Oil companies are not doing themselves any favors.



Having rallied to the defense of energy companies in the past when ill-informed people go into attack mode against them, I simply can’t see any defense or justification in the recent gouge we have seen in gasoline prices at the pump.  Speculation that hurricane Ike would damage US refineries caused the hike in prices. OK fair enough. I find it hard to believe that the pricing process can move so quickly as to change the price of the gasoline that was sitting in the tanks of gas stations overnight like that.

 Whenever wholesale prices for gasoline come down, we as consumers are forced to patiently wait for weeks to see that drop in price reflected at the retail pump. It is explained to us that the current inventories were purchased at the previous high price and need to be sold at the high price until the cheaper gas comes on stream. When speculation causes wholesale prices to rise however, somehow the value of existing inventories immediately rises.

 Lets face it, the consumers are simply being gouged.

 While I have an opinion on everything and a proposed solution for damn near everything, I am not sure how this gouging can be addressed. Government imposed price controls inevitably fail and the concept of nationalization is always a disaster. In most markets, simple competition and the rules of supply and demand keep products at reasonable prices for consumers. In the case of fuel though, we see all suppliers moving in lock-step with pricing. Competition is not coming into play and consumers are losing. Monopoly situations always cost the consumer greatly whether it is a government monopoly or a private one. While there is not a monopoly in gasoline sales, when all of the suppliers act together as they have been we essentially are living under one.

 People see the prices of crude dropping and they see the price at the pump rising. Most people at large do not see that the reason for the disparity is a lack of refining capacity. As we regulate, tax and cancel domestic production and refining projects, our consumption is rising. The prices in general simply must rise.


 Lets face it, the majority of voters in Canada do not look deeply enough into this issue to see the correlation between refinery capacity and pump prices. What the electorate sees is the raw commodity price and the price at the pump. Flagrant gouging as we saw this week leaves the energy companies very vulnerable to knee-jerk proposals such as nationalization or price regulation. There could be no more idiotic time for such a shock to consumers as in the middle of a federal election where incensed voters can be drawn to policies that punish energy companies.

 One would have thought that Alberta companies learned last year that the public at large is not terribly fond of them as they embraced Stelmach’s royalty gouge. Public support is vital for companies that want to avoid government incursion into their industries.

 Currently our energy seems more determined to alienate the public than ever. I understand that the prices still reflect what the market will bear and that energy companies are rightly in business to make a profit. Will the short term profits from this recent price spike be worth the potential punishing legislation that could be earned by this? Are those folks in the boardrooms even considering this? I know that many companies run advertising trying to humanize themselves and they are massive contributors to local economies and charities. All of that is quickly forgotten by the public when it appears that the consumers are being screwed.

 I hope that some of the tall foreheads in the boardrooms figure this out soon. If we end up with price controls or nationalization, we all will lose.