One of my missions is to make clear to everyone, whether on the Left or the Right, how the oil markets REALLY work.
One of the most repeated, and pernicious myths is about oil companies making “outrageous” profits through price gouging at the pumps at times of short supply and high prices.
This is simply untrue. As I tell Anthony Weiner during a recent podcast I taped with him, oil companies are bound by prices for gasoline set on an open market that they have little direct control over. Further, those prices haven’t always been high — in fact, they’ve been exceedingly low, sometimes for 3 to 5 years at a time. Witness, for example, the $2 gas we enjoyed during the pandemic, when demand for travel and the price of gasoline both collapsed.
Oil companies have often been the worst performers on the S&P 500 and many smaller oil companies have gone out of business because of the negative cash flow during low pricing of oil and gas. But when oil demand recovers and supply does not that prices spike quickly higher. And suddenly, the public and Congress are outraged and looking for someone to blame. It is at this moment that the cry of gouging and Senate hearings into corporate profits begin.
It is just nonsense thinking. All we have is an oil market reacting to supply and demand, not manipulation.
Here’s a question: If oil companies could control gas prices, wouldn’t gas ALWAYS cost upwards of $5 a gallon? It’s not as drivers have a choice of fuel for their cars. In contrast, If Kellogg’s decided to charge $20 a box for corn flakes, you could choose to have oatmeal for breakfast instead, or no cereal at all. But if gas were $10 a gallon, you might use less, but you really couldn’t help but still fill your tank for work or to take your kids to school, or for necessary trips to the supermarket. You are ‘captive’ to gas prices, whatever they are.
This obvious argument should put the idea of ‘gouging’ to rest. I’ve used the Kellogg’s Corn Flakes analogy for years — but, despite the logic, this myth of price gouging re-emerges every time gas prices spike. But now, you know better.
I hope you enjoy the video above.
dan@dandicker.com
