Whence the gas price spike?

I struggled with different column ideas before settling on writing this one. Suffice to say, I feel there are any number of topics worth delving into; but I just couldn't seem to let this one go. It would appear most American's cannot, either.

Last week, it was reported to the nation that all the oil companies posted large profits. Exxon - the largest, posted the largest profit in U.S. corporate history. Got that? The largest.

Meanwhile, Americans everywhere are feeling the pinch at the pumps. What used to fill my tank now barely gets me half a tank of gas - as I am sure is the case with all of you. And, like most of you, this angers me,

So let's break this down. Let's look at the who, what, when, where, and why.

The who and the what have an obvious answer. It is an answer that everyone has known for a while; but has only recently been in our faces. That answer is the government and big business. In this case, the big business would be the oil companies.

Basically, government and the oil companies have been in bed with each other for a really long time. This is just further proof of that fact.

The when and where are also simple enough. Throughout the course of the past several years, large oil companies have been allowed, by our government, to merge. These mergers effectively created, to a certain degree, a monopoly on the industry. True, there is more than one oil company; but the way prices are structured, there is very little room for competition.

The why is a little more involved; and, herein lies the focus.

For the past five years or so, we have heard about production cuts from OPEC and other such news items. We have seen the cost of gas steadily rise every year since my son was in pre-school. After Hurricane Katrina, gas prices finally hit record numbers.

Projected output for oil has been dismal in recent years because, among other things, the war and so on. And, the way supply and demand works, when you have an increased demand (which, we do. America has been the number one consumer for quite some time while China seems to eager in taking that dubious honor) you have higher prices. Fine, no problem.

But, here is the issue: The prices have not met the demand. I will explain.

No one loves the free market more than I. I am a big proponent of capitalism and actually do believe in the American dream. So, for a long while I defended the oil companies. I explained that, when you have a majority of the nation driving gas-hogs, consumption will go up and, therefore, cause the price of gas to go up. None of the basic economic facts escaped me.

But, now, we have oil companies posting record profits after the general public was handed a whole list of excuses as to why gas is going to stay high.

Not one time has anyone taken to the airwaves to say the prices will continue to raise because of supply and demand. Not once has anyone taken a hard-line stance on the economic issues surrounding the market.

No, instead we have been bombarded with reports of limited oil production, limited refining capabilities, peak oil, etc. Quite simply, if the consumption hasn't gone up enough to merit the drastic price increases (which it hasn't) then something else is causing the rise in cost. We have been led to believe it is something that it isn't.

Now, many right-wing hacks would have you believe that this is just the way things work. Well, don't believe everything you hear. Do a little homework.

Take a possible scenario as an example. Let's say you get tired of all the retail businesses in your town and decide you have found a way to compete with them. Basically, you need start-up capitol, good credit and some investors to get things started. Once you get the financing out of the way, you focus on setting up shop. There's no guarantee that you'll make it big. But, at least you have the opportunity.

Now, take that same scenario and see what it will look like if you were to try to create your own oil company. Because the business of oil is so tightly regulated and is so closely watched by government, you would have to jump through a series of hoops and wade through a sea of red tape only to, likely, be turned down.

Because of the relationship between the government and the oil industry, they are protected from any real competition while, at the same time, able to enjoy whatever profit margin they choose.

I know, there have been representatives of the oil companies coming out and talking about how that money doesn't mean they are gouging. But, come on, I didn't just fall off the turnip truck.

When you look at the basics of how the free market works, basically, these oil companies should be able to compete against each other in such a way that prices would fluctuate in a competitive manner. But, they don't.

Have you noticed how drastically the recent gas prices have fallen? Let me ask you: what has changed in the past couple weeks? Have we added more refining capability in that time? No. Have we gotten all of our hurricane-damaged refineries back on-line? No.

This begs the question why couldn't prices have stayed lower all this time? The cost per-barrell hasn't dropped substantially. The futures really aren't that much more encouraging than they were a few months ago. So, why do we now experience the drop in prices? Seriously, I would like to know.

The bottom line is that this is just a crystal clear example of how the government is willing and ready to take advantage of its citizens for the sake of money.

Not once has anyone come out and explained how Middle Eastern oil only accounts for maybe seven percent of what we consume. Not once has anyone said anything about how the majority of our oil comes from Latin America.

No, the government and the oil companies seem content to allow you to revel in your lack of knowledge so you may go about believing absolutely everything you are told.

Folks, it is time to start educating yourselves. It is time to look at how things work and see exactly how and why things are the way they are. It is time to finally sit up and take notice of what is happening. Take the time to look into such things and don't believe everything your favorite pundit hack tells you.

Jonathon Dawe can be reached via e-mail at jbdawe@dailystatesman.com