Why are gas prices so high? Look under your nose

March 23, 2012 11:07 AM
Why is domestic production being exported?

In other venues and for other purposes, I have railed against the exorbitant cost of higher education. I have said that a solution lies right under the colleges' noses. They have endowment funds, quite a few with billions of dollars, that are operated like hedge funds with little financial relief for students.

When it comes to high energy prices, especially at the gas pump, we are treated to questionable explanations. It is unrest in the Middle East. No, it is demand from China. No, it is those #*! speculators! No, it is Iran's fault. No, it is the President (no less) trying to wean us off of our addiction to gas-fueled vehicles.

So, let's look under our own noses. Crude oil produced domestically (WTI) is about $20 cheaper per barrel than foreign (Brent) crude. Some domestic producers, reportedly, are actually exporting the stuff, and Exxon Mobil recently announced a cut-back in its own domestic production. Does this sound like an economy starved of energy resources?

Consider, too, that our energy industry is vertically integrated. Most local gas stations are affiliated with a major oil company. This gives the latter some leverage over retail prices as well.

Finally, despite everything, Big Oil reports record quarterly profits, often exceeding the annual profits of many Fortune 500 companies.

I'm not saying that the major energy enterprises have their thumb on the pricing wheel. I am saying that it might be worth a look. On one hand, we are being told that the cost of crude oil is at historical highs. On the other hand, those who must acquire and process that crude are enjoying great prosperity. All, right under our noses. That is not what I was taught in Econ 101.

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