FREE ENTERPRISE IS FOR SUCKERS

Here is the solution to the gasoline price gouging situation. First let’s find out why gasoline prices are high and what can be done about it.

We cannot do anything about the price of crude oil itself. That price is being dictated by supply and demand forces. Nor can we do anything about the freight costs of getting crude from field to refinery. But we sure can do something about the refined products that come out of the refineries, which is exactly where the problem lies.

Crude oil as pumped from the ground eventually arrives at an oil refinery where is is chemically changed to crude products like gasoline of 15 or 20 boutique grades, heating oil for homes (mostly on the East Coast), jet fuel, and less used products like kerosine etc.

Cutting to the chase, the top five oil companies own around 58% of the refineries in the U.S. (Up from 35% ten years ago); the next tier of five companies own around 27% of the capacity; so today the Big Ten own nearly 86% of the 144 total refineries.

The refinery business was unprofitable ten years ago because there was not enough demand and too much competition. That is when the Big Ten launched their campaign to drive the independent refiners out of business. They did this with what is called “predatory pricing,” which means that they sell their refined products at such a low price—below cost if necessary---that customers who want to remain competitive won’t buy from the smaller companies that must charge a higher price in order to stay in business; they became environmentalists by urging the government to enforce pollution laws they knew the smaller refineries couldn't afford; and they just absorbed the "botique" requirements for esoteric additives for certain areas, something else the smaller refineries could not afford to do. The purpose of the Big Ten was to cartelize the oil refinery business, crush the independents, and freeze out any new business trying to compete. The refinery business offers the ideal arena for monopoly practices because it takes a huge amount of capital in order to enter—$4 billion and four years for a refinery—and who will enter a business controlled by a few companies who have as a stated purpose the elimination of all competition?

So today they are a “success.” Ownership of refineries is concentrated among an ever shrinking number of huge multi-nationals. Profit margins that were as low as a few cents per barrel fifteen years ago are now approaching 88 cents per gallon of product today in the relatively few refineries remaining. It is the obscene profits of the cartel refining business that has driven up the cost of fuel. Fifty cents per gallon of gas could be cut from refining margins and the oil companies would still be making a killing.

So what to do? Claim that this is capitalism at work and let markets decide winners? How does this work with oil companies that have a mantra that goes, “Free enterprise for you and monopoly capitalism for us?” Markets always “work,” but by working it doesn’t necessarily mean that only prices and profits are what we see there. We can also see abuses of the system. We can see monopoly capitalism taking over. We can “see” illegal trading by looking at charts and volumes in markets. We can recognize insider trading by corporations. We can see obscene profits too.

Cartel situations have appeared before, the most recent was in the 1940s when it became plain that the movie studios owned everything from production to the exhibition business, a system that froze out all competition in each segment of the business. The government looked at the situation and got what has come to be known as a “consent decree” in which the studios were forced to let loose of theatres and distribution. The consent decree just said that the studios could produce, or exhibit, or distribute movies, but they could only do one of the three. Bingo, suddenly there was independent production, independent theatre ownership, and new distributors were born overnight. Competition reared its ugly head and things were never the same.

We need a “consent decree” for the oil refinery cartel. We need a consent decree that prevents a company from being oil producers, refiners, and distributor-retailers at the same time. A decree that says you can be one of those entities but not more than one. PERIOD. Competition is what all these big business types hate and I mean hate.

We have to assert ourselves and remind these multi-national oil companies that competition is not for us suckers.

It's for them too. Especially for them.