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April 25, 2006
Bush Wants Investigation Of Gas Prices

George Bush has called for an investigation into escalating gas prices in order to ensure that gouging and illegal manipulation of the markets has not caused the increases. Bipartisan calls for a probe reflect a growing populist concern that oil companies have unduly profited from the squeeze in oil markets:

President Bush is ordering an investigation into whether the price of gasoline has been illegally manipulated, his spokesman said Monday.

During the last few days, Bush asked his Energy and Justice departments to open inquiries into possible cheating in the gasoline markets, said White House press secretary Scott McClellan. Bush planned to announce the action Tuesday during a speech in Washington. ...

House Speaker Dennis Hastert, R-Ill., and Senate Majority Leader Bill Frist, R-Tenn., urged Bush in a letter Monday to order a federal investigation into any gasoline price gouging or market speculation.

Senate Democratic leader Harry Reid of Nevada dispatched his own letter, calling for a multi-pronged approach to restrain gas prices. Among the steps were swift enactment of anti-price gouging legislation, an appeal to oil companies to refrain from further price increases; use of more alternative fuels and increased attention to existing fuel-saving laws and regulations.

Bush can call for all the investigations he wants, but all he will find is a ridiculous American energy policy that practically guarantees our inherent risk of market manipulation and foreign extortion. With the price of crude oil topping $75 a barrel, it doesn't take an economics genius to understand why the price at the pump keeps going up. China's demands on worldwide production have contributed mightily to that increase, and it will continue getting worse as China expands its industrial base.

Until we find ways to produce more crude in order to get more oil onto the market, the prices will continue to increase. Oil is, after all, a commodity -- a free-market product that will fetch the best price possible in trade. The more oil produced, the cheaper it will become. That mechanism does not rely on cost, either, except to the extent that high production costs would lower the amount of oil in the marketplace until prices rose high enough to cover the overhead.

If the US would start producing its own crude oil, then global prices would start dropping due to the increased worldwide supply and the drop in demand. We have vast fields of petroleum available for this purpose. Both coasts have proven oil deposits, and the Alaskan arctic area has stood ready for years to produce crude. In the case of our deposits off of the Florida coast, others such as Cuba may exploit those reserves instead. However, environmentalists refuse to allow for this production, forcing us to buy our oil elsewhere, artificially propping up prices and surrendering to the instability of the markets.

Crude oil is the basic component of gasoline, and the price at the pump will reflect the vagaries of oil prices. However, that isn't the only component that drives the cost so high. The main problem with gasoline prices is the number of varieties of gasoline that must be produced for local markets. Instead of having one single formulation, states have passed their own standards for the composition of gasoline, with various additives required in differing concentrations depending on where it is sold. If states all had their own refineries, this would present less of a problem. However, as we have noted before, the US has not built a refinery in 30 years, forcing the existing refineries to run at full capacity at all times -- a dangerous policy that does not allow for enough down time to avoid major disasters in the long run. Only during national emergencies such as the hurricanes Katrina and Rita last year do states lift their formulation requirements so that a single formulation of gasoline can be produced and sold anywhere, easing these artificial restrictions on production of each formulation.

Environmentalists won't let us build more refineries, either. Even Corpwatch notes that Americans now have to import gasoline -- not just crude oil, but refined gasoline -- in increasing quantities. That project, even if allowed to proceed unhampered, will not come on line for at least another three years, and that is the only production facility proposed thus far.

Lately, populists such as Fox's Bill O'Reilly have railed about the excessive profits realized by companies like ExxonMobil, whose $10 billion in bottom line offends their sensibilities. As Dale Franks at QandOt points out, however, that comes to a 10% profit margin, a good number but hardly a ripoff in any sense of the word. ExxonMobil employs hundreds of thousands of people and has millions of stockholders, with plenty of crossover between the two groups at all levels of employment. A return of ten percent beats sticking money in a CD, but it doesn't amount to the kind of exploitation that O'Reilly and others presume from the gross numbers they toss around out of context. In fact, stockholders at most publicy-held companies might wonder why the number-one corporation in gross sales only came in at #127 for profitability.

So let's have an investigation, but let's not confine it to ExxonMobil's profit margin. Let's expand the probe into the bankruptcy of our energy policy for the past thirty years and the handcuffs we put on ourselves that force us to rely on unstable sources of crude oil and gasoline to meet our energy needs. Let's start getting realistic about those needs and start proposing rational methods of meeting them. Take the shackles off the US energy industry and allow us to shrug off the mullahs that control the world market.

Sphere It Digg! View blog reactions
Posted by Ed Morrissey at April 25, 2006 5:50 AM

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