Fuel Conspiracy - The Fuel Conspiracy

The Fuel Conspiracy

Are they all out to get us?

Should gas prices be skyrocketing at the pumps?

Is there a real and present danger facing us...a real fuel conspiracy?

What can every American do to lower his/hers energy bills?

Americans everywhere will believe anything if it means preserving our entitlement to cheap energy. "Someone is to blame; someone is profiteering and an investigation is warranted. We are being gouged; we need price control. They have technology to allow us to stop using oil but they won't let us have it." The lamentation is real but is the fuel crisis real? Is there really a fuel conspiracy that is systematically - step-by-malicious step - out to get us and make us pay exorbitant fuel prices? Like you, I don't like paying more than I have to especially for something as important and necessary as energy. So let's define "who" they are! First we have the big oil companies like Exxon/Mobil, Shell, Chevron, Arco, etc. We love laying the blame at their feet. Why? I would venture to guess because they are rich and powerful. They seem to be the only industry in our free-market capitalist system that is not allowed to make a profit - at least from a consumers' point of view. The next "they" are the Middle East oil-producing countries - the Arabs - and again we love bashing them because they are different from us and Islamic extremists make it even worst with their jihad against the western world. Then we have other oil producing countries such as Venezuela with Mr. Chavez and his anti-American bellicose rhetoric. We don't like this guy either because he is hateful and overly verbose. Not to be left on stage naked and bare to our accusations, the next "they" are the power companies and natural gas companies that supply our homes and offices. Americans across the country have experienced significant price hikes in home-supplied energy. And this form of energy is still rising because it is tied to oil.

Like all open market goods and services, price is tied to supply and demand. Rumors run rampant on supply and demand forecasts which can cause prices to rise and fall. The rumors may be unfounded but prices are still tied to market conditions and the ol' rumor mill. The truth of the matter is simply that there is no conspiracy, price-fixing, or gouging. Although there were a few gas retailers that made news headlines after Katrina and before Rita for charging what was perceived as excessive prices - welcome to capitalism. The very word implies capitalizing on an opportunity and the system requires that people do. The same people that claimed "greed is good" in the yuppie late 1980s are now crying for regulation and making conspiracy accusations. The reason is that cheap gasoline is a sacred cow. You cannot mess with the people's cheap gas. Cheap gas and automobiles has been the great equalizer of North America. The road and highway networks are the result of the largest socialist program ever undertaken in North America: roads planned and built by the government with taxpayer's money and shared by wealthy and poor alike. However, rising gas prices threaten to destabilize the middle class. In the long term it threatens to do a lot more damage than that. The results will eventually lead to inflation that will cause higher interest rates and ultimately a 20-year economic depression. And that's probably the best-case scenario. But I digress; this is about the "conspiracy".

    In order for a conspiracy to be successful, it needs to be secretive. If this were a planned conspiracy, do you think the oil companies would increase the price of gas by 30 percent in nine months? That would be obvious, but a ten percent increase for five years would be much less noticeable. Adam Smith, an eighteenth-century economist, used the analogy of the baker. A baker doesn't provide bread out of charity but out of self-interest. In other words, if there is a lack of profit, the product isn't provided. Regulating gas to an arbitrary price to keep it affordable for everyone will only put gas retailers out of business. Paying $2.50 per liter will be better than not having any gas at any price. Price capping will also have the same effect, temporarily closing gas stations for the duration of the price-cap. Adam Smith's analogy isn't really applicable to oil extraction. Bread is a manufactured product, produced from raw grain and ovens that are made possible from energy. Bread is produced, but oil is extracted. The so-called 'invisible hand' of the free-market can't slide in and produce more oil in the ground. The current price of gas reflects the world's capacity to produce crude oil, which cannot keep growing with demand. The phenomenon is called Peak Oil and refers to Hubbert's peak. M. King Hubbert was an oil geologist who predicted that the United States' oil production would peak between 1965 and 1970. His colleagues and economists thought he was insane, but American oil production peaked in 1970-1 and has been declining ever since. Hubbert later predicted the world's apex of oil production would be around 1995. He didn't count on the OPEC shocks of 1973 and 1979 reducing demand and delaying the global peak.

    Oil extraction peaks then declines in a typical "bell curve" fashion. No amount of drilling and exploration is able to stop the downward slide of extraction. Although the downward slide sometimes has hiccups and it appears that we are increasing extraction, the illusion is due to the fact that the price increase, decreases demand temporarily, crude reserves build up, and the price drops for a short time. There will always be people who believe in a permanent oil industry conspiracy, no matter how much explaining you do. This is unavoidable, much the same way oil peak production is unavoidable. I think most people want to believe there is a conspiracy. That way, they could find and prosecute these conspirators and return their cheap gas privilege. It's not going to be that simple. Dr. Colin Campbell, author of The Coming Oil Crisis, convener and editor of the Association for the Study of Peak Oil and trustee for the Petroleum Institute of London, said, "When the peak of oil production first occurs, people will suspect a conspiracy and be looking to blame someone". So are the oil companies conspiring to increase prices?

    No. They are simply operating the same way as banks, car manufacturers, and department stores; that is, like a business to produce a profit. We can hope they use their profits for the research and development of alternative sources of energy, so they too can remain in business. Until then we'll have to accept a new life without cheap oil. Maybe that means driving cross-country and flying to the Caribbean will be out of reach for the middle class. When we eventually come to the realization that oil isn't produced and the 'invisible hand' won't make more for us, we may actually be content to enjoy a simpler, slower life. Until then, happy capitalism!

Now you know the problem; let's discuss the solution

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