Gas prices and "supply and demand": a scam?

Gas prices and "supply and demand": a scam?


I could use some help fact checking a report by Howell Raines in Portflio mag, here.

He claims that supply has deliberately been limited by the oil companies:

  • they've shut down more than half of their 300 refineries in the last 25 years
  • they're not exploring for oil in 80% of their leased lands in the US
  • they're not reinvesting profits in infrastructure, like the Alaska pipeline

If this is true, definitely a scam. Do you more on this?



mary hodder

I've heard these same things in the last week or so on NPR reports about energy, solar, etc.
There is one additional thing: my understand is companies like Shell and Chevron also have shut down massive storage tanks or not replaced them as they die, so they maintain less stock on hand.
I agree there is a way this is a scam: do these things and it will result in higher prices. But also, the scam could be: do these things and we can convince people we need to drill in Alaska or do shale exploration or offshore, because they're against it but with crisis might let us.
3rd problem to address: maybe this is the way it should be: pulling out smaller amts of oil, charging more, and then get us to switch to other energy methods.
If we matched oil and coal subsidies in solar and wind, and matched US lands allocated and leased to alternative energy, according to NPR report on energy the other day, we could actually supply ALL US ENERGY NEEDS with just solar.
Wow.. if that's true, then we should work toward that. And stop subsiding oil and coal.


We cannot afford to have our gas prices go down. Our mega national Debt gets paid with high fuel prices. Without the high fuel prices, our dollar would collapse. There's an interesting gentleman that elaborates on this…


I used to work in the oil industry – not anymore, so I'm not partial to them. ;-).
Refineries require too many permits and regulation that gov't bureaucracy has made it a near impossible task to expand or build new ones. And noone wants one in their backyard, so they don't get built.
Also at play: economics. 10 years ago, oil was $10/barrel. 18 years prior to that, it was about where it is now (normalized, of course). When you're subject to high volatility in price, it's hard to invest in something when you don't know what the price will be in 5 years when the facility is completed. It could be unprofitable at that point.
Remember, oil companies invest billions in a facility before getting one drop of oil out of the ground. It's a risk few of us would likely take. 😉
I worked on the Alaska Pipeline project doing assessments, design, etc. Two things holding it: regulatory stuff and economics. It's crazy expensive to build that thing, and you got two governments to deal with.


One more thing: I worked for Big Oil back when oil was $60-$70/barrel.
There was a relentless push to get new facilities online producing more oil. Always. Never any attempts to limit supply.
That was then. I can only imagine their mentality now.


Why haven't we had (or heard about) Congressional hearings on why the price of gas has gone up so much? Without oversight, we're at the mercy of something. And (like your posting) we have to speculate what the problem is. Obviously, there's some problem. Where are the legislative investigators and regulators when we need them?


Oh, and I can't speak too much on the information behind closing refineries. I was in the Upstream (pre-refinery, crude oil stuff). Didn't touch the refineries, so I'm no expert there.
However, what's more important than the number of refineries is the total refining capacity here in the U.S. I know it's the tendency for oil companies to expand an existing refinery than to build a new one, so we should look at total volumes. Additionally, some may have built refineries overseas due to lower corporate taxes in other countries. But that's all speculation – I don't have any data on that.
One last point that's important in all this: margins are still in single digits. They only have huge profits because they have enormous volume. Financials and software tend to have margins that are 15-30%.
One aside: many public pensions hold stock in major oil companies, which provides an interesting twist to the debate over taxes, profitability, dividends, etc.
Certainly I would do some things differently than they do (which is why I left in the midst of a boom). But that's not part of this discussion. Okay, no more talking from me, I promise. 😉

marguerite manteau-rao

The only comfort is the impact of rising gas prices on consumption, and hence reduction in greenhouse gases. Of course this is not a fair situation, as the poor are the ones most likely to be effected.
More and more in my environmental blog, I am spending time on the shady practices from Big Oil and other special fossil fuel interests. Bringing these to light as you are attempting here should be a top priority for influencers such as you.

Andrew S

– The refinery argument is a small factor in prices. Gas is expensive because crude oil is expensive. Increasing refinery capacity might shave 10 cents off per gallon for CA, less for other states. I think the argument is an attempt to lessen environmental regulations.
– Not exploring in 80% of the US? While i don't know the truth of this, this has virtually no impact on gas prices. Oil companies/countries drill where it's most profitable (easiest to extract) first. More drilling here or in new lands in the US will not have a big impact on gas prices. Oil is a global commodity. The drilled oil does not go to us; it goes to the global marketplace. There's no difference to oil prices whether the oil comes from the US or elsewhere, the only difference is that the government gains some revenue by selling rights to public lands.
– Infrastructure: Again, not sure how this affects gas prices. The big money is in drilling for crude. The rest of the business is much, much smaller.
Oil supply is definitely held back by OPEC. I'm not sure why people look for hidden reasons when the actual reason is already written in every high school economics text. The one thing that will force OPEC's hand is increasing production and research on oil alternatives.
If they predict that gas prices will go down in the future, then they have a strong incentive to extract as much as possible now. If they think gas prices will go up, then they'll keep the oil stored underground.
Uncertainty in the middle east (i.e. Iraq War) is responsible for a huge amount of the upward speculation.
The other big reason for high gas prices (in the US) is the devaluation of the US dollar largely due to excessive government spending and the subprime debacle.


Maybe just maybe there is not as much oil laying around as we think there is. At 83 million barrels a day we should consider this. This doesn't mean that opec won't do its dirty share in holding back higher production along with other agency to get more then their share and pass off the high prices to the common people while they profit. There is no mistaking heir corruption. Demand is growing and will continue to grow just as we continue to reproduce. More and more nations are becoming industrialized (this doesn't help) and the world economically is shifting toward central banking EVERYWHERE. There is so much more to all this. I wonder if alternative powers can be as resourceful as oil. And if it is who's hands will it be in and who will it be available to the most. We should consider oil will not be around forever and we may have peaked already. Many may say this idea is unpopular and at best a conspiracy to steer people into a false understanding of globalization. Rest assured globalization has been happening for a long time with or without the peaking of oil. I believe what were seeing is a fight to the death on the remainder of this finite resource. Who ever has it has the power. If we are going to get serious about alternative energies we need to find one thats just as cheap and efficient as oil or even better. Because if we can't come up with that solution it could be the difference between a first world nation and a third world nation. In America we are gasoline junkies and generally could not function without it. By the way, when was the last time u bought something that said "MADE IN THE U.S.A." There is far more going on here in the past ten years then your typical business cycle…….WAKE UP!

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