Jon Christian Ryter -- Six Bucks For Gas? Jail The Price-Gougers

SIX BUCKS FOR GAS? JAIL THE PRICE- GOUGERS

By Jon Christian Ryter

September 3, 2005

NewsWithViews.com

Sept. 1, 2005�On August 23, 2005, six days before Hurricane Katrina became the most devastating natural disaster in the history of the United States, OPEC announced that it was debating solutions to another raging storm�the soaring prices of gasoline which they said, was completely unjustified. Sheikh Ahmed Fahd Al Sabah, the Kuwaiti energy minister told the Gulf Daily News of Bahrain that "...[w]e are becoming increasingly concerned at the continuing high level of oil prices, which does not properly reflect the underlying fundamentals of the market. Oil resources are plentiful and supplies are plentiful. OPEC has been producing more than its agreed output by 1.5 million barrels per day in the three quarters of 2005."

The oil minister said the world inventory of crude oil exceeded their 7-year average, and that the additional capacity OPEC agreed to pump early next year meant there would be enough oil in the market to meet all demands. Ahmed insisted there is no shortage, and that there is more than enough oil in the pipeline to meet demands throughout the winter and into 2006. Demand has fallen off for two reasons. First, a slowdown in Chinese factories due to overproduction earlier in the year the reduced demand in July and August. Reduced consumer demand caused by increased prices at the pumps cut oil consumption dramatically around the world and should have caused the price of crude to drop..

The oil glut was getting so severe that Saudi Arabia�which had increased oil production at the request of the Bush Administration as the People's Republic of China began to consume more oil than anticipated by the OPEC last fall�cut back on the increases in June of this year simply because the world's storage facilities were at capacity and there was no place to store the oil being pumped from the ground. We need to look elsewhere for a villain.

As Hurricane Katrina crashed ashore for the second time (after crossing the southern tip of Florida and entered the Gulf of Mexico, picking up steam as it headed for the mouth of the Mississippi River) oil pundits warned that if Katrina did any damage to the oil rigs along the Gulf shore of Mississippi, Louisiana, Alabama and Texas, oil prices would soar overnight. Why? Because, the oil pundits said, if supply is cut off just when a demand for heating oil was about to spike, the lessened supply would cause retail prices to skyrocket immediately. And they did.

As Katrina devastated Mississippi, Louisiana, and Florida before becoming a tropical depression that dumped upwards of 5 inches of rain on the Mississippi and Ohio River Valleys as it headed north, gasoline prices soared; leaping by as much as 18 cents a gallon overnight. In most metropolitan areas, the price at the pump neared, hit or surpassed, $3 a gallon depending on the area of the country, the amount of taxes levied against gas and the additivies in the fuel.

In the city of Atlanta and other places in the hard-hit South, more than one independent gas station owner priced their gasoline inventories in the $5 to $6 per gallon range. Price gouging after a state-of-emergency has been declared is illegal, but as long as there is inventory available, consumers will simply avoid those dealers. (Of course, the price-gouging was being done in States in which states-of-emergencies did not exist. The gas stations are along the major interstate arteries of the "escape routes" from the devastated deep South.) Profiteers saw an "opportunity" for quick profit-taking when gasoline supplies dwindled as consumers stockpiled gasoline, or when lines at the pump got too long and people would be more willing to pay a premium for not having to wait in line for an hour or more to buy gas. While the profiteers have priced themselves out of the market today, they believe there will be a severe enough shortage of gasoline within a few days to a couple of weeks that they will be able to sell the gasoline they purchased to sell for $2.55 to $2.99 a gallon for as much as $10 per gallon when the company-owned service stations run out of inventory.

Now that brings us to the major oil producers/refiners�Standard Oil and the Seven Sisters who are among the world's greediest profiteers and price gougers. The major oil companies which now own almost all of the nation's oil refineries�thanks to the radical environmentalists like Greenpeace, Earth First! and the Sierra Club whose ecoalarmist protests over the past two or three decades brought about the EPA closures of most of the nation's independent refineries�can't refine the oil into gasoline fast enough to meet demand. The storage tanks at the major oil refineries are full. It is. they claim, the law of supply and demand. Slow the supply, increase the demand�and gouge the public. The pipelines are full. And, oil tankers full of Arab oil have been backed up off the our coasts waiting to get their cargoes into the glutted refinery pipelines. Standard Oil and the Seven Sisters are selling gasoline to retail at prices based on today's crude oil prices of $60, $65 or $70 a barrel�not at the prices they paid for the crude as long as three to six months ago.

We use a critically-flawed free market mechanism to determine the wholesale price of oil not yet pumped from the ground. We allow "future" prices determine the price you pay for gas�today�for fuel that was refined at a much lower cost two or three months ago. This is the height of price-gouging. But the profiteers are allowed to engage in this practice under the argument that when the price of crude oil futures drop, the price at the pumps drops at the same time. Of course, when that argument was first advanced oil was $2 per barrel and gasoline was 10 cents a gallon at the pump. And, as history has sadly noted, the backward slide of crude oil prices has always been a mere fraction of its forward leaps.

Investors who engage in buying "futures" determine the price you will pay for that commodity tomorrow. "Futures" buyers who "bet" what the price of a variety of products from chickens to pork bellies to beef cattle and from to carbon commodities like wood to carbon fuels like coal, gas and crude oil, "bet" on the prices of commodities that won't exist until a future date (next week, next month, next quarter or next year). Buying energy "futures" actually determines the price you will pay for that commodity today even though the energy commodity you put in your gas tank was produced�at a substantially lower cost�last week, last month, last quarter or last year.

Early in his career, John D. Rockefeller, Sr. learned that to control the price of oil nationwide he did not need to control the oil wildcatters who, from 1865 to 1876, threatened to bankrupt the fledgeling oil industry in Pennsylvania by pumping too much oil and causing the price of crude to drop below the cost to refine it. He only needed to control how much oil was refined. As long as demand exceeded supply, the oil industry would remain healthy�and profitable. Instead of attempting to buy out every wildcatter who sunk a well around Oil Creek, Pennsylvania, Rockefeller and his partner, Henry Flagler concentrated on either buying or bankrupting the independent refineries. By 1887, Standard Oil controlled 85% of all the oil that was refined in the United States.

When oil was discovered in the Baku oil fields near the Caspian Sea in Russia in 1879, Standard Oil began to loose its grip on the global oil market because he could not compete with Baron Alphonse de Rothschild and Robert Nobel, of the Swiss armament family, who controlled all of the oil refining in Russia from two major refineries at Rijeka and Trieste on the Adriatic Sea. Once again, the price of crude dropped because Rockefeller had competition he could not control. Using his leverage over Congress, Rockefeller blocked the importation of Russian oil into the United States.

But when Rothschild and Nobel set up a British oil-marketing company in London in 1888, it took Rockefeller less than a month to do the same. By 1890, through cutthroat price-cutting, Standard Oil controlled 80% of the world's markets. In 1892 Baron Rothschild paid a secret visit to Rockefeller at his offices at 26 Broadway in New York to divide the oil world between them. In the end, Russian Foreign Minister Sergei Witte spiked the formation of a Rockefeller-Rothschild oil cartel because the world had learned greed governs those named Rockefeller.

Rothschild's oil drilling in Russia went into high gear, and for a brief period just before the turn of the 20th century, Russia briefly eclipsed America's oil production. Rothschild believed the only way John D. Rockefeller could be beat was to bury him in oil. But, try as he did, Standard Oil continued to dominate the refining of oil worldwide. And, Rockefeller, not Rothschild, controlled the price at the wellhead�and the price at the pumps.

That lesson from the past is why oil spiked two weeks before Hurricane Katrina took its Caribbean cruise. Congress passed the Energy Policy Act of 2005 but omitted one provision demanded by the major oil companies in the United States�an exemption from liability from lawsuits from toxic tort lawyers because of the gas additive MTBE (methyl tertiary butyl ether) which is used to oxygenate gasoline. Its use was mandated by the Clean Air Act of 1990 to reduce toxic air emissions. In putting together the Energy Policy Act, House and Senate Republicans built into the legislation a provision that would have held the oil companies liable for any related health costs but would have passed the cost to cleanup the MTBE mess on to the taxpayers.

Subscribe to the NewsWithViews Daily News Alerts!

Enter Your E-Mail Address:

It would have also exempted them from lawsuits from toxic tort lawyers who currently have 62 major lawsuits filed against 47 oil companies. Democrats, who are heavily financed by tort lawyers, blocked that provision. The 2005 energy bill was passed without MTBE liability protection. It is estimated that damages that could be assessed to the oil industry will run into the trillions of dollars. I guess what Standard Oil and the Seven Sisters are doing now is collecting the money they will need to settle these claims.