Blaming Big Oil

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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.

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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