Consumption Rules

3 Responses to “To US oil critics:”

1. doug Says:
   July 17th, 2007 at 5:27 pm

   Arrrrgggghhhh…the link is for subscribers only.

   Since I couldn’t read the article, I googled the authors. Timothy Muris was an attorney for ExxonMobile in a case before the FTC about price gauging. And Richard Parker represented them as well, among other clients, in antitrust litigation. They are both attorneys with the same firm.

   Now, give us some juicy quotes, Brad!

2. Brad Says:
   July 17th, 2007 at 7:32 pm

   Sorry!

   There are two American oil industries. One exists only in the minds of its critics, many of whom are politicians. When prices and profits rise, as happens in a cyclical business, the critics demand new antitrust and other legislation. When prices and profits inevitably fall? Silence.

   The other American oil industry exists in the real world. It’s intensely competitive, innovative and subject to more scrutiny and tougher antitrust enforcement than any other segment of the economy. And it’s adept at meeting the diverse and dynamic needs of American consumers.

   …Consider one driver of harmful regulation, the belief that a handful of large oil companies control the industry. In fact, the industry is not highly concentrated. The four largest firms collectively hold a smaller share than the top four firms in many other industries, and these firms face a lot of competition. Valero is the largest U.S. refiner and non-oil companies like Wal-Mart, Sheetz and WaWa sell a significant portion of retail gasoline. Most gas stations are owned and operated independently.

   The oil industry’s long-term earnings are also typically in line with other industries. Recently, the oil industry has earned above-average profits — 9.5 cents for each dollar in sales in 2006, compared to 8.2 cents for manufacturers. But U.S. oil took a hit in the 1990s as earnings fell well below those of other industries.

   …Some argue that oil companies have conspired to restrain their capacity. Although numerous obstacles have prevented the construction of new refineries for decades, capacity at existing refineries has expanded greatly. U.S. refiners have spent tens of billions of dollars in recent decades increasing refining capacity and also improving output and satisfying environmental requirements. It’s strong U.S. and worldwide demand that has pushed prices up.

   Gas prices also spike occasionally. Left alone, the market will alleviate these spikes, as it did in the aftermath of Hurricane Katrina. Higher prices led to greater supply, which then lowered prices.

   What we need are policies that let the market operate to spur investment in exploration, capacity expansion, operating efficiencies and technology advances.

   Instead, Congress is proposing to exacerbate America’s energy problems. Some want to make price gouging — a vague term with no clear legal meaning — a crime. Such legislation would discourage the industry from responding rapidly to product shortages. As bad as high prices are, no gas at all, or a return to gas lines, is much worse. Moreover, price gouging laws will harm consumers by reducing investment in new refineries.

   It would be better if lawmakers passed useful measures, such as reducing the number of fuel mandates that make it harder for refiners to respond to supply shocks. Congress could make it easier for oil companies to rush supply to consumers in a pinch by expediting the process required to waive regulations when prices spike. And Congress could streamline the refinery permitting process to allow more capacity expansion. States could help out too by repealing laws that mandate how much gas stations must charge above the price they paid for gasoline, as well as laws that prevent refiners from owning gas stations and that ban self-service stations.

   Reality, not political fiction, should guide the energy debate. Americans deserve, and can afford, no less.

   Mr. Muris was chairman of the FTC from 2001-2004 under President George W. Bush. Mr. Parker was director and senior deputy director of the FTC’s Bureau of Competition from 1999-2001 under President Clinton. Messrs. Muris and Parker are cochairman of the antitrust practice group at O’Melveny & Myers LLP in Washington.

3. doug Says:
   July 18th, 2007 at 1:41 pm

   Thanks

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