The Great Oil Robbery


Richard Moore

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The Great Oil Robbery
By Dave Lindorff

In case you're wondering why crude oil prices are down from last year, hanging 
around at about $60 a barrel, while gasoline prices have soared past 
$3.10/gallon nationwide, just check out the latest profit reports from the oil 
companies. They are at record levels.

The answer for this seeming contradiction is simple: Americans are being robbed 
blind by the oil industry.

Sure, the oil companies, and their PR and lobbying agency, the American 
Petroleum Institute, will give you all kinds of reasons for higher gasoline 
prices at a time of falling crude prices: problems at two refineries in Texas 
and Oklahoma, rising demand or whatever. But the real answer is that there is 
simply no competitive market in this industry.

As Tim Hamilton, a researcher and petroleum industry consultant with the 
Foundation for Taxpayer and Consumer Rights, observes, the oil companies all 
store their crude oil and refined gasoline in the same tanks, and all know 
exactly how much inventory each other company has, so they don't have to meet 
and collude on pricing in order to reap the huge rewards of deliberate supply 

Says Hamilton, "Years ago, you had companies that would try to guess when the 
other companies were going to have supply shortfalls of gasoline in the summer. 
They'd ramp up their own gasoline refining and then supply the market at a lower
price and eat their competitors' lunches, the same way General Motors would do 
if Ford had a problem on its assembly line. But today, no oil company would do 
that. They all benefit by keeping the supplies tight."

Hamilton says that the oil industry has in practice conspired to limit refining 
capacity, so that companies can keep pushing up the price of gas 
artificially-only they've done this without ever having to meet in secret and 
cut a deal, because they all have complete competitive information on each 
others' inventories, internal pricing, and refinery capacity.

"There's no correlation any longer between crude oil prices and gasoline 
prices," he insists. "Crude could drop to $10/barrel, and you could still have 
gasoline go to $4/gallon. All the crude oil price does is set a floor on 
gasoline prices."

As an indication of how much control the oil industry has over retail gasoline 
prices, Hamilton points to a study he did, looking at the price of gas 
approaching Election Day. His results are truly disturbing.

The oil industry has been a solid backer of Republicans for many years, giving 
80-90 percent of its campaign contributions to GOP candidates-particularly 
during the two Bush terms. What Hamilton discovered is that this support hasn't 
just been limited to campaign contributions. In fact, the oil industry appears 
to have clearly tried to minimize voter anger at Republicans late during the 
election cycle by pushing prices at the pump down just ahead of the voting.

In the period 2000-2006, Hamilton found that each non-federal election 
year-2001, 2003 and 2005, gasoline prices didn't decline during the month of 
October, but each of the election years-2000, 2002, 2004 and 2006-they fell, 
with the most dramatic drop coming in October 2006-a period when crude oil 
prices were rising sharply. Each time, gasoline prices rose again quickly right 
after the election was over.

"This is a set of coincidences you'd be hard-pressed to explain by anything but 
planning," says Hamilton. (And incidentally, it would be interesting, when 
Congress gets those Karl Rove emails from the Republican Party and the White 
House mainframe computer, to see if there are any to the American Petroleum 

The whole situation makes a joke of Bush proposals for opening up the Alaskan 
North Slope to more oil exploration, or for Republican calls for an easing up on
environmental regulations for new refinery construction. Says Hamilton, "The 
price of oil produced in Alaska will be set in Saudi Arabia, and any new supply 
of crude from Alaska won't affect American gasoline prices in the slightest. And
as for new refineries, why would any oil company want to spent $1 billon or more
to add refinery capacity so they could get less money for the gasoline they're 
selling? There isn't enough money in the federal treasury to subsidize the 
building of new refinery capacity in America."

The irony here is that it is higher prices for gasoline that might eventually 
convince Americans to use less gasoline, and to reduce the production of 
greenhouse gasses. But where those higher prices in Europe come in the form of 
taxes, which can then be used to subsidize public transportation or retirement 
and healthcare programs, in the U.S. the higher prices simply go to the bottom 
line of the oil companies, and into the pockets of oil company shareholders, 
leaving public transit, retirement and healthcare programs under funded, and 
leaving lower-income workers stuck with higher bills to get themselves to and 
from work in their cars.

Until the public recognizes that the illusion of competition carefully 
maintained by the oil industry and its backers in the government is just that-an
illusion-this astounding rip-off will continue.


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