Blaming Big Oil
Critics see price-gouging as refinery capacity is cut; the industry says it’s just business.
A few years ago, when SUVs still ruled American roads and gasoline
prices were skyrocketing, consumers and politicians howled that oil
companies were guilty of price-gouging because they refused to increase
refinery capacity; the companies responded that it would be crazy to
build more refineries to meet a spike in demand that was probably
temporary. Now the other shoe has dropped: Demand has fallen through
the floor, and oil companies are shutting down refineries as a result.
And once again, consumer groups are accusing them of price-gouging.
It’s pretty hard to sympathize with Big Oil, but is there any winning this blame game?
High gas prices spark more public outrage than price hikes in any other
commodity, even food. Although electric car technology is improving,
consumers have few transportation alternatives, so it’s tough to
respond quickly to higher prices by changing behavior. Expensive gas
hits low-income people particularly hard and is a key driver of
inflation, which hurts everybody. So the anger directed at oil
companies is understandable. It’s just that the political responses are
usually wrongheaded.
Today’s problem isn’t so much high prices, which have fallen since
2008. It’s that actions by oil companies may be preventing them from
dropping as much as they should. The combination of the recession and
improved fuel efficiency has greatly reduced demand, and major refiners
are considering cutbacks, according to a report by Times staff writer Ronald D. White.
Some refineries already have been closed, such as a Delaware facility
owned by Valero Energy and a New Jersey plant owned by Sunoco. Industry
analysts say there is little choice because of excess capacity, but
consumer advocates such as Public Citizen and Santa Monica-based Consumer Watchdog
think refiners are just trying to keep the price of gas artificially
high by constraining supplies. Some advocates are calling on regulators
to probe whether the companies are violating antitrust laws.
Yet such investigations are already ongoing. No industry faces as much
federal scrutiny as the oil and gas business, due to the extraordinary
public concern about fuel prices. Dozens of probes over two decades
have found no clear evidence of market manipulation. A key 2005 report by the Federal Trade Commission
concluded that market factors such as supply disruptions, changes in
demand and world crude oil prices are the "primary drivers" of gasoline
price increases.
Every business makes cutbacks when demand for its products or services
falls. We could avoid such market responses from oil companies by
nationalizing them or subsidizing gasoline, but that hasn’t worked well
in the countries that have tried it. Rather than getting mad at the oil
giants for exhibiting rational behavior, we should focus on being less
reliant on them.