Or, oil is the scourge of humanity, it is the cause of a grossly disproportionate amount of human and environmental suffering, it turns formerly honest men (or, in some cases, demons born of human flesh - you reading, Cheney?) into vile, despicable pieces of homonid garbage and quickens our decent into purgatory with each acrid, mucosal drop.
Whichever religion you chose - and I admit I keel heavily toward the latter - there is one fact that there should be little disagreement over, and that couldn't be more important to Kossacks, to the Democratic party, and, indeed, to the future of our collective human enterprise:
More below ...
The era of cheap oil and gasoline is dead. There is no "gasoline price gouging" in the United States, or anywhere.
For all of the bloviating by front pagers and other various and sundry Kossacks about "gas price gouging", you'd think there was a regular old populist revolution gettin' revved up around here. We're gonna line up our Subarus and Golfs and Hyundais and, yes, our Priuses, and all go drive down and storm the local Chevron or Conoco or Stinker or whatever and nationalize our rightful share of Houston's deadly cocktail.
Message to all of you: put down the car keys and step away from the ignition. This is going to hurt.
A Beer Analogy
To start simply: American oil companies have about as much to do with the price of oil as Preznit Bubblehead has to do with spreading democracy. It's very simple, really: while America uses 25 percent of the world's oil, we control just 3 percent of global supply. While American oil companies may develop oil fields all over the world, they mostly only actually OWN the oil they've leased from the U.S. government (at rock-bottom prices, I might add).
For those of you who studied party economics in college, an analogy: if you have 12 beers, and your friend has only one, and then your friend drinks his beer, how much are your 12 beers worth?
The answer: whatever your friend is willing to pay for them.
America has drunk its beer. In fact, America drank its beer way back in the 1970's - that's when domestic oil production peaked, and has been in gradual decline ever since. So all those domestic oil fields that Big Oil gets for cheap from Uncle Sam don't add up to much anymore.
And, for the most part ever since the U.S. peak, OPEC (that would be the Organization of Countries America Has Invaded, Would Like to Invade, or Won't Get Around to Invading On Account of They Own Our Asses) has set the price of oil.
In the old days, if OPEC wanted oil to be cheap to, say, weaken the Soviet Union in the late 1980's ... oila! Oil drops to below $10 a barrel, and the oil-export-dependent Soviet economy collapses. If OPEC gets pissed about American policy toward Palestine, or Venezuela has a revolution, or a Nigerian dictator farts, or Dubai needs to build a new half-million-square-foot, indoor, artificial ski slope for the kids to play in, oil prices climb.
BUT ... the days of two-way (i.e. up & down) OPEC price control are quickly coming to an end. (Please go read Jerome's countdowns for all the cool charts, fun facts and fancy numbers and stuff). OPEC can't make the price of oil come down anymore. Sorry about that, but it's true.
My Parent's House
So how does this relate to Exxon or Chevron or Texaco, your pain at the pump, and why there's no gas price gouging?
An explanation, by way of another analogy:
My parents bought their house in Washington, DC's Cleveland Park neighborhood in 1972 for about $40,000. Back then, the city was sort of a mess, and the neighborhood - while it had some tony areas - was mostly inhabited by middle-class government civil-service types, small-time lawyers, artists, school teachers etc.
Skip to 2006. DC has undergone a major real-estate boom. That medium-sized house in Cleveland Park is now worth well over a million.
What did my parents do to earn this windfall? Not much. My mom still complains about the hideous, browning (but original!) 1960's linoleum in the kitchen. The bathrooms are falling apart. The yard is smallish but nice, and they finished the concrete-walled basement when I hit high school so we could go nuts without driving them nuts.
But, with the exception of a few new coats of paint, a heat pump and a walk-in closet, they haven't really done enough work to justify a 3000-5000 percent appreciation of their home. That house is worth what it is worth because so many people want to live in Cleveland Park, but so few people are selling homes there.
The same is true for American oil companies: the vast majority of the oil they're selling now - the oil that's generating these windfall profits - they originally developed years and years ago, as a result of very risky investments in drilling they made when the price of oil was very low.
There was a great post in an old diary I did that provides a window into just how risky these investments really are (credit to leevank):
From hearing all the complaints about "price gouging," you'd think that being a major oil company would be a great business to be in.
But if that were the case, you'd expect their stock prices to act like they were in a great business by, for example, having higher price-to-earnings ratios than the average large company. But in fact, that's not the case.
Here are some ratios for the major integrated oil and gas industry vs. the S+P 500, both currently and for the last 5 years:
Trailing 12 months
P/E ratio: Indust: 11.10 S+P: 20.07
Gross margin: Indust: 26.5 S+P: 45.75
Operating margin: Indust: 13.73 S+P: 20.68
Net profit margin: Indust: 8.22 S+P: 13.71
Last 5 years
P/E ratio(High): Indust: 27.28 S+P: 38.41
P/E ratio(Low): Indust: 13.03 S+P: 15.40
Gross margin: Indust: 28.18 S+P: 45.03
Operating margin: Indust: 10.89 S+P: 18.01
Net profit margin: Indust: 6.42 S+P: 11.12
The bottom line is that the stocks of these companies are priced in a manner that indicates investors don't think they have a great future, and their profit margins indicate that they're having to spend a lot of money (more than the typical large corporation) in order to generate their profits.
There has indeed been something of a windfall over the past quarter or two, but that's almost always the case in a commodity industry when prices for the raw material rise. The reason is that in a normal market, companies will price whatever they're selling based on its replacement cost, which in a rising market is going to be more than its historical cost. But this kind of windfall effect tends to be temporary, and it's simply undeniable that increased prices DO tend to drive down demand, at least temporarily, which is probably the only thing that kept us from having long gas lines and severe shortages in the aftermath of Katrina.
Like my parents' home in DC, Big American Oil hasn't done much to improve the quality of the oil they're pumping from the last big fields in the Gulf of Mexico or California or Texas or Montana. Sure, they've been drilling like crazy in the Rockies, and would like to drill even more - and that's what Congress will call for.
But what was worth $8 a barrel when they drilled in the 80's is now worth $70 a barrel - because, as leevank astutely points out, that's how much it costs now to get a new barrel of oil out of the ground. The easy oil is gone. The cheap stuff is all burnt up. We're all trying to move to Cleveland Park, but there ain't no homes to be had.
Put another way: I don't hear any home-owning Kossacks complain about price gouging in the real estate market.
Why "Let's Make More" Won't Work Anymore
So basically, gasoline prices are high because Americans want - nay, believe we deserve - more of it than the market can deliver.
But if we buy into the lie that there is "price gouging," we could very well destroy any hope we have for a progressive energy policy.
This is essentially an issue that boils down to the core failure of our nation's energy policy, and the framing traps that Democrats - and, disappointingly, Kossacks - so easily fall in to.
First, American energy policy is lopsidedly supply-sided - that is, when we want more energy, our first thought is, "Let's just make more!"
Of course, we all know how "making more" translates on the ground: making more = taking it from someone else = endless wars in the middle east and threats of Venezuelan excursions; making more = gross human rights violations in Nigeria, Ecuador, Saudi Arabia, etc.; making more = threats to drill in wilderness like the Arctic Refuge and the Rocky Mountains for marginal supplies that will do nothing to lower prices, but will trash some mighty nice places on the way; making more = bulldozing everything we hold dear to make way for drill bits, roughnecks, and - yes - record profits for Big Oil.
By accusing Big Oil of price gouging, we are essentially denying the root cause of high prices: Americans want more oil than the world is capable of producing, or is capable of selling us at a lower price. At the same time, a couple of other countries are thinking, hmmm, we wouldn't mind some of that oil ourselves. It's only a matter of a few years before China is using more oil than we do.
In short, we are sucking on a straw that is drawing from a dry well, and we have the audacity to accuse the dry well of ripping us off?
I hope I don't have to explain why this is patently absurd.
But when we accuse Big Oil of "price gouging," we fall into a fatal trap: Big Oil and their GOP puppets have a ready response. "Yes, prices are very high, and we regret that. But they're only high because ... (drumroll) ...
ACCESS ... ACCESS ... ACCESS!!! (look for this line at a Congressional hearing nearest you)
This is Big Oil's GOP talking point for price gouging: If we would only let them drill in the Arctic Wildlife Refuge and the Florida Coast and under the fucking Lincoln Memorial and National Cathedral and at the top of Mt. Whitney and in the middle of the upper Missouri River and Yellowstone National Park and Otero Mesa and the Great Lakes and and and and ... prices wouldn't be so damn high. Which is, of course, a lie - remember, American oil firms are price takers, not makers - and we all know that's something Republicans and Exxon are both good at. Lying, that is. And taking.
I'm assuming that's not the solution Kossacks are looking for, and I hope that Democrats recognize that progressives do NOT want more drilling to be the default position to solve our national energy idiocy.
In fact, high prices tell us something about our behavior that no other signal can tell us: that is, we need to change our behavior. We need to change the fuels we use. We need to use more public transportation, and ride our bikes, and walk more. We need to car pool. We need to get Detroit of its lazy ass and pass laws that force them to make cars that get 100 miles per gallon (technology which, BTW, exists TODAY).
We need to bring on the biodiesel/plug-in-hybrid/wind/solar/geothermal/hydrogen/whatever-the-fuck-it-is-that-doesn't-involve -burning-rocks-or-other-former-carbon-based-life-forms- energy economy, and we need it YESTERDAY.
But if we keep falling into this trap that high energy prices are somehow due to greedy oil companies - and, make no mistake, they may be greedy fucktards, but they're not to blame for high prices - we will NEVER be able to advance these kinds of solutions. The reason: accusations of price gouging reinforces the frame that the problem is high prices, when the problem is back-asswards irresponsible energy policies.
If we allow this to happen - if we fall into the price gouging trap - we let Democrats off the hook for giving us a real, progressive, 21st-century energy policy that helps us kick the oil habit once and for all.
So ... Dear Georgia10 and all the angry Kossacks and Democrats who think the price of gasoline is set in dark, smoke-filled conference rooms in Houston, please redirect your anger away from the ghost of price gouging and toward the reality of the end of the oil era.
It is only through propagating this truth that we can avoid falling into Big Oil's trap, and begin to point the way to a real solution to our deadly addiction to oil.
That is all. Thanks. Flame away, I guess.