Even before this weekend delivered fresh intensification of the Middle East’s ceaseless bloodletting, pain at America’s pumps was worsening.
Federal data show that in the 12 weeks between 22 January and 15 April, the price per gallon of regular, in “reformulated” regions — e.g., the Los Angeles, New York City, Chicago, Baltimore, Dallas, Milwaukee, Denver, San Diego, Philadelphia, D.C., and Sacramento MSAs — rose by 19.5 percent.
And whether the Levant’s psychopaths deepen their slaughter, or miraculously beat their missiles into plowshares, summer’s not too far off. The price to fill up usually peaks “right before Memorial Day,” according to the trade association for convenience stores.
Alack, cheaper gasoline isn’t likely in the near term. Alas, that means we’re in for another round of mega-whining. Pols, “consumer activists,” your Bill Maher-admiring brother-in-law — they’re sure to inform you who’s to blame.
“Big Oil” is a predicatble target. Bashing those greedy executives in Houston is great politics. But the demagoguery will be, as it always is, completely divorced from reality. America’s largest producers of black gold are almost pipsqueaks, in the global petroleum marketplace. ExxonMobil estimates its “total proved reserves” of crude at a little more than 7 billion barrels. Sounds like a lot, until one runs the numbers on Really Big Oil. Energy expert Robert Rapier is comfortable with 270 billion barrels for Saudi Arabia. Depending on prices, the “extra-heavy crude oil” found beneath Venezuela is roughly comparable to the kingdom’s petro-bonanza. Iran, Iran, and Kuwait each enjoy reservoirs surpassing 100 billion barrels. In all five places, national oil companies — not publicly traded corporations — are in charge.
And production? Last year, ConocoPhillips (based you-know-where) supplied “more than 1.8 million barrels of oil equivalent per day globally.” The U.S. Energy Information Administration estimates that in 2023, the world’s “liquid fuels production” was around 100 million barrels per day. (America’s total contribution to Earth’s annual demand is just under 13 million barrels per day.)
For the record, oil haters might want to make a quick check of their investments. Mutual funds and pension plans are bigtime owners of the industry. In the era of fracking, ROI has been rather impressive. In the last decade, Chevron has hiked its dividend by 63 percent.
But … but … but don’t the big boys own all the gas stations? (That’s where the “gouging” takes place!) Um, no. Here are some pesky facts, courtesy of the industry’s trade association: “There are 152,396 convenience stores operating in the United States. About 80% of convenience stores (120,061 total) sell gas, and the industry continues to be dominated by single-store operators, which account for roughly 60% of all stores (91,799 stores).”
It matters not, if you buy gasoline from Baljeet or “Beaver.” Most convenience stores/gas stations have franchise arrangements with the majors — Valero, Shell, BP, Marathon, etc. — but they are owned by low-margin entrepreneurs with zero ability to affect your fuel expenditures. (The corporate logo is for show.)
Finally, what about “speculation”? The Cato Institute’s Thomas A. Firey describes this monotonous line of attack:
Investors sign futures contracts in oil and gasoline — traditionally, agreeing to a price today for oil or gas that will be delivered weeks or months in the future (and that probably has yet to be pumped out of the ground or refined). But … the investors are running amok, paying outrageous prices for the futures. Those prices then affect oil and gasoline sales today, driving up prices at the pump.
Firey doesn’t “see how a bet on the future price of oil between two investors would affect the price of oil today (or in the future for that matter),” for the simple reason that “their paper transaction would not affect the supply or demand for oil today.” The Economist — not much of a friend to Cato’s libertarian perspective — agrees, noting that speculators do not
buy any physical oil. Instead, they buy futures and options which they settle with a cash payment when they fall due. In essence, these are bets on which way the oil price will move. Since the real currency of such contracts is cash, rather than barrels of crude, there is no limit to the number of bets that can be made. And since no oil is ever held back from the market, these bets do not affect the price of oil any more than bets on a football match affect the result.
Populism over petroleum will soon be epidemic. Fortunately, during the last few minutes, you’ve received a powerful inoculation. You’re welcome.
Daniel Yergin's "The Prize" is still a must read for knowing the history of the oil business.