The Oil Conspiracy?

Now that oil has hit $100 per barrel again the media is rampant already with comments about ”
Big Oil” being behind the rise or else the mysterious “speculators”.  Let’s think through some of these conspiracy notions for ourselves.   Pretend your are the guy in charge of one of those Big Oil companies.  Of course you have to contend with the Sherman Anti-Trust Act.  If you were a CEO of a major oil company you would be aware of this restriction as would your general counsel, compliance officer and all  top executives.   Exactly how are you going to implement your conspiracy scheme?  Doing a conference call?  Hey, guys let’s all restrict inventory and jack up the prices at the same time and we’ll make more money?  A secret rendevous at a secret location?  As soon as you utter the words about a cabal to restrict supplies or hike prices you are exposed legally.  Do you really think scores or hundreds of people would go along with this idea?  None of them would expose it? 

The last time there were allegations of some scheme by “speculators” that caused a price spike in the price the EIA did in fact make such an analysis.  That is the Energy Information Agency, a Fedearl agency.  You can read their report for yourself if you like.  They concluded that the huge run up in prices was to due to many market and supply factors.  Only about 10% of the increase could be attributable to any speculation in the market place.  You didn’t notice much publicity about that report.  The oil conspiracy mantra doesn’t really like to look at hard facts just populist dogma.

Of course you are in a very competitive business.  There are major oil companies in the US like Exxon, Conoco,  Chevron, etc and then foreign companies like BP, Royal Dutch Shell, the Arab companies and others.   You can’t raise the prices alone.  If you just said you were going to charge more then your competitors would hold tight and beat you to death on volume sales.

Even if you could reach some sort of agreement who goes first with the price increase?  Who is second?  When someone gets suspicious and makes a call to another CEO questioning what is happening could you trust them not to crack under the pressure and rat you out to get immunity for the testimony exposing everything?   If you did get say even a half-dozen big player to go along with your scheme how to you know it would work?  The little players in the field add up to a pretty good slice of the pie and their lower prices would bring in huge new orders for their cheaper oil and they would pump the heck out of it.  Then there are the government controlled oil producers that sure wouldn’t be in on your scheme like Venezuela, Russia and Indonesia to name only a few.  Of course there is OPEC to contend with also, no small matter.   You think it through for yourself.  Just like so many people over the centuries trying to devise the perfect crime it likely ain’t going to happen especially with so many co-conspirators to worry about.  You can even pretend if you like that there was no Sherman Anti-Trust Act and see if you could really make it work.  There is too much competition out there for any coordinated scheme to be successful.  After all you are all doing something underhanded if not outright illegal and how trustworthy could your cohorts be?

The great oil conspiracy theory just doesn’t hold up to any rational analysis.  It makes for great populist rhetoric but that is all.   As long as the world has any kind of market for oil then there will be price fluctuations based on demand and supply or just as importantly, perceived supply and demand.  The perception is critical to today’s prices.  You get irritated with a high price you pay today but concerns you is the belief that the price will remain high for a long time or even increase more in the future. 

Current policies from the White House choking off carbon based energy supplies as much as possible with regulation is a much more likely place to look for a cause and effect factor in the current price of oil than some bogey man conspiracy theory.
“The proper method for hastening the decay of error is… teaching every man to think for himself”.  William Godwin, English philosopher of the 19th century.


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