situation are conservation and alternate energy sources. In the transportation arena, that means the introduction of plug in hybrids which use only battery stored electricity for short trips. This is essentially exchanging gasoline for coal/nuclear/hydroelectric/natural gas/solar/wind to produce electricity to recharge the car batteries.
Posted by: SLC | July 27, 2008 12:25 PM
Hmm .. here the price for petrol is already around US$5.00 per gallon. No riots yet, just increased demand for high quality public transport and higher fuel efficiency for motor vehicles. And in the US? -DJ
Posted by: DingoJackJack | July 27, 2008 1:18 PM
In all honesty, I am ideally for any measure that would encourage Americans to drive less and that would explore improving public transportation on a nation-wide scale. I do not know whether hiking the price of gas would result in either outcome, though.
Posted by: Sadie Morrison | July 27, 2008 1:47 PM
"I do not know whether hiking the price of gas would result in either outcome, though."
Increasing gas prices have already lead to a substantial increase in the use of public transit, so the demand is certainly growing. Personally, I hope it results in the development of a massive, nation-wide system of bullet trains. Those things rule, and it seems like a rational alternative to our current fuel-costly system of highways and airports.
Posted by: Tyler DiPietro | July 27, 2008 2:57 PM
Hear hear! I just got back from a vacation in Europe in which we took the Eurail across the continent. It's one of the best ways to travel, and I'd like to see it implemented fully on this side of the pond.
Posted by: Sadie Morrison | July 27, 2008 3:26 PM
"Farah says the only thing that can prevent the disaster of gasoline prices of $6, $7, even $8 a gallon in the near future is a general uprising of the American people."
Removing restrictions on drilling will not change the price of gas, now or at any time in the near or medium-term future, if at all.
Unfortunately reason and rational argument have no effect on WorldNuts. Facts are irrelevant. There's no option for discussion in their alternate reality.
The mental pathology is hard to fathom.
Cult behaviour, deliberate self-delusion, obstinacy, stupidity, lack of intellectual capacity, general contrariness, perhaps all the above.
What kind of response could have any impact on these folk?
Posted by: david | July 27, 2008 4:21 PM
KOI siad: "For one side to hit the other is pure politics."
Nothing about poitics can ever be said to resemble "pure" in any sense of the word.
Politics is, or appears to be, the single most disgusting profession known to humanity - surpassing even the clergy. It corrupts and taints all who practice it. The profession of prostitute, in comparison, is honorable and should be respected. At least a competent whore gives good value for the money, something a politician is eminiently incapable of.
Posted by: Blaidd Drwg | July 27, 2008 4:37 PM
You need to look at the positive side of WND. Any fool who actually posts an article or excerpts of an article of theirs on a board has publicly invited any and all to attend their own public pummeling, and at an almost free outlay of personal effort.
WND is easy to trash, as is the glass pipe of internet news: Newsmax. Disproving either source is a trivial pursuit, and after playing the game several time, against an opponent who would lose a game of wits against a post, often they continue their ignorant cut-n-pastes without attribution, which supplies even more ordnance.
I know its very tough for limp-wristed hand-wringers to play this game, but spare the flamethrower, and spoil the imbecile. A primary reason that these idiotic sources persist is that far too many persons are too nice responding to their being cited.
Posted by: a knight | July 27, 2008 5:00 PM
SLC
I understand peak oil full well, and agree with what you say about our energy future.
I disagree, however, that the price of US gasoline is merely the ineluctable outcome of world energy verasimilitudes. I argue that they are also the product of collusion, and exhibit A is the frankly obscene level of profiteering taking place.
But wait, lest we forget, relief is on the way! Just like in 2004, gasoline prices will miraculously tumble around two weeks before election time, only to enter new stratospheric heights around November 10th. :D
Posted by: Gingerbaker | July 27, 2008 5:59 PM
Another data point for you: the current Australian price is about $6 (US) per gallon.
Posted by: Cath the Canberra Cook | July 27, 2008 7:00 PM
Damn it Ed. Your headline broke my desktop computer, and now my laptop is acting up. Please never put the words "World Nut Daily" and
"Journalistic ethics" on the same line.
Posted by: Bert Chadick | July 27, 2008 7:39 PM
Blaaid,
I was using pure in the sense of obviously nothing other than for political gain. I am pretty sure that was obvious to most who read what I said.
Posted by: King of Ireland | July 27, 2008 8:55 PM
The price of oil is not caused by there not being enough of the stuff. If that were true, then there'd be queues and rationing. People are *still* using the stuff like it was water - it's just that the companied have discovered that people will pay any amount for it.
Why is it, do you suppose, that when tensions ratchet up in the middle-east, petrol prices rise within the hour; but when things calm down the prices stay the same or take days to fall?
Posted by: Paul Murray | July 27, 2008 11:49 PM
Paul Murray: in a well functioning market there are rarely queues or rationing, no matter how rare the good gets. Those are features of price controls. Without these controls prices rise so as to match supply with demand.
And oil companies haven't "discovered that people will pay any amount for it", if they really could charge whatever they want, why stop at $4, why not $40 or $400? Every producer of everything sells their products for as much as they can get away with. How much that is depends on market conditions, not some naive morality play of greedy producers and poor, victimised consumers.
The fact price rises immediately in response to expected future supply crises is an indication of the market working well. Produces of oil anticipate that less oil will be available in the future and therefore start reallocating existing stock from present consumption to future consumption. This drives up prices now. An expected future increase in supply (like more drilling) would have the opposite effect.
Posted by: James K | July 28, 2008 2:41 AM
Oddly enough, an article in todays' Washington Post, link below, buttresses my previous comment about the effect of increasing demand for transportation fuels coming up against peak oil. This will only be aggravated when the same phenomena arrives in India.
http://www.washingtonpost.com/wp-dyn/content/article/2008/07/27/AR2008072701911.html?hpid%3Dtopnews&sub=AR
Posted by: SLC | July 28, 2008 7:35 AM
Gingerbaker, so many errors. You don't know economics, obviously. It's neither a crime nor a sin, but your arguments are nearly all incorrect. With your claims in blockquotes, let's begin.
Other than OPEC having some degree of control over production levels, oil does for the most part sell in a free market. And the price of oil is set by global demand, because it's such an easily transportable commodity. People are bidding for it all around the world, and smart businessmen don't turn down high-bidders. Ever heard of a country called China? An annual GDP growth of 7%+ in a country of 1 billion people will change the playing field quite a bit. China is the primary factor, but not the only one, in increased demand. Increased demand without comparably increased production will drive up prices. You're welcome. Actually Exxon'x profit margin (% above costs) is not especially impressive, only 7.6% compared to the manufacturing sector's average margin of 9.2% . Exxon just made so much because they sell so much. 7.6% profit on 2 million barrels equals more than 7.6% on 1 million, etc.Second, you seem to think there's a "fair" price, and that it's not right that they should sell oil for so much and make so much money. But "just price" theory died centuries ago. Prices are set by the intersection of supply and demand--businesses do, and should, charge whatever people are willing to pay. That's how we ensure goods flow to their highest value uses. High prices force people to use the goods conservatively--we waste less. That's a good thing, although when the price increase happens so rapidly the adjustment can be hell.
Honestly I don't know the production figures, and I don't feel like looking them up. For anyone interested, I'm sure they're easy to google. But as for the demand staying on the same slope, you're just hopelessly wrong. I thought everyone knew by now that world demand was growing, but apparently not. So, listen carefully, world demand for oil is growing. If, as you say, production has remained the same, that means supplies are getting tighter, which increases prices. Bullshit conspiracy mongering. You don't understand how futures markets work. If a bunch of yahoos are trying to ramp up futures prices, when there's really plenty of oil, someone else would come in, sell short, and make a killing. (At least I think that's right--I'm always a bit fuzzy on futures markets, too.) No, we don't have hyperinflation, for two reasons. First, hyperinflation is inflation in the thousands of percent. Oil has only increased about 100%. Second, it's a demand driven price increase, not inflation proper, which is a consequence of too much money in the economy.In sum, you've spun a conspiracy theory without providing the least supporting evidence. Because you don't understand markets, you assume it must be bad behavior on the part of the oil companies. But why you don't think markets could have this effect is unclear.
Posted by: James Hanley | July 28, 2008 9:12 AM
Paul Murray wrote:
Before the shortages reach the point of requireing queues, people begin changing their behavior. Whether or not it is fair to say we still use it like water, the fact is many Americans are changing their behavior in response to the high prices. My neighbor is laid off because far fewer trucks are being sold, an acquaintance who lives on a lake commented on how quiet it is this year because fewer people are out there on weekends with their speedboats and jet skis, fewer people in our county are driving across county to participate in swim teams, etc.The changes aren't always obvious. I haven't seen any perceptible slowing on the freeways in my area, for example (although I personally have slowed down to save fuel), but when you look close, the details show that people are behaving exactly as those pesky free market advocates predict.
Posted by: James Hanley | July 28, 2008 10:40 AM
James, James.
You seem to have a grasp on Economics 101, but you have no clue about about how the world of business actually works.
So, as you say, sit down and listen carefully, and you will learn something your K-12 system failed to teach you. ( You know, we would not have to do this little insult thing back and forth if you didn't start in with it so quickly.)
1) There is no such thing as a free market.
Businesses are in the business of making profits. They sometimes break the law, they always push the envelope of the law. They lobby and secure advantages over competition, they secure tax breaks, administrative loopholes, etc.
They pump money into judicial systems to secure their judges for profitable decisions, they buy favors from the legislative branches.
Exxon allegedly buys a judge and gets multibillion dollar judgment annulled:
http://legalschnauzer.blogspot.com/2007/11/serious-implications-of-exxon-ruling.html
They collude whenever possible. Anything that increases profit without a reasonable chance of causing a prison term gets done. Anything that produces more profit than any possible monetary fine is good business.
The oil industry is one of many that actually spends a lot of money on disinformation campaigns to stymie alternative energy development. Imagine the chutzpah that takes - all in the name of profit!
2) Businesses flourish in the atmosphere they are given to work in. The Bush administration is, shall we say, somewhat oil-friendly. Enough said?
James said:
"Other than OPEC having some degree of control over production levels, oil does for the most part sell in a free market"
Besides what I said above about there being no such thing as a free market anyway, the oil industry is a known scoundrel when it comes to manipulating oil prices.
They control how much crude is pumped. They control how much of it is shipped in their tankers. They control how many of their refineries are being operated and what their throughput will be. They control how the crude is cracked, and how much of each component is going to market. They control their distribution network, and also influence their retail outlets.
They control how their economic numbers are reported, which includes influencing and obfuscating not just their profit levels, but also their production numbers, both of which influence speculation.
And, they control what they do with the enormous, titanic, gargantuan piles of ready cash they take their daily spa baths in. And they use it to affect markets as well.
And all of this does not even say a whit about what they do to influence the stock market, the oil futures market, the speculators, the regulators secretly.
Exxon Mobil financial secrecy: http://news.bbc.co.uk/2/low/business/7370685.stm
James said:
"Ever heard of a country called China? An annual GDP growth of 7%+ in a country of 1 billion people will change the playing field quite a bit."
China did not spring into being in 2006 unannounced. Their oil demands have been known for years. Hence my use of the word "slope", which implies an increasing vector.
James said:
"Actually Exxon'x profit margin (% above costs) is not especially impressive, only 7.6% compared to the manufacturing sector's average margin of 9.2%"
Right, not impressive! The largest quarterly profits in history, going on steadily for two years now! And, of course, that is only if we accept them at face value, as true believers in a free markets might do. But even this seems not to be the case -
Exxon Mobil under reporting profits (WSJ)
http://bschool.washington.edu/PDF/ExxonMobil_noQ_Apr_07.pdf
Exxon - "It seems that they are more of a share buyback machine that also happens to produce energy," MacDonald said." Exxon spent $31.8 billion to buy back shares in 2007:
http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&date=20080501&id=8571658
James said:
"Bullshit conspiracy mongering. You don't understand how futures markets work. (At least I think that's right--I'm always a bit fuzzy on futures markets, too.)"
Again, my point is that there is likely more than simple market forces at work here, given the go-for-broke business climate the Bush administration has bestowed upon the energy section.
A ten second Googling shows I am not alone in my concerns:
Members of Parliament on the Commons Business and Enterprise Committee issue report accusing energy companies of conspiracy to raise prices:
http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article4412930.ece
The antimonopoly authorities of Russia have blamed the price collusion on oil companies, which hiked gasoline prices in the Far East and Siberia:
http://www.gasandoil.com/goc/company/cnr82589.htm
New Jersey's Republican Charles A. Wolverton, chairman of the House Committee on Interstate & Foreign Commerce, suspects collusion on gas prices:
http://www.time.com/time/magazine/article/0,9171,889846,00.html
Exxon-Mobil Caught in $500,000,000 Secret Payments Scandal:
http://www.progress.org/2003/oil02.htm
Posted by: Gingerbaker | July 28, 2008 10:58 AM
Production if anything may be nearing a slowdown, thanks to Peak Oil. They're still looking, but nowadays supplies are in harder to reach places and of lesser quantity and of lower quality.
I saw this story a couple months back about this new little car that will be affordable to far more Chinese, now entering the middle class. My first thought was uh-oh...if this takes off it won't be good for the price of gas at all. And don't forget India, cracking the demand whip much as China does, and maybe ultimately moreso.
Posted by: Dave S. | July 28, 2008 11:02 AM
What James said, but I'd add a couple of things. First, besides the growing world demand, one under-reported reason the price has gone up so much in US dollars is that the value of the dollar has declined so much. Even if worldwide oil supply and demand had remained constant we'd still have higher oil prices because the US currency we buy it with is less valuable.
Second, futures traders are doing the right thing, they are not screwing us by bidding the price up, and are in fact helping the rest of us by smoothing out price shocks. Let's say in 2003 and we thought the price of oil might, maybe get over $120 a barrel in 2008. Don't you think we were probably better off having speculators spending those 5 years gradually bidding the price up to the right level rather than having oil prices suddenly leaping up by a huge percentages once or twice a year?
Posted by: SeanH | July 28, 2008 11:05 AM
SeanH said:
"Don't you think we were probably better off having speculators spending those 5 years gradually bidding the price up to the right level rather than having oil prices suddenly leaping up by a huge percentages once or twice a year?"
No, I think that the we should not have paid billions of dollars more than the true market price of gasoline.
Posted by: Gingerbaker | July 28, 2008 11:15 AM
It also smooths out price shocks. Let's say in July 2013 we will find out the Saudis have been lying all along about their drilling capacity, they will suddenly admit they are totally tapped out, and oil will consequently be $500 a barrel at the end of 2013. We can't know it ahead of time, but there will of course be leaks and rumors, signs like oil shieks bugging out with all their money, etc.
Without a futures market there's no efficient way for those concerns to properly adjust prices ahead of time until we suddenly get something like a 400% price jump which totally hoses everyone. With a futures market we'll get a (relatively) smooth ramp up in price ahead of time as those rumors become more and more concrete. Instead of a paralyzing price shock we get a chance to more comfortably absorb the change and receive strong signals from the market in advance that we really need to do something about this problem that seems to be looming.
They are not artificially inflating the market. No one has enough money to move a market that big without going broke. If the market was artificially inflated we'd see smart people lined up to short the market and oil producers storing oil so they could call the inflated futures when they come due, but that's not the case.
Posted by: SeanH | July 28, 2008 12:47 PM
SeanH said:
"They are not artificially inflating the market. No one has enough money to move a market that big without going broke. If the market was artificially inflated we'd see smart people lined up to short the market and oil producers storing oil so they could call the inflated futures when they come due, but that's not the case."
If the market were not artificially inflated then how does the oil industry cause the price of gas at the pump to fall right before the last election(s)?
If the market were not artificially inflatable, the oil companies would not play in it!
Remember, the oil companies are vertically-integrated from start to finish. They can control where they make their profits.
You and others here are arguing, if I may try to state it fairly, that it is only legitimate market fluctuations that affect gasoline prices, and the US companies are not doing anything untoward. Here is some evidence to the contrary:
From U.S. House of Representatives Committee on Transportation and Infrastructure, Subcommittee on Highways and Transit testimony by Tyson Slocum, Director, Public Citizen's Energy Program:
*Gasoline prices are up 160% since the summer of 2001, and diesel up more than 210%..
*Since 2001, the largest five vertically-integrated oil companies operating in
the United States--ExxonMobil, ChevronTexaco, ConocoPhillips, BP and Shell-- recorded $586 billion in profits...
*While some of their profit clearly stems from certain aspects of global supply and demand and the
weak U.S. dollar, investigations show that a portion of these record earnings are fueled
by market manipulation and other anti-competitive practices, made possible by the wave of recent mergers and weak regulatory oversight...
*energy trading markets, where futures prices of oil and gasoline are set, were
recently deregulated, providing new opportunities for oil companies and financial firms to manipulate prices.
Investigations show that energy trading firms have not only
exploited recently weakened regulatory oversight, but a new trend of energy traders
controlling energy infrastructure assets like pipelines and storage facilities provide
additional abilities to use "insider" information to help manipulate markets.
*According to the U.S. Government Accountability Office, over 2,600 mergers have been approved in the U.S. petroleum industry since the 1990s...
*in 1993, the largest five oil refiners controlled one-third of the American market, while the largest 10 had 55.6 percent. By 2005, as a result of all the mergers, the largest five now control 55 percent of the market, and the largest 10 dominate 81.4 percent
*Margins for U.S. oil refiners have been at record highs. In 1999, U.S. oil refiners enjoyed a 22.8 cent margin for every gallon of gasoline refined from crude oil. By 2006, they
posted a 53.5 cent margin for every gallon of gasoline refined, a 135 percent jump.
Refiner margins on diesel have increased from 11.9 cents per gallon in 1999 to 55.7 cents
in 2006, a 368 percent jump.
That forced The Wall Street Journal to conclude that "the
U.S. market is especially lucrative, sometimes earning its refiners $20 or more on every barrel of crude oil they refine.
*BP's most recent financial report shows that refining margins at their US
operations are more than double the margins in other countries. In 2007, BP had a
refining margin of $12.81 for every barrel they refined in the Midwest, $13.48/barrel in
the Gulf Coast and $15.05/barrel on the West Coast. Compare these returns with those at
BP's European operations ($4.99/barrel) and Singapore ($5.29/barrel)
*The U.S. Federal Trade Commission found evidence of anti-competitive practices in the
physical refined product market in its March 2001 Midwest Gasoline Price
Investigation:
An executive of [one] company made clear that he would rather sell less gasoline
and earn a higher margin on each gallon sold than sell more gasoline and earn a
lower margin. Another employee of this firm raised concerns about
oversupplying the market and thereby reducing the high market prices.
A decision to limit supply does not violate the antitrust laws, absent some
agreement among firms. Firms that withheld or delayed shipping additional supply in the face of a price spike did not violate the antitrust laws. In each instance, the firms chose strategies they thought would maximize their profits.
*A congressional investigation uncovered internal memos written by major oil companies
operating in the U.S. discussing their successful strategies to maximize profits by forcing independent refineries out of business, resulting in tighter refinery capacity.
From 1995-2005, 97 percent of the nearly 929,000 barrels of oil per day of capacity that has been shut down were owned by smaller, independent refiners.18 Were this capacity to be in operation today, refiners could use it to better meet today's reformulated gasoline blend needs.
There you have it. Documented evidence of collusion, refinery capacity manipulation, and records documenting extraordinary profit-taking in the US market.
Posted by: Gingerbaker | July 28, 2008 2:38 PM
Or with price controls?
Without joining the extensive and scholarly discussion on oil markets, etc....
We should do that because it worked so well in the 70s, right? Maybe we should go through with the windfall profits tax, too. That would pretty much kill domestic exploration and production, making us MORE dependent on foreign oil.
You can impose price controls of gasoline, but what about plastics and other petrochemical products? Are we supposed to place controls on all of that, too? Then we can just place the oil industry in the hands of the government (just like Venezuela!) and that little socialist merry go round will be complete.
I'm no economist, but even I can see the end result of price controls. Everybody gets screwed except the oil companies, who have enormous markets in the rest of the world and will find a way to make money for their shareholders.
Posted by: bullet | July 28, 2008 4:14 PM
Ah, ginger, businesses are behaving badly, and you're just shocked, shocked! Your snideness and lack of basic understanding have pissed me off--maybe I'm just in a bad mood today--but I'll try to respond reasonably politely.
First, how did the oil companies "force" smaller refineries out of business? Did they charge in with guns and shoot the motherfuckers dead? No, they bought them out. Why were they able to buy them out? Because the small refineries weren't as economically efficient.
And sure they control how much oil they pump out of the ground. Sara Lee controls how many Jimmy Dean sausages they make, too. So what? No business tries to produce so much the price collapses. But companies acting in collusion, implicit or explicit, just don't manage to keep the price up longterm. There's a real collective action problem--if the price shoots up, I can make more by producing more, then so can you, and so can other producers, and as we cheat the price drops again. Cheating always occurs in these cases--case in point, OPEC in the 1970s--but you somehow think they've suspended the laws of economic behavior and are all cooperating with each other. Not bloodly likely.
And you keep saying something about the price of oil dropping right before the last election. If you mean the 2006 midterm election, crude prices fell from $55.73/barrel in September to $50.98 in October and November. [Source.] Conspiracy, right? But they fell from $64.93 in August to $55.73 in September--why? September's the wrong time to effect the election.
But let's try the 2004 presidential election. Prices rose from $36.25 in July to $48.71 in October, right before the election! Why? Did the oil companies only get smart in 2006?
See, people who don't understand the world see a correlation and assume causation. You see that oil prices fell shortly before the 2006 election, and not understanding the world, you were incapable of positing any possible reason except the election. But a presidential election attracts far more attention than a midterm election, so surely if the oil companies could do this at will, they would have in 2004, especially as W's re-election chances were so tenuous.
Ginger, you think you've got a handle on it, but you don't. Seriously, I only go in-depth into the subjects I know. You'll never catch me lecturing anyone on chemisty, for example. So if you want to argue with me, read some economics books. Just read the popular ones, like Paul Krugman's books, or Tyler Cowen's, or Russell Roberts. They're a heck of a lot more enjoyable than a textbook, and you'll come away with a lot better understanding of economics.
Because ultimately, you may think I'm only at Econ 101 (heh, heh, you're funny), but you've failed the midterm in it.
And what SeanH said. Absolutely.
Posted by: James Hanley | July 28, 2008 4:26 PM
If the market were not artificially inflated then how does the oil industry cause the price of gas at the pump to fall right before the last election(s)?
That's a very-short-term fluctuation, effected with the help of many very powerful interest groups (like the government of Saudi Arabia). No amount of regulation, or deregulation, will stop the long-term price increases, which are due, not only to supply and demand, but to political volatility in the oil-producing part of the Earth, and Bush's even-more-destabilizing war there.
Posted by: Raging Bee | July 28, 2008 4:28 PM
James Hanley: I can't add anything to your summation, except to say that your description of futures markets is accurate. Derivatives are about prediction, not control.
Posted by: James K | July 29, 2008 1:20 AM
I'm going to have to chime in on Professor Hanley's side on this as well. This is what happens when a very steep demand curve rubs against a very steep supply curve. There's no evidence of a reduction in output or hoarding of physical oil, and the futures markets don't cause the delivery price of oil to change any more than people betting on the Super Bowl decide who wins the game (at least, not unless the future price is high enough to encourage hoarding).
There was a series of excellent discussions about this among the economics bloggers over the past couple of months. If you go back through Krugman's archives, he spells it out pretty clearly. It's easy to want to find a scapegoat--usually either profiteering oil companies or bogeymen "manipulating" the futures markets, but the actual numbers don't bear it out. We're dealing with a very inelastic supply and steadily increasing inelastic demand. Combine that with a falling dollar and you're going to have a bad time if you commute to work in a Hummer.
Posted by: Troublesome Frog | July 29, 2008 3:35 AM
Well, gee, I got it right about future's markets? Maybe I'm finally starting to understand them. Thanks for the pat on the back, James K.
And, what T-Frog says. Yep. And if even Krugman says it's supply and demand, rather than big evil corporations...well, keep in mind he's a Keynes disciple, with strong strains of Galbraithianism, not exactly a right-wing corporate factory-hugger.
Posted by: James Hanley | July 29, 2008 7:01 AM
James said:
"And you keep saying something about the price of oil dropping right before the last election. If you mean the 2006 midterm election, crude prices fell from $55.73/barrel in September to $50.98 in October and November. [Source.] Conspiracy, right? But they fell from $64.93 in August to $55.73 in September--why? September's the wrong time to effect the election."
No - I said that the price of gasoline dropped right before both elections - and they did. Your statement above that crude prices actually rose during this period reinforces the peculiar stench of those events.
"Your snideness and lack of basic understanding have pissed me off--maybe I'm just in a bad mood today--but I'll try to respond reasonably politely."
No offense, James, but you are in a bad mood most of the time.
"First, how did the oil companies "force" smaller refineries out of business? ... they bought them out. Why were they able to buy them out? Because the small refineries weren't as economically efficient."
Spoken as a true Corporofascist, well done! Couldn't possibly be because they were rolling in cash, and decided to supress competition, of course.
And why, pray tell would a huge corporation like , say, Exxon, who has no need for more refineries want to purchase more? And why would they want to purchase a refinery that was not "economically efficient"?
You are making no sense here whatsoever.
So, let's see. Besides the 2/3 of your reply that was personal invective, self aggrandizement, or snarky smugness..... I guess that just about covers your actual remarks.
BTW, you may want, at some time when you aren't making reading suggestions, to address the curiously high US refinery margins. Perhaps you could explain how that can happen in the perfectly free market conditions you polish with such pride?
Posted by: Gingerbaker | July 29, 2008 11:01 AM
Wow, Ginger. So many errors, including points I've already refuted. It's going to take some time. But let me begin by pointing out that you criticized me for an alleged ad hominem, yet you call me a "Corporofacisct." Nice. Very nice. Thanks for ceding the moral high ground. But tell me again, how does being a libertarian who opposes government subsidies and protective regulation for businesses make me a corporofascist? Hmmm? OK, to your false claims:
First, you claim that the price of gasoline dropped right before each election. You repeat the claim, but you haven't given me evidence. Seriously, I won't accept what you say without evidence. Give me evidence for your claim, and even if I dispute the evidence I'll admit you've got a basis for your claim. But without evidence, why should I believe you?
Because I have evidence refuting your claim that gas prices rose before the 2004 election. I already gave it in my 4:26 p.m. post! But here it is again, from the Illinois Oil and Gas Association, the Illinois Basin Posted Cude Oil Prices for June-December 2004:
You claimed prices fell right before the election, but as you can see they rose through the summer, peaking in October, and fell back only slightly in November (keep in mind, the election occurs in early November, so October's prices are more relevant--at any rate, November's prices were still above September's. Conclusion: You're wrong on the facts, which I'll hold to until you present alternative data.Second, referring to large refiners like Exxon buying out smaller ones, you said:
But why were some refiners rolling in cash and others weren't? Perhaps because they were more efficient? Oh, no, just larger, right? But how did they get to be both larger and rolling in cash without being more efficient? And why would a small refiner sell out? Exxon and others can't force them, after all. Perhaps its because they recognize that they'll make more money taking the buyout than continuing to run their refinery. That is, their refinery ain't the most lucrative business going.Next:
You pray, I answer your prayer. On what basis do you say Exxon has no need for more refineries? Is it just that you don't think they need any more? Seriously, it's really easy for any one of us outside a business to say what they need or don't need, but it doesn't mean anything for the very reason that we are on the outside. Did Exxon ever say they don't need more refineries? Here's one of the reasons why I have a hard time accepting your arguments--you rely on assertions like this, but don't give me any logical argument as to why Exxon's managers would think they didn't need any more refineries.And:
Seriously, Ginger, you accused me of not understanding how business works, and you pull out this gem? OK, two reasons they would, and you've already mentioned one. Yes, sometimes they might buy it to put it out of business. But I would point out that your argument applies here, as well. If the refinery is inefficient, why bother to buy it to put it out of business? Shouldn't Exxon just be able to outcompete it anyway? But let's assume they do (presumably they've decided the costs of buying it out are less than the costs of competing it away), the question then is, "so what?" It's an inefficient business, by your own admission. Should we really try to keep inefficient businesses going? If so, I think I'll start up a business--sure to fail since I'm apparently angry all the time ;)--and then I hope you'll argue for propping me up, too.But the second reason for buying an inefficient refinery is because you believe you can run it more efficiently. This is how Rockefeller built Standard Oil, by buying out inefficient refineries and running them more efficiently. Do you really think Exxon might not have the expertise to improve the efficiency of a refinery?
Look, I don't know which Exxon has done. Probably both. But you haven't given me any evidence to work with. I'm curious--honestly--how many refineries has Exxon bought, how many have they shut down, and how many have they kept open? I just don't know. But shutting down an operation isn't in itself necessarily nefarious.
I assume the "suspiciously high" margin you refer to relates to the comment in your 2:38 p.m. post that But you ignored my prior comment about this--at least if you're going to argue with me, try to rebut my point instead of acting as though I never discussed it. So let me reiterate from my 9:12 p.m. post; in fact let me quote directly from the source, U.S. News and World Report:Ginger, you focused on profit per barrel, but didn't focus on what really matters, profit margin. In fact you seem to have confused profits with profit margins. Your only evidentiary reference was to the profit per barrel, but you spoke of suspiciouly high "margins." They're not the same thing. In the big picture, oil industry profit margins are good, but not stunning, compared to other industries. The profit margin in the cigarette industry is more than twice as good, over 16%!And, finally, for a second time you ask me to respond to something I already dealt with, refiner's margins. You said:
There, Ginger, I've answered your questions about why one refiner would buy another and why one refiner would buy another that is inefficient, demonstrated that you are in error about the trajectory of gas prices before the 2004 election, and demonstrated that oil industry margins aren't really suspicious. And I've done it without resorting to ad hominems, and I even threw in a smily face. But I suppose you'll simply dismiss this as the ravings of a "corporofacist." It's so easy to throw out terms like that, but what exactly does it mean? What relevance does it have to the debate?
Either you can rebut my points with actual evidence--which you have yet to do--or you can respond with more ad hominems and vague generalizations that are unsupported by either logic or evidence.
Posted by: James Hanley | July 29, 2008 12:43 PM
Not to pile on here, but there's no reason to be surprised at increased profits for refiners as oil prices run up, even if the oil companies are not engaging in any sort of nefarious activity. As far as I'm aware, there's no evidence that the oil companies have been cutting output. By all appearances, the amount of oil being pumped is simply not increasing as fast as demand is increasing.
That has the same effect on the price as a monopolist cutting output, but not the same effect on the quantity. An increase in quantity and a huge increase in price is an indicator that the demand curve has shifted right and we're simply running up against the steep part of a supply curve. That's not exactly surprising given that we're talking about a natural resource with huge costs associated with increasing the supply flow.
The relevant facts are simple: The futures price was not high enough above the spot price to cause hoarding. There's no evidence of reduced output. There is evidence of increased demand. Logic says that the short run supply and demand curves are steep. This seems like pretty textbook economics.
The bipartisan support for the conspiracy theories is interesting (even if Democrats blame the oil companies and Republicans blame "futures market manipulators"). I think that among my fellow Democrats, its the typical anti-corporate anti-oil instinct kicking in. Among the Republicans, I can only imagine that it's denial that the real price of oil could be that high despite all these years of policies and rhetoric that implied that we'd never run out. Bad news for both: This isn't artificial unless somebody has figured out a way to hoard massive amounts of physical oil (not futures) off the books where nobody can find it.
Posted by: Troublesome Frog | July 29, 2008 1:33 PM
Troublesome Frog said:
"This isn't artificial unless somebody has figured out a way to hoard massive amounts of physical oil (not futures) off the books where nobody can find it."
Perhaps all one needs to do is keep one's refineries just barely pumping out enough finished gasoline to keep speculation high.
My next post (held up for review) has Congressional testimony that says this is exactly what happened in the past. The oil giants, AKAIK, have not built a single additional refinery since the time referred to in the report.
When one looks at the peak oil data, I think one needs to realize just how long those timelines are. Having gasoline prices triple in three years, when massive crude supplies will exist for at least another thirty years from now, makes me REALLY suspicious. :)
Posted by: Gingerbaker | July 29, 2008 2:10 PM
Again, this is just what happened with OPEC. For a short time they were able to collude to keep production low. But as prices shot up, different OPEC countries realized that by increasing output a little, they wouldn't have much effect on prices, but would reap the increased price on all their extra production. Then country B sees that country A did it, and decides to do it to, especially as they realize they have a limited time in which to reap the benefits before everyone tries it and the price drops.
This has happened every time OPEC has tried to hold back production. So the burden of proof is on you to demonstrate why this time it's different; why this time the greed that you abhor (and I share that feeling somewhat) is kept under control?
Yeah, happened with my last one, too. Probably because we're all going on at such length. Or if you provided links, like I asked, you may have put in too many.But...congressional testimony don't mean squat. And I mean that seriously, as a political scientist. Congressional testimony is just not reliable. Ideological people with an ax to grind get invited by ideological politicians with an ax to grind, then it gets put in the congressional record and is magically transformed into "objective" information.
Seriously, look at any of the Bush administration asshats who have testified lately, and tell me with a straight face that you're going to put much reliance on congressional testimony.
Come on, people are invited specifically by congressmembers because they'll present the point of view that the inviting congressmember wants to hear. Congressman Righty from Oilburgh, TX invites an oily oil industry rep to talk about how the oil industries are barely surviving, and in response Congressman Lefty from Liberalville, MA invites a granola crunching lefty to talk about the evils of the industry.
Anyone who gets before Congress can say anything. There's no process for vetting the information to ensure it has any validity whatsoever.
Posted by: James Hanley | July 29, 2008 2:36 PM
Gingerbaker:
I'm not talking about the price of finished gasoline. I'm talking about the price of crude oil for delivery to refineries. The price of crude has run up, and that can't be explained by refineries reducing output. It can only be explained by increased demand from refiners and other oil consumers or decreased output from suppliers or a combination of the two.
It's not a question of whether the crude oil reserves exist somewhere. It's a simple balance of stocks and flows. If it's not actually coming out of the ground and going into pipelines, it's not part of the supply. In the short run, it's very hard to increase the maximum amount of oil output, even if you're sitting on oceans of oil. I could offer Exxon ten trillion dollars to double its output next week and it almost certainly wouldn't happen. The supply curve is *extremely* steep on its rightward extreme.
If we were hitting a place where oil supply couldn't eventually expand, I would expect the futures price to soar well beyond the spot price, which would give producers an incentive to reduce the supply and sell the oil at a later date and bring the market back inline. Again, though, if we were seeing that, we'd expect to see a decrease in physical supply today as producers push their production off into the future.
Posted by: Troublesome Frog | July 29, 2008 5:08 PM
Gingerbaker: In addition to the points raised by James Hanley and Troublesome Frog I would point out that the "close down the refineries" strategy could only work if there was a barrier to starting up new ones. I understand that there is such a regulation in the US, meaning that even if your assertions are accurate, government is as much to blame as the oil companies.
The way to stop them doing it would be to make it easy to start up new refineries. Now I know you'll bring up environmental considerations, but there are ways of setting up environmental rules such that barriers to entry are not created.
Posted by: James K | July 30, 2008 1:30 AM
Well, I guess Ed decided not to publish my last post??
It was pretty long! If he doesn't retrieve it, I am not going to reproduce it.
If anybody still feels compelled to get the information, here is the testimony:http://www.tradewatch.org/documents/House08.pdf
In it, you will find many of your points addressed:
* Margins vs profit margin -> I used the terminology the experts used. They also break out profit margin in a way the industry itself wants it used. Something along the lines of profit per capital investment.
James - your figure on profit margin does not take into account > $40Billion in stock buy back and more monies to huge dividends.
The "profit per capital investment" [sic] figures are enormous - up to 65% for refinery margins.. Way more than the past twenty year history of margins showed.
Conclusion: The oil companies are making way more money than ever before, and way more profit than ever before, and way more profit margin than ever before, and they are making way more profit in the US market than in other places around the world.
*The price of crude oil is demonstrated to be pushed up by gasoline prices(!), not the other way round, as one might expect. Interesting, yes?
* James K, I don't know about your idea of an impediment to building refineries. The testimony discusses a new refinery being built by a new, small, independent company.
* James Hanley - Before you sweep away all Congressional testimony as untrustworthy, have a look at the sources. Many of these are from independent organizations who have published their studies.. These claims are footnoted - you can check them out if you want.
Posted by: Gingerbaker | July 30, 2008 10:23 AM
Ginger,
You've said nothing compelling, and much inaccurate, again.
I'll just make this my last word.
Businesses do, and should, charge whatever the market will bear. That ensures resources flow to their highest valued use. If you think that there is a global conspiracy to raise oil prices, you're a nutcase. If you think a handful of companies like Exxon can singlehandely double the retail price for crude, you don't understand business and markets very well.
You've never answered the claim, made by several of us, that increasing demand is the primary issue. You pretend that China hasn't been growing rapidly in its demand for oil. You think Exxon and other firms have a bigger impact on the market through supply control (even though any one of them could benefit by undercutting the others) than a nation of 1 billion people with annual growth rates of 7-10% has on the demand side.
Several people here (setting aside myself) have demonstrated understanding of economics, but you won't listen. You think you know better despite--or because?--you don't know economics.
As to "independent organizations who have published their studies," I'm still not impressed. "Independent" does not mean objective. The Heritage Foundation is an independent organization, and they publish numerous reports--that doesn't mean I'd take their word for anything. They're too ideologically biased.
And the source you use is Public Citizen, just as biased as the Heritage Foundation. Public Citizen is not even remotely an objective source of research--they were founded as an anti-corporate, anti-free market organization. They didn't come to that conclusion through careful study--they founded an organization to promote their ideological beliefs.
Look, you called me a corporfascist, but I'm a libertarian. I hate corporate welfare more than I hate most things. And having grown up lower middle class, I'm unable to work up great sympathy for the wealthy. But above all I have learned that excessive government regulation is less effective than free markets.
If Exxon managers broke the law, put 'em in jail. I won't defend them. But it's just not credible that their attempts at market manipulation doubled the price of oil in just a couple years--not when there are so many other factors that we know to have real effects.
If such market manipulation, with such vast returns, is so easy, why haven't they been doing it all along? And why are they stopping at doubling the price? Why not go for more? And why did the price of gas come down last week? Are they just trying to fool me into believing the market is working (conspiracy theory!), or are they unable to keep their game going?
Your analysis raises more questions than it answers. It's not parsimonious. Changes in supply and demand (especially demand) answer the questions much more neatly.
Posted by: James Hanley | July 30, 2008 11:32 AM
So I take it you didn't bother to read the report, as certain statements you just made indicate that you missed data which the report addressed.
And, please, stop moving the goalposts.
I never said that market forces were not involved in the price of crude and the price of gasoline. I said that they don't account all of it, and they don't explain why the retail price of gasoline has come down twice right before national elections.
It was YOU who stated in no uncertain terms that my suggestion that price controls might be appropriate was unfounded, because the increase in crude oil prices ( you never spoke of retail gasoline prices) could be FULLY explained by a simple Keynesian dynamic.
You stated that Exxon never said they would not invest in more refineries. You were WRONG.
You said that Exxon's profit margin was below general market levels. You were very WRONG.
You said there was nothing unusual about the profit margins of the past four years. You were WRONG.
You said that I said China's demand was not growing. I said no such thing. I said that the slope of it's demand has been known for years. And that is true.
You have never responded as to how gasoline prices could do down dramatically right before two major elections in a row you only spouted doubt that it actually happened. Why do you not admit you made a mistake?
You continue to crow about "free markets" when there is ample documentation in the document and articles I posted that when it comes to oil companies, THERE IS NO SUCH THING.
So, please, spare me the condescending attitude about how erudite you are on the topic of economics. So far, all I have seen from you is a nonstop rendition of "supply and demand" in a "free market". It doesn't impress me, and it is pretty simplistic. It has no real bearing on the reality of near monopolistic vertically-integrated international corporations which work in an atmosphere of almost nonexistent regulation.
You say you are not a Corporatist, yet you have no skepticism of their corporate line on this issue.
Once again, I think, your Libertarian blood line runs too deep for objectivity.
Posted by: Gingerbaker | July 30, 2008 2:59 PM
OK, so the last one wasn't my final comment. Because you still have it completely wrong.
And you're still wrong on the facts:
I remember hearing this on NPR about 2 years ago and was absolutely puzzled by it. It didn't make sense because "profit per capital investment" is not the normal measure. The normal measure is revenues over costs, not revenue over just capital costs. Again, may I point out that you accused me of not understanding how businesses work, but you repeat this ridiculous measure that demonstrates a deep misunderstanding.I asked a couple business profs about this, and their best guess was that Exxon was cooking the report a little bit, to try to make themselves look better to investors. Yes, the were being underhanded! Shocking, I know. Why does this measure work well for refiners? Because their refineries are already built, and their capital costs in any given year may be relatively small. The fact that a company hasn't made big capital investments in any particular year says nothing about their real profitibility. Consider a company with $1 in capital costs, $1000 in gross receipts, and $1001 in expenses. Their margin over capital costs is 1000, but they're still losing money.
Over at Public Citizen they either don't know this--I doubt they have a lot of good business profs on their payroll--or they did and reported it this way anyway, in which case they're about the same level of integrity as Exxon and kin.
If I keep repeating that demand is the key factor, it's simply because it is! And in case you still haven't figured it out, supply and demand is the basic analytical point in economics--the fact that you don't think it explains what happens in markets only demonstrates that you don't know--on this topic, I can't speak for others--what you're talking about.
Finally, you have this:
OK, first, you imply a disconnect between crude prices and retail prices. Show me evidence that they don't move in the same direction. Seriously--show me evidence that crude prices don't get reflected in retail prices.Second, "a simply Keynesian dynamic:" What? Do you mean a shortage of demand? That's something Keynes talked about, but it's hardly the relevant issue here. Do you mean fiscal economic policy? That's not relevant either.
If you mean the intersection of supply and demand, then that's not really a "Keynsian" dynamic--more of a Smithian dynamic, a Ricardian dynamic, a Marshallian dynamic. That is, every economist who came before Keynes. Keynes was not the guy who figured out that supply and demand determine prices.
But I'll tell you what: it's fair of you to ask me to read the Public Citizen report. So I'll read it and comment on it on my blog. I've got a busy few days coming up, but I'll try to have it up by Monday.
Look, you can mock my "erudition" all you want. I recognize that I'm not the best economist who posts on Dispatches. But I do know economics. Your pretense at mocking that doesn't move me, doesn't impress me. You've not once made an argument that I found compelling, except that oil companies try to play around with the markets. You're foolish enough to call me a corporofascist, corporatist, whatever--mere name calling instead of argumentation--despite the fact that I have said several times that I agree that corporations try to break the rules.
The difference is that you believe they're powerful enough to dramatically distort the market, whereas I believe that growing world demand is far more influential.
Posted by: James Hanley | July 30, 2008 5:52 PM
By the way, Ginger repeats the assertion that gas prices dropped right before the 2004 election, and seems to imply that I erred by showing crude prices, not retail prices. So here are the retail prices, as found on the Department of Energy's Energy Information Administration. All dates are 2004, and the prices are per gallon (and I've rounded them off to the nearest penny).
May 17: 1.98
June 12: 1.87
July 12: 1.87
Aug. 16: 1.84
Sept. 13: 1.81
Oct. 4: 1.90
Oct. 11: 1.94
Oct. 18: 1.98
Oct. 24: 1.98
Nov. 1: 1.99
Nov. 8: 1.95
Nov. 15: 1.91
Nov. 22: 1.90
The 2004 election was on November 2! For some reason (beats me) retail gas prices declined immediately after the election, but not before.
You can be unimpressed by my erudition all you want, but I do hope you're impressed by facts.
Posted by: James Hanley | July 30, 2008 7:52 PM
Hey, I lied. I decided to look at the Public Citizen document rather than watch TV or write my final exam. My review is up on my website. I seriously don't mean to be nasty Ginger, but this congressional testimony supports my claim about congressional testimony. Tyson Slocum doesn't understand either business or economics, and he never provides real supporting evidence for his claim that 30% of the price of a barrel of oil is pure speculation. He claims it, but doesn't demonstrate it.
I stand by all my previous claims. I invite you to travel over to my blog. You can even say nasty things about me--I promise to treat you like a guest. (Just a way of saying I'm desperate for readers ;p )
Posted by: James Hanley | July 30, 2008 10:20 PM