• Oil Company Heroes

      On The Factor tonight, O’Reilly will debate me about rising oil prices. Bill sees a conspiracy (though he denies that it's a "conspiracy theory.") He once said: “the oil companies are rigged. The markets are rigged. With supply and demand having little to do with what we pay at the gas pump.”

      Nonsense. The markets aren’t even rigged by OPEC. OPEC produces 40% of the world’s crude oil, according to the Energy Information Administration. 40% hardly gives them monopoly power.

      The real reason prices are up is simple: Supply and demand. In other words, the decisions of billions of individuals about what they’re willing to pay constantly negotiate with oil producers who want to sell at the best price possible. Currently, the revolution in Libya -- which shut down 2% of world oil production -- bumps up against increasing demand from growing economies in China and India. And if people move away from nuclear energy after the tragedy in Japan, the futures markets will bid up the price of oil.

      Bill also has a guest from “Public Citizen” on tonight, Tyson Slocum, who likes to blame “Wall Street speculators” for the price hikes. That’s even more ridiculous.

      I wonder how Bill and his guest explain the sharp rise in price of another good: The retail price of onions. It has gone up more than the price of gasoline this year -- 36% vs. 24%. What’s the deal? Is it because there’s an onion monopoly that sets the price? Or greedy Wall Street speculators bidding up prices?

      No. Onions cost more, and the price fluctuates more than other goods, because in 1958, our “protectors” in Congress completely banned speculation on the price of onions. The Senate Agriculture Committee said that "speculative activity causes severe and unwarranted fluctuations in the price of onions."

      But, as a Financial Times analysis found, the ban made prices LESS stable:

      Financial Times

      Speculators help keep prices stable. When they foresee a future oil shortage, it’s an opportunity for them to make money. They buy lots of oil, store it, and then sell it when the shortage occurs – they know they can charge the highest prices when there’s relatively little oil on the market. Speculators are like the ants in Aesop’s “Ants and the Grasshopper” fable: they save resources for lean times, and they do well as a result. Everyone benefits, because everyone has a chance to buy from them in those lean times.

      Oil companies bring us ample gasoline at reasonable prices. If government controlled the oil business, gas would cost twice as much as it does today. Oil producers and speculators are heroes. Central-planners from Common Cause are ignorant fools.

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