So that means the rantings of senators and congressmen over ‘gouging’ were unwarranted, because there were only 15 cases of excessive price adjustment, but it was not specific to one refiner or company.(2) And now we see that more states are jumping on the bandwagon of passing legislation for anti-gouging, which is comical at the very least.

For starters, when asked to define gouging, no one can come up with a halfway cogent answer; it’s always something about how oil companies are making more profit than they should. Since when in our capitalist society has that been a BAD thing?! When has Wal-Mart been brought before congress to explain its profits? That’s right… never. But the comedy continues, because as these states pass laws, the public has just been told that there is and was no ‘gouging’, so the laws are worthless. I guess a “thanks” is in order for passing legislation to prohibit something that’s shown to not be taking place; couldn’t we find more pressing issues to pass legislation on in this country?

And let’s talk about ‘windfall profits’ for a second.

Senator Byron Dorgan has to be one of the dumbest schmucks out there, with the “Windfall Profits Tax”. In fact, he’s such a dumbass, he has a clock on his website that claims to show how much profit the oil companies have overly reaped (3) . Here’s the funniest part: “Specifically, this legislation imposes a 50-percent excise tax on the windfall profits earned by major integrated U.S. oil companies on the sale of all barrels of crude oil derived from existing wells. For this purpose, windfall profits means the amount that a barrel of oil sold exceeds $40 per barrel.“(3) Even his proposed legislation has that same foolish figure: “Defines “windfall profit” as the excess of the removal (sales) price of a barrel of taxable crude oil over the adjusted base price ($40 per barrel adjusted for inflation) of such barrel.”(4)

Now who wants to explain to Mr. Dorgan the workings of the oil industry? Here, I’ll give you all a quick lesson:

OIL PRICES (PER BARREL) ARE DICTATED BY THE COMMODITIES MARKET, not the oil companies. I just want to put that out there right from the start, so you can see how foolish the idea of attacking oil companies is.
The per-barrel price you hear about in the news is a spot price for West Texas Light, Sweet Crude (the most expensive type of oil, by the way), which means the price for immediate delivery (2 days) in Cushing, Oklahoma. What’s important to note is that the oil refiners set contracts out for months in advance, to ensure they get the best cost and very few actually buy on the spot market; setting dates out that far in the future is called a ‘futures contract’. But even futures contracts are still subject to the trading floor of the NYMEX, which means that the oil companies have no way of settling for a price that is not inline with the trades of the day.
Now, the question has to be asked: Why are you targeting the oil companies when you know the NYMEX market is dictating the price of crude?

If any of these senators and congressmen ever bothered to read a 10K report, they might know of a lovely term call the ‘crack spread’ which is the difference between the price that crude is purchased for on futures contract and what gasoline is sold for on futures contract. The difference is the spread between the two and this is where the refiners make and lose money. But again, all of these contracts are run through the NYMEX and are subject to trading speculation that the refiners have ZERO control over. If a buyer prices too low in relation to the market, the trader won’t close the contract and the seller will usually have a limit to what they are willing to allow the trader to close the contract for.

Again, this is the ebb and flow of the markets, which are the bread and butter of our capitalist society.

Here’s another little tidbit of information to put under your bonnet: retail locations typically make cents per gallon on fuel sales. Yes, I said CENTS. After the rack price of fuel has the federal, state and local taxes added on, most retail stations in metropolitan locales have a very slim cent per gallon profit margin, which is why most locations rely on the in-store sales to turn a profit.

So who is really to blame here?

Well, for starters, the NYMEX trading of such items, rather than a direct buyer/seller relationship isn’t helping things. See, if there was such a system in place, the oil companies could leverage and dictate prices, but because we’re on the trading system now, it’s rather difficult to pull off such a feat.

• Maybe we should blame every H3, Hummer, Escalade, Navigator and other SUV owner in America that actually think that such vehicles are ‘cool’ and increase their machismo.
• Maybe we should blame George Bush for taking America along for a ride on his Christian crusade in Iraq, which has ‘scared’ the markets with geo-political mayhem.
• Maybe we should blame Muslim terrorists for 9/11.
• Maybe we should blame the US Government for making it painfully difficult to build new refineries.
• Maybe we should blame the Rockefellers for not enough foresight in Standard Oil; they should have known about the invention of the SUV, way back in 1908, right?
• Maybe we should blame the dinosaurs for not enough of them dying on American soil, which forces the major deposits of oil to lie in OPEC nations.

Or maybe, just maybe, we should stop placing blame with asinine legislation like S1631 and focus on solving the problem through lower consumption. Let’s do something to curb consumption, like put a luxury tax on SUVs like the Hummer and Escalade, along with trucks like the Ford F350, which are seen all the time in cities, with zero designed use. Then, why not exempt people from said tax, if they show that the vehicle is used for work/business purposes that it was made for, i.e.: a Ford F350 being used to carry tools and supplies for a building contractor. SUVs are not a right, they are a privilege and should thusly be taxed as such, since they are a larger drain on society.

With intelligent legislation like that which I proposed, we’d hit the people who are causing the problem, rather than trying to penalize businesses for operating effectively in our free-market society.

Sources:

• 1. http://www.ftc.gov/opa/2006/05/katrinagasprices.htm
• 2. http://www.ftc.gov/reports/060518…ReportFinal.pdf
• 3. http://dorgan.senate.gov/issues/economy/windfall/
• 4. http://www.govtrack.us/data/us/bills.text/109/s1631.pdf
• 5. http://en.wikipedia.org/wiki/Crude_oil#Pricing