The Oil Gods

Don Boudreaux believes elementally in the neoclassical image of the Margin. I have some problem with this view when considering Worldwide distribution and use of common Products and Services. The World market is a compilation of geographic markets, all dispersed not only by area, but all by degree of Capital Investment in the provisions of the Product. All current areas receive adequate supply of Oil, but under vastly different degree of infrastructure; how can All endure the same Operating Costs posture, it is a known fact that relatively All adopt a similar Pricing policy based upon a mythical World Oil price, unless directly constrained by law. There remains the additional Factor that Distribution networks are allocated by the major Oil companies, where Each assumes their own network will have a semi-monopolistic position; this purportedly dictated by the high Investment Costs of introducing Distribution networks.

I have set myself for a long, and boring, discussion of arbitrage which I have heard before; though one which leaves much dissatisfaction. The basic discomfort comes in the innate willingness to introduce Price increases with increased Price of Supply, but one where Prices are not again lowered until all Operating Costs are worked through; and in the case of the Oil industry, subject to periodic Oil and Fuel Scares at uniform Intervals with rapidly jumping Prices. Oil companies seem to absorb all the Profits of previous cheaper Production, satisfy themselves of full Profits on the higher-Cost Production, then magically are confronted with another Oil/Fuel Scare after Production Supply Contracts have been finalized.

All that glitters may not be Monopoly, but it could well be a synthetic Collusion; especially when such Collusion results in multi-Billion Dollars of Windfall Profits. I still favor a Government program which would build with the latest technological Expertise both Oil refineries and Pipelines, then sell the facilities at Market pricing. This not only guarantees sufficient Refining capacity for the domestic market, it provides adequate resources of Refining Plant to meet National Security Needs; all within the spectrum of superior utilization of Military Bases and Reserves under greater Security for the Oil industry. It is not something to Expect under an Oil-God Bush, but could certainly benefit any Administration with a different set of Priorities. lgl