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 constraints.
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 Institute.)
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.