"The real oil profiteers"

My friend Ben Zycher has a nice piece in yesterday's Orange County Register on oil company profits.

Reagan, of course, cast aside the nonsense of price controls, windfall-profit taxes and conspiracy accusations promoted by innumerable experts, officials and pundits in the context of the 1970s oil crises, allowing market forces to engender sharply lower prices in the 1980s. That wisdom is withering away.

In contrast, still standing tall is the fundamental principle that the Great Leonid Ilyich of the former Soviet Union bequeathed to all mankind: What's Mine Is Mine, and What's Yours Is Up For Grabs. (I translate loosely from old editions of Pravda.)

And so, in the wake of sharply rising gasoline prices, many in both Washington, D.C., and Sacramento now stand foursquare in favor of the Brezhnev approach, in the form of loud clamoring for "windfall profit" taxes to be imposed upon oil producers and refiners.

During 1986 through 1999, when market conditions were weak, and oil prices were low, did anyone advocate a "windfall loss" subsidy for those same producers? The question answers itself. This asymmetry means that over time producers would find it difficult to earn competitive returns, since upside potential would be limited by tax policies driven by popular passions, while downside risks would remain as they are. Investment would fall, longer-term production capacity would decline, and prices would rise, another shining achievement of Beltway magic visited upon consumers.

Let us shunt aside the "conspiracy" accusations – as Pavlovian as they are unsupported by actual evidence – and ask why gasoline prices have increased sharply. First, there is the obvious: Crude-oil prices are high in substantial part because economic growth in Asia and elsewhere has strengthened demand conditions. Moreover, there are ongoing supply problems in Venezuela, Nigeria, Russia and other producing nations; and political uncertainty about the physical security of some fields and pipelines has added a risk premium to prices.

Three refineries on the U.S. Gulf Coast shut down by hurricanes last fall only now are slowly returning to operation. Other refineries at that time deferred planned maintenance in order to continue production (so much for purported conspiracies) until this spring, while others are undergoing planned spring maintenance now in advance of the summer driving season. And so gasoline production has declined recently by about 450,000 barrels per day, yielding a 20 million-barrel reduction in stocks over the past month. . . . .


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