Fairness Calls For a Thank You

Since the first Arab oil embargo in 1973, every time the price of crude oil and gasoline has increased, so called consumer advocates and opportunistic politicians have accused oil companies of price gouging, price fixing and the like.  Over this time, the FTC has conducted numerous investigations of those charges and every investigation  has produced the same result—no conspiracy, no price fixing, no price gouging.  Indeed there have been so many investigations that if all of them  were stacked on top of one another they would probably be as high as the Washington Monument.

Now the price of crude oil has dropped about 50% and the price of gasoline more than $1.00 a gallon.  Where are the loud voices of consumer advocates and the politicians who follow them?  They are silent.  If they truly believed that oil companies conspired to raise prices, then it only follows that those same companies must have conspired to lower them and give a great gift to consumers through a massive wealth transfer.  In round numbers, each penny a gallon in price change results in about $1 billion dollars.  So, the wealth transfer to consumers is  more than $100 billion.

Obviously, I say this with tongue in cheek.  The lesson to be learned from the recent decline in oil prices and the prior price spikes is that no group of companies can control those price movements.  Markets work, and in both directions.  When the government attempts to regulate prices or use regulation to respond to price changes, all that it accomplishes is to prevent market signals from bringing about an efficient correction.

No one can know when crude oil prices will start back up but they will go up because like all commodities its price is cyclical.  For the time being, we should all just be grateful for low prices because they enable us to spend more on other personal wants and they lower the price of goods we buy by lowering transportation costs.  And, they will bring about an increase in oil industry efficiency by consolidation and a reallocation of resources.

This article appeared on the FuelFix weblog at http://fuelfix.com/blog/2015/01/12/fairness-calls-for-a-thank-you/

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