Gas Prices on the Rise

On Studio B with Shepard Smith the topic was rising gas prices…

Smith: Pain at the Pump. It’s the worse it’s been since October, gas prices up almost 14 cents in just the past week. According to AAA the average price, nationwide, for a gallon of regular unleaded is just more than $2.51 a gallon. That’s the first jump above $2.50 since the final week of October and some analysts are now saying that there is nothing to bring them down with summer right around the corner.

Joining us from D.C. now is the acting director of Public Citizens Energy Program, Tyson Slocum is with us. Tyson I saw the big oil people up on Capitol Hill yesterday, you know, they’re explaining to us why it is things are getting more expensive. But oil lately has been down, why are gas prices going up?

Slocum: Well I think we’ve got uncompetitive markets here in the United States, Shepard. We’ve allowed way too many mergers in the U.S. oil industry. Remember Exxon and Mobil used to be huge global competitors, now they’re the same company. The same thing with Chevron/Texaco, Conoco/Phillips. That’s why all the oil companies keep posting record profits every quarter, at the same time that crude oil prices are going up. There’s a direct correlation, Shepard, between the record profits that these oil companies are earning and the prices that consumers are seeing at the pump and also what we’re seeing for home heating oil and for natural gas.

Oil is a global commodity. The U.S. may be a big consumer of oil, but we are not the only consumer of oil. India and China are gaining on us quickly. The mergers of a few U.S. oil companies doesn’t really affect worldwide competition in the oil market. There is a direct correlation between gas prices and profits. That’s simple economics.

Smith: How high are we talking about gas prices going given the circumstances with which we are now familiar?

Slocum: I think we’ll definitely see well over $3.00 a gallon this summer. There’s no question about that. And I think you’ll also see continuing record profits by the oil industry. And so until we start addressing some of these fundamentals, until we start doing something about using a little less oil by introducing better fuel economy standards. Until we do something about the uncompetitive markets, you know, re-examining some of these huge mergers and strengthening anti-trust laws and doing something about the record profits that the oil companies are enjoying consumers are going to continue to pay.

Better fuel economy standards won’t show anything for many years. There are too many cars already on the roads that are and will be getting worse gas mileage than any new “standard” you can come up with. Until those cars go to the great auto graveyard better fuel economy standards aren’t going to make much of a difference. I don’t have a problem with better fuel economy standards, mind you, but better standards instituted today will make no changes to gas prices today. On the merger issue, I think you are shutting the barn door after the horses have gotten out. Oh, that’s right, you said to re-examine the mergers. In that case I take you are suggesting that Congress ought to pass a law to make them split up into separate companies once again. Guess what will happen if you do? Gas prices will go up. Merged companies share resources. If you make them split up, they won’t be sharing those resources anymore, they’ll each have to have their own. Higher prices. Mandating better fuel economy will also increase the price the consumer has to pay for the vehicle in the first place, another way the consumer will still be paying. By taking away the “record profits the oil companies are enjoying you’ll be taking profits from their stockholders (consumers as well) and the taxpayers (more consumers). The higher profits result in higher taxes paid to the government.

Smith: Yeah, but who’s going to do something about record profits? I mean the oil execs are up there on Capitol Hill yesterday, and say what you want – or last week – they make a compelling case for themselves when you listen to them up there.

Slocum: Well I think that consumer advocates and investigators make a more compelling case. I mean, our research has conclusively found that all the recent mergers have directly reduced competition in U.S. oil markets and that’s allowed these oil companies to enjoy the biggest profits in their history at the expense of record high prices for consumers.

Smith: Tyson Slocum, thanks.

Mergers may have reduced U.S. competition, but not global competition. Higher profits do not necessarily follow reduced competition. Higher prices in the summer months are a result of the “boutique” blends mandated for some urban areas in the summer time. Not every urban area has the same mandated blend. Oil companies have to decide how much of each blend to make and store. They may have to retool between blends. This all costs money.

It’s just amazing. Nothing but the U.S. oil industry is responsible for prices at the pump. He talks about the oil companies “enjoying” their profits. Doesn’t everybody enjoy their profits? Are profits really a bad thing? He sounds as though he thinks that the oil companies should be giving us gas at cost. Well that won’t save us much, will it? The “record” profits the oil companies are “enjoying” are less than ten percent. And if the oil companies aren’t going to make a profit, then why should they remain in business?

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