House OKs bill to curb gas gouging

[Guest]

. . . .

 

[S-Des]

I saw a very nasty exchange between Neil Cavuto and a Democratic Congressman over this. As usual, it did nothing to clear up what's really going on. Cavuto claims that 7 new refineries (offshore) were turned down because of ecological groups protesting, while the congressman said only 1 has been applied for and it was approved, but the oil companies decided not to build it because it helps them drive up the price (and their profits). The problem isn't the cost of oil, it's cheaper than it was last year. The problem is refinery capacity. The oil companies claim they're doing all they can, the critics are claiming they're sandbagging to gouge the public.

The other factors (taxes and government mandates) contribute to the cost, but if it is found out that they are truly gouging, I hope they all go to jail. These prices are going to cost all of us so much in terms of inflation along with the pain of those of us who drive for a living. I'm just so grateful I got my new car just before this mess. I get twice the mileage I did on my previous vehicle.

 

[rgraham666]

It wouldn't surprise me if the oil companies were deliberately raising prices by artificially keeping refinery capacity low. A similar thing happened in California during its electricity crisis a decade ago.

Overall I think much higher gasoline prices is a good idea. It will reduce the amount of driving people do, which will mean less pollution produced.

And yes Roxanne, that will mean higher prices all around. But cleaner air is something I'm willing to pay for.

 

[Jenny_Jackson]

The White House, which has threatened to veto the bill, warned the legislation amounts to price controls and would lead to gas shortages and lines like in the 1970s.

Ummm... Can someone explain that to me? The oil companies are producing a supply equal to demand. At the same time they blame the consumers for high demand, ergo high gas prices. So, if they make "price gouging" illegal, demand will increase dramatically? Does that mean as long as the oil companies can "price gouge" legally, they will cope with high demands, but if "price gouging" suddenly becomes a crime, supply will drop?

Isn't this the same kind of reasoning that got us into Iraq?

 

[cantdog]

This is a foolish move, in my view.

 

[Emperor_Nero]

This is not a good thing. What needs to be dealt with is this world of "mythical" shortages created by futures traders trying to increase their profit and causing the prices of oil and gas to fluctuate.

Here are how many of our "shortages" come about.

Oil Company A signs a big contract to become an exclusive supplier to another corporation -- let's say like UPS -- and guarantees them 1 million gallons of fuel per year.
Now, even though UPS has been buying that same 1 million gallons of fuel from other places, the traders who have futures contracts on oil cry that there is now a 1 million gallon sale that will create a shortage. The media (which is getting a little lazy in their homework, as it's easy to point fingers at big oil companies) agree and tell everyone there will be a shortage.

The end result ... the price of oil goes up for the short term and those holding futures contracts make huge personal profits as the price jumps up and they sell. That rise in prices makes petroleum products go up in price (not just gas, but heating oil, jet fuel, petrochemicals such as plastics and so on) and we all pay. Is there really a shortage? No, the demand has not changed, it has just been redistributed among the suppliers.

It's the same market scenario that drove thousands of family farmers off their land in the 80s and 90s (and still today, although at a slightly slower pace) as the futures markets kept the prices of grain down during times when farmers could practically sell it and drove it up when it was already in the hands of large grain companies like ADM and Cargil. It's market manipulation.

I won't debate that the oil companies are making huge profits. But they don't set the price on a barrel of oil, that comes from commodities markets around the world. The profits, ultimately, come from the price of raw oil. Look at the corporate reports (Shell, BP, Exxon-Mobil are all publically held companies) and you'll see -- retail fuel divisions not only weren't the primary source of profits, but in several cases were actually (small) losses.

We're not being gouged by the oil companies -- we're being gouged by futures traders. But Oil Companies make a much easier target.

 

[Wildcard Ky]

I had a very interesting conversation with a mid level executive of Marathon oil this past weekend. The conversation was quite enlightening. I won't give too much detail because I somewhat consider it to be a priveleged conversation. But here's the highlights:

Things are going EXACTLY the way oil wants them to go. Lobbyists have bought and paid for much of Washington right now. They have been able to drive up the price of gasoline to the point that constituents are demanding that their representatives do something about it.

In steps the paid for politicians...................

Government regulations will be coming that sets controls on the price of gasoline. Those set prices will generally be based on the current market. The current market is set at an artificially high level. So once those get locked in by some kind of legislation, big oil will cruise along on regulated prices set by a market that was on an artificial high.

Politicians from both sides of the aisle will agree to it, and both sides will be able to claim that they were instrumental in bringing big oil under control. Big oil lets them take the credit, and big oil has guaranteed profits set on artificially high margins from now until the oil runs out.

As I said, I got that straight from a mid level executive with Marathon Oil.

 

[Roxanne Appleby]

This is all silly. Gas prices are high because demand has risen faster than supply, which has been constrained by bad public policy. Regulations and politics have limited the expansion of new domestic supplies (primarily offshore drilling) and refinery capacity. Ethanol mandates designed to make agribusiness rich, campaign coffers filled, and gullible voters indoctrinated with green orthodoxy duped, have further crimped supplies. "Boutique" gasoline formula mandates, additive lawsuits, and other forms of abuses have further crimped supplies.

All of that is government malpractice and malfeasance. In ignoring all that and pointing fingers at the oil companies you are buying exactly the line a self-serving political establishment wants you to. It has nothing to do with reducing fuel prices, and everything to do with increasing the scope and power of government. It's pretty damned transparent, in fact. Don't let yourself be a dupe.

 

[jomar]

And people wonder why I lean toward cynicism.

 

[Boxlicker101]

I live in California, where there are oil wells and refineries. Occasionally, I have taken trips to Wisconsin, where there are neither, and rented a car. Gasoline prices were about eighty cents a gal. less in WI than they were in CA. If it is a matter of supply and demand, how can that happen.

 

[Jenny_Jackson]

I live in California, where there are oil wells and refineries. Occasionally, I have taken trips to Wisconsin, where there are neither, and rented a car. Gasoline prices were about eighty cents a gal. less in WI than they were in CA. If it is a matter of supply and demand, how can that happen.

Yes. We have the same problem in Oregon. PDX is the main import site for the west coast for refined gasoline coming into the country, primarily from Venesala. But we pay about 44 cents more per gallon than Colorado, Utah, Kansas and other central states and they don't have to truck it. What gives?

I don't agree with the idea that "refinery capacity" is the problem. The problem is not a single oil company has built or upgraded a refinery in the U.S. is over 25 years. What? They couldn't figure out they would be selling more oil in 2007 than they were in 1982?

Then I hear the oil company "analysts" saying they "need the high profits for exploration." If that is so, then why are the oil companies paying record high stock dividends? Also, under the current Internal Revenue Code, oil exploration is a direct 200% write off against reportable income. Then when they find the oil, they get an "oil depletion allowance" equal to 180% of expected well production. In other words, the oil companies are getting fat and not paying taxes.

If you look at the world gasoline market, China has become the largest user, not the U.S. And China pays about $1.16 less per gallon than we do in Oregon. Humbug!

Then look at the events leading up to thiss "shortage." 2/3rd of the domestic refineries were "down to retool for 'Summer Gas'" all at the same time(?) Whe did it take 10 years for Exxon, BP and Phillips to discover that the Valdis pipeline wass defective? Why haven't the refineries on the Gulf Coast been rebuilt? The Federal Goverment paid them to rebuild them. What did they do with the money?

I personally don't believe a word either the Oil Companies or "Industry Analysist" say.

 

[S-Des]

This is not a good thing. What needs to be dealt with is this world of "mythical" shortages created by futures traders trying to increase their profit and causing the prices of oil and gas to fluctuate.......

........I won't debate that the oil companies are making huge profits. But they don't set the price on a barrel of oil, that comes from commodities markets around the world. The profits, ultimately, come from the price of raw oil. Look at the corporate reports (Shell, BP, Exxon-Mobil are all publically held companies) and you'll see -- retail fuel divisions not only weren't the primary source of profits, but in several cases were actually (small) losses.

We're not being gouged by the oil companies -- we're being gouged by futures traders. But Oil Companies make a much easier target.

Two problems with this line of thinking. The price per barrel is around $65, which is nowhere near the highest it's been. Yet we are paying the highest price ever, not just raw cost, but adjusted for inflation (according to the story I heard on the news). The excuses about traders causing this just doesn't add up, especially when the oil companies are making record profits. As Jenny pointed out, they haven't built any new refineries in decades. They know that demand is rising, but have done nothing to expand the existing refining capacity. The regulations do explain some of the hassle, but none of it is new, so why is it suddenly such an enormous problem? We haven't even had a major problem (i.e. refinery fire or hurricane) yet this year. If we do, it would actually make things worse.

I'm sorry, I just don't believe the oil companies while they're crying poor and handing out 1/2 billion dollar packages to their CEOs for running such good business strategies. There are a lot of people getting rich at the public's expense, including the tax coffers of the government (local & federal). There's plenty of blame to go around, but I'm not going to absolve the Oil industry, especially when the head of the regulatory commission goes on national TV and says they're doing it on purpose. However, I agree with the cynics...Congress getting involved is just going to fuck it up worse.

 

[R. Richard]

The oil companies make about 13 cents of profit per gallon of gasoline sold.

the federal government + California make 60 cents per gallon of gasoline sold.

the federal government + Florida make 49.8 cents per gallon of gasoline sold.

the federal government + Texas make 38.4 cents per gallon of gasoline sold.

the federal government + New York make 62.9 cents per gallon of gasoline sold.

If you want to investgate price gouging, you might start with governments.

As to why no new refineries have been built for a long time, the last time an oil company tried to build a new refinery, it took some 10 years of permits, licenses and hearings before they were denied the right ti build a new refinery. The 10 years did not come cheap and the oil companaies are not interested in a replay. Again, you might start with governments and find out why they don't want new refineries built. [Hint, voters want new refineries built, as long as they are built elsewhere.]

 

[Roxanne Appleby]

Short explanation of why refinery capacity hasn't grown:

Uncertainty and risk imposed by an unpredictable regulatory environment. Who wants to tie up a billion dollars for 20 years or more (unpredictable how long exactly) hoping than an endless stream of state and federal bureucrats and judges may finally come out with a favorable decision? It's not a rational allocation of an investor's money. Whose fault is that, my friends? We have enabled this outcome, and should not be surprised when those chickens come home to roost.

With regard to some "conspiracy" to limit refinery capacity, that's nonsense. Anyone can build a refinery. Decisions to do so (or not) are made one at time by particular entities and individuals, not by an amorphous "industry." The risks described above are balanced with the obvious rewards and a decision is made. The public easily imagines the reward side of equation. They don't see the risk side nearly as clearly. So they fall for conspiracy theories, and opportunistic politicians are always eager to profit by feeding the myth. Don't let yourself be a dupe.

 

[amicus]

Everyone who has been around this forum for a while and followed the politics of those who post, fully realize that SweetSubsarah has an agenda and is an ideologue.

A years back there were no voices in opposition and the left preached to the choir and enjoyed the usual suspects group grope.

Thus it is a pleasure to read Roxanne, R. Richard and sometimes Wildcard and a few others who voice reason and rationality against the tidal wave of left wing thinking.

Price controls, accusations of 'big business' corruption and excess profits, along with many other 'mantra's' of the left, are trotted out whenever the occasion arises, be it Energy companies or Walmart, or agribusiness, Timber and even now stock transactions and speculators, long an understood function of the market.

The psychology, philosophy and politics of the left is a festering cancer of deceit that has accumulated for generations and continues to be mouthed in ignorant repetition by those who only pretend to 'think'.

I do not direct my comments at the threadstarter personally, rather the entire left genre that infects this forum.

I do so as the left has become very clever and skilled at obfuscation and very adept at applying lipstick to the pig of Statism.

Statist's are like useless weeds in a garden, they need to be exposed and weeded out.

Why?

Let me try yet once again.

Perhaps beginning with natural male domination, (ah, we are bigger and stronger, and you squat to pee), continuing through the evolution of family and elders and rulers and churches, many people still retain a 'peasant' mentality, in that they desired to be ruled, managed, provided for, guaranteed, supported and pretty much told what to do in all aspects of their lives.

I attempt a little humor in my rants, I know I will not educate or enlighten most of you, thus perhaps I can be 'amusing' or 'entertaining', as a fool.

These silly little twats & twits are actually sincere in their outcries. I mean I just love lil Jenny Jackson and her stories and from her words I can tell she really believes the propaganda she regurgitates over and over again.

All Jenny and most of these left wing twats are doing is looking for a daddy to tell them how to live. "Oh, Daddy, those mean old oil companies are so rich and it costs so much to drive and they are destroying the environment, daddy! Make them go away, stop them, control them, oh god, we have to save the planet and the whales, and the snail darters, and the owls and the rainforest, oh daddy! Can you make them stop, oh please!"

Heh, heh, admit it; you smiled.

I just love women, sighs.

There truly is, I think, a 'peasant' mind set that carries over. A mindset the deep down wants a 'daddy' to make things right. But of course, always for the greater good of society and people in general.

ZPG Zero Population Growth. Remember those days folks? Too many people in the world. Over population, shrinking resources. Answer? Stop having families and if you are really cruel, do it in China, where they have no rights anyway.

Walmart won't unionize. Well, those bad old businessmen, daddy, lets force them out of business, boycott them, pass laws. Walmart destroys the 'mom & pop's', they use foreign labor! Ahem, they already pay higher wages than prevailing ones and their prices and variety of selection is greater than ever before. No matter! The Unions Rule! Shut down Walmart, keep them out of your town!! "Please daddy, ya gotta!"

The subsidies, tax money, to support soy and corn production to be used exclusively for ethanol have already raised food prices across the board. The next time you pay $3.00 a pound for hamburger, $4.00 for a gallon of petrol, $3.60 for a gallon of milk or $10.00 for a pound to Top Sirloin, at least know the reason why, "daddy" wants it that way, lower pollution, renewable sources, control over your life.

I have been pessimistic about the future since the ugliness of the 60's, although for that length of time, I have actively engaged those who wish to control my life and yours.

Roxanne has perhaps the most rational mind on this forum, Roxy, I wonder if you might mull a question for me?

The very concept of 'Statism', where the State owns and manages the resources and allocates to the citizens those things the State chooses and forbids those things they deem harmful, seems to be advocated by many on this forum.

Why?

Do they not see that the loss of human freedom and dignity destroys our humanity? Are they just ignorant of the consequences of Statism? Ignore your nemisis, Pure, who is merely the "Elsworth Toohey" of the forum.

Perhaps one day I will understand why so many are so eager to sacrifice freedom for slavery and just the promise of security which, understandably has never been delivered once the freedom is destroyed.

 

[Boxlicker101]

The oil companies make about 13 cents of profit per gallon of gasoline sold.

the federal government + California make 60 cents per gallon of gasoline sold.

the federal government + Florida make 49.8 cents per gallon of gasoline sold.

the federal government + Texas make 38.4 cents per gallon of gasoline sold.

the federal government + New York make 62.9 cents per gallon of gasoline sold.

If you want to investgate price gouging, you might start with governments.

As to why no new refineries have been built for a long time, the last time an oil company tried to build a new refinery, it took some 10 years of permits, licenses and hearings before they were denied the right ti build a new refinery. The 10 years did not come cheap and the oil companaies are not interested in a replay. Again, you might start with governments and find out why they don't want new refineries built. [Hint, voters want new refineries built, as long as they are built elsewhere.]

Are you really sure about that 13 cents per gallon? Are you sure it isn't 13 per cent? The reason I ask is this: Costs, including barrels of oil, are not much different now than they were a year or two ago. Yet, gasoline is much more expensive, a lot more expensive than 13 cents a gallon. Does this mean the oil companies were losing money hand over fist a year or two ago?

I don't know about the other states, but as for California: The Feds collect a nine cent a gal. excise tax and the state collects a nine cent tax also. In addition, if I bought a gallon of gasoline in San Jose, and paid $3.50 a gal., the sales tax would have been included in the selling price and would be about 27 cents. That's a total of 46 cents, unless you are counting things like tax on profits, amortization of property taxes, etc. It's high, and it gets higher as prices go up, which might be why states don't mind high gas prices so much. Still, it's less than 60 cents.

I agree with what you are saying about building refineries. All the road blocks put up by environmentalists and others like that make it extremely expensive.

 

[Wildcard Ky]

I live in California, where there are oil wells and refineries. Occasionally, I have taken trips to Wisconsin, where there are neither, and rented a car. Gasoline prices were about eighty cents a gal. less in WI than they were in CA. If it is a matter of supply and demand, how can that happen.

Refineries and location don't have anything to do with it.

When I met the previously mentioned Marathon Oil executive, we were literally right next to the Marathon refinery in Ashland, Ky. Right next to the refinery was a station selling Marathon gasoline. So one has to say that transportation costs were nil. Gas prices at that station were .15 per gallon higher there than they were at a Marathon station close to my house. I live about 200 miles away from that refinery.

Why was gas .15 cheaper more than 200 miles away from the refinery than it was right next door to the refinery? Same company, same gas all coming from the same refinery, and in the same state.

 

[R. Richard]

I don't know about the other states, but as for California: The Feds collect a nine cent a gal. excise tax and the state collects a nine cent tax also. In addition, if I bought a gallon of gasoline in San Jose, and paid $3.50 a gal., the sales tax would have been included in the selling price and would be about 27 cents. That's a total of 46 cents, unless you are counting things like tax on profits, amortization of property taxes, etc. It's high, and it gets higher as prices go up, which might be why states don't mind high gas prices so much. Still, it's less than 60 cents.

I agree with what you are saying about building refineries. All the road blocks put up by environmentalists and others like that make it extremely expensive.

The feds collect an 18.4 cent a gallon tax.

Ripped off from Wikipedia as of 2005:
While state fuel taxes had been around for more than a decade, the first federal gasoline tax in the United States was created on June 6, 1932 with the enactment of the Revenue Act of 1932 with a tax of 1 cent/gal (0.3¢/L). The U.S. federal gasoline tax as of 2005 was 18.4¢/gal (4.86¢/L), and the gasoline taxes in the various states range from 10 cents to 33 cents, with an average about 22 cents per U.S. gallon (5.8¢/L), making the average combined tax on gasoline 42¢/gal. Unlike most goods in the U.S., the price displayed includes all taxes, rather than being calculated at the point of purchase.

 

[R. Richard]

Refineries and location don't have anything to do with it.

When I met the previously mentioned Marathon Oil executive, we were literally right next to the Marathon refinery in Ashland, Ky. Right next to the refinery was a station selling Marathon gasoline. So one has to say that transportation costs were nil. Gas prices at that station were .15 per gallon higher there than they were at a Marathon station close to my house. I live about 200 miles away from that refinery.

Why was gas .15 cheaper more than 200 miles away from the refinery than it was right next door to the refinery? Same company, same gas all coming from the same refinery, and in the same state.

Gasoline stations operate under a contract with the petroleum company. The contracts vary a great deal and usually include a 'competition clause.' The petroleum company will allow the gasoline stations to charge what the competition is charging and adjust the cost of the gasoline supplied to allow the gasoline station to maintain a profit margin.

If the competing gasoline stations in the area of the refinery were charging $X+0.15, then the Marathon guy was also charging $X+0.15. If the competing gasoline stations in the area where you live are charging $X, then the Marathon guy is also charging $X.

 

[R. Richard]

Over the past several decades, Congress, inspired by the Democrats, has investigated the petroleum companies for 'price gouging' and/or 'windfall profits.' In each case, the investigation revealed only that the petroleum companies were not price gouging or engaging in anti-competitive practices. As to 'windfall profits,' the petroleum companies make a lot of money under certain market conditions and they struggle to break even under other market conditions.

The retail gasoline business is cutthroat and very competitive in most areas. If a petroleum company tries to charge too much, the competition eats them alive. If a petroleum company tries to charge too little, to snag market share, their profit margins suffer.

If you think differently, then buy petroleum company stock since the profits eventually flow to the stockholders.