MAY
8
2006

Are the oil companies really to blame for high oil prices?


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Forget the Iran and Iraq worries, Iran’s new oil-euro exchange, shortages, increased demand, the OPEC cartel, inflation, and high taxes. Let’s just blame the oil companies for high gasoline prices!


It really amazes me how when oil prices go up, suddenly the oil companies are to blame for all our woes. Forget the Iran and Iraq worries, Iran’s new oil-euro exchange, shortages, increased demand, the OPEC cartel, inflation, and taxes. Actually, skyrocketing refining costs seem to have led to the greatest recent jump in gas prices, with averages going from a low of 30c per gallon in january to 84c in april! In the spring, refineries tend to perform maintenance, which can place a pinch on the gasoline market. By the end of May, refineries are usually back to full capacity, which should also help alleviate some of the pressure.

Of course, the biggest point here is that it really seems hard to blame the oil drilling companies for high global oil prices. If anything, the oil refiners are somewhat to blame and could warrant some more focus. But what makes us suddenly believe that oil companies have become so powerful as to be able to manipulate the price of oil to such an extent. They couldn’t seem to do much for years as oil prices spiraled lower to nearly $10/barrel. And no one seemed to care much either way.

So suddenly they are making up for it after all these years and there is talk of “windfall taxes”? I’m sure that will do loads to inspire companies to invest further. If anything, the price of oil itself is incentive enough for oil companies to continue exploring for new oil. Of course, what was the incentive at $10/barrel? They were likely just trying to cover their basic expenses, hoping that one day oil would eventually jump up and then they can finally rake it in.

And let’s not forget here that in fact government taxes make up a huge chunk of gas prices, currently at nearly 20% of a gallon of gas. Some of these taxes in fact have remained fixed. Can you believe that back in 1999, with gasoline averaging $1.34/gallon, taxes made up almost 35% of the price? How’s THAT for price gauging! [Believe it or not, just for a comparative reference, taxation on European gas is in fact much steeper than in the U.S. In the European case, however, the high premium taxes on gasoline has led to the adoption of generally smaller and more fuel efficient automobiles with smaller engines and fewer perks than in the U.S.]

And of course, what about gold prices? Maybe the gold companies are also responsible for manipulating gold prices up to $650/ouce? How about a “windfall tax” on them while we’re at it? Or maybe we can just focus in on the fact that “asset + inflation + even more taxes = OUCH”! Now that’s something to think about.

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 by on May 8, 2006, 12:00am
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