Tuesday, March 21, 2006

Ben Stein Comes to the Defense of Oil Companies

Ben Stein comes to the defense of oil companies and argues that they’re not to blame for high oil and gas prices. He compares the recent actions of the U.S. Senate to that of a lynch mob.

This comes to mind because of the recent actions in the U.S. Senate that attempt to "crack down" on energy companies because the price of oil is so much higher than it used to be and because one large oil concern, Exxon (XOM), is reporting very large profits (after many years of modest earnings).

The crackdown takes the form of preventing oil companies from merging or at least making it much harder for them to merge. The idea is that the energy companies have been fixing prices at artificially high levels, and if they merge, they'll just do it more.

The only problem with this idea is that it's based on a totally false premise. The energy companies don't set the price of oil or of gasoline. The prices you pay for heating oil or gasoline aren't set in boardrooms in Texas but in trading rooms at commodities markets all over the world.

Gas prices aren't set in shadowy conferences in shooting lodges, but in rooms of people shouting or punching computer keys in London, New York, and Tokyo. Oil is a world commodity like tin or copper or rubber or coffee. The price is set by traders anticipating supply and demand.
[I]f we keep punishing the companies that in good faith give us the energy we need to power our lives at market prices -- which sometimes give them a big profit and sometimes give them a small one -- eventually, they'll go away. Or they won't have the ability to do their jobs as well because of all the restrictions we've put on them.

Food for thought. If the federal government decides to crack down on U.S. oil companies, you can be sure that international oil companies won't be sitting on the sidelines and twiddling their thumbs.

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