The evil oil companies are at it again. The price of a gallon of
gas has jumped by more than 30 cents in the past month. The
gasoline gougers are busy reaping windfall profits.
It’s time for a congressional investigation! New legislation
must be introduced! The administration must confront corporate
thieves!
No, wait. That all happened last summer. As gas prices rose,
customers blamed gas station owners and oil producers alike.
Politicians moved from somnolence to frenzy at record speed. Never
mind that there were many reasons for rising prices: Officeholders
and candidates alike campaigned to stem energy costs.
Even supposedly pro-business Republicans joined the parade.
House Speaker Denny Hastert (R-Ill.) and Sen. Majority Leader Bill
Frist (R-Tenn.) wrote the president to demand investigation and
prosecution of “anyone who is trying to take advantage” of the
tightening world energy market. President George W. Bush agreed,
explaining: “The first thing is to make sure that nobody is getting
cheated.”
Congress targeted gasoline prices, company profits, corporate
taxes, federal royalties, and industry investments. State Attorneys
General opened another front.
But prices soon fell dramatically, and remain well below their
peak, when a gallon of regular unleaded gasoline ran about $3.00.
The price of crude oil dropped by 35 percent from its high. If the
energy producers controlled prices, why did prices decline?
To help the Republicans in the November election, ran one
theory. Last October CBS anchor Katie Couric asked: “Gas is the
lowest it’s been all year, a nationwide average of $2.23 a gallon.
It hasn’t been that low since last Christmas. But is this an
election-year present from President Bush to fellow Republicans?”
If so, why didn’t Big Oil boost prices the day after last
November’s election? Why wait even an hour to collect those
windfall profits?
Instead, a couple months ago crude oil prices were still
falling. Indeed, gasoline prices actually peaked in September 2005
in the aftermath of Hurricane Katrina. Why didn’t the companies use
that natural catastrophe as an excuse to keep prices high?
It’s even harder to understand why the oil industry allowed
prices to drop more than a quarter century again when President
Ronald Reagan killed price controls. That should have been the
signal to energy producers to raise prices even further, looting
and pillaging the entire population. Instead, prices dropped
dramatically.
Perhaps the conspiratorial corporate behemoths were working to
reelect Reagan. But if so, they should have jacked up gasoline
prices after the 1984 election. Instead, prices fell even faster
through 1987 and remained low for years.
Indeed, the price of gasoline didn’t rise above its 1981 level
until 2000. Nor have energy prices been a friend to former oilman
George W. Bush, as one would expect if the companies were
manipulating the market. Prices have risen fairly steadily from
2002 on, with sharp declines after the post-Katrina run-up and
since the fall. In particular, fuel prices actually rose throughout
most of 2004, with gasoline breaking $2.00 a gallon before the
election.
What gives?
Simple. Energy prices are set by complex interactions in a
global marketplace. No one actor or set of actors controls
prices.
The price run-up last year was a consequence of many factors.
John Townsend, a spokesman for the American Automobile Association,
observed: “There were a lot of little cuts that all added up to a
lot of bloodletting at the pump.”
Among the causes: rising oil consumption in developing states,
particularly China and India; continuing problems with Iraqi oil
production; the unsettling impact of the Iran nuclear controversy;
political instability in leading African and South American oil
producers; limited U.S. refinery capacity; persistent production
and refining problems left over from Katrina; the segmented
gasoline market, requiring production of multiple “boutique” fuels;
and the replacement of MTBE as a fuel additive.
This year has seen frigid winter temperatures, growing Chinese
oil purchases to fill its strategic petroleum reserve, increased
instability in Nigeria, continuing uncertainty regarding Iran, and
selected refinery problems. On the other hand, Saudi Arabia
apparently has used its position as the world’s reserve producer to
moderate prices (it fears a fall in Western demand as well as
greater effort to develop alternative fuels).
The best response to such a complicated market is fewer
government controls. After all, it was deregulation in 1981 that
encouraged new competition and attracted new supplies, putting
powerful downward pressure on prices. The best policy today would
be to expand production opportunities — it makes no sense to rail
against petroleum imports while placing American lands and coastal
waters off-limits to exploration.
Inefficient regulations, such as rules that effectively
balkanize the gasoline market, should be adjusted. Barriers to
refinery production should be lowered. Subsidies for various fuels,
whether proven or potential, should be ended. Most important, Uncle
Sam should leave energy prices alone.
It’s too bad, really, that the oil companies don’t control
energy prices. If they did, the world would be a much simpler
place. Instead, we must live with markets —imperfect, but still
better left free than controlled by government dictates.
