Supply-side regulation needed for the US oil industry

Published on

Marketplace Radio Program (NPR)

The following commentary was broadcast on Tuesday, September 20, 2005 on the Marketplace Radio Program on NPR. Click here to listen to the audio of the commentary.

KAI RYSSDAL, anchor: OPEC is once again coming to the rescue. Today the oil cartel announced it’s going to help consumers out of a jam and release two million more barrels of oil every day. And it is going to build badly needed refineries to crank out gasoline and heating fuel. How much help is that really? Commentator and consumer advocate Jamie Court says it is time to rethink oil supply-side economics.

JAMIE COURT (FTCR): American oil companies love to blame OPEC for jumps at the pump, but OPEC’s not to blame. It’s American refiners. Three dollars per gallon of gasoline here is the result of domestic oil refiners intentionally cutting refining capacity and inventories. We don’t have too little crude oil. We have too few refineries to process it. So why not have OPEC offer an all-you-can-eat special on crude?

America’s big oil companies figured out long ago that they could make more
money by making less gasoline. That’s why the industry hasn’t built a new refinery in 30 years. Since deregulation in 1982, oil consumption’s increased 33 percent, but oil companies have reduced refining capacity by about 10 percent. Why? They know the scarcer the product, the bigger the profit.

Conspiratorial? A few years ago US Senator Ron Wyden released internal company memos proving that in the late 1990s refiners realized they had to reduce supply to pump up profits, and that’s just what they did. Oil companies love to blame those big, bad environmentalists for hurdles they can’t overcome to build new refineries. But one memo showed Mobil actually advocated for tougher California rules to drive an independent refiner out of business. This year I had to fight to keep Shell Oil from closing an existing California refinery in the tightest market ever.

What’s needed is not supply-side economics but supply-side regulation. The Department of Energy already monitors oil refiners. Why not grant its secretary emergency powers to force oil companies to make supply meet demand? That includes requiring oil companies to invest their recent world-record profits into making more gasoline.

Tax credits in the energy bill for increasing refining capacity, supply-side economics, won’t help. Without being forced, why would oil companies build new refineries? Any industry that can make more money by making less of a product is going to stay the course. OPEC’s offer to pump and refine more oil should make Washington wonder who’s the real cartel.

RYSSDAL: Jamie Court’s Web site is

Your thoughts? Send them along to [email protected]

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