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Letters by a modern St. Ferdinand III about cults

Gab@StFerdinandIII -

Plenty of cults exist - every cult has its 'religious dogma', its idols, its 'prophets', its 'science', its 'proof' and its intolerant liturgy of demands.  Cults everywhere:  Corona, 'The Science' or Scientism, Islam, the State, the cult of Gender Fascism, Marxism, Darwin and Evolution, Globaloneywarming, Changing Climate, Abortion...

Tempus Fugit Memento Mori - Time Flies Remember Death 

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Monday, September 12, 2005

Why I like high Gas prices – let the market work

Oil firms do make high profits, but what do you expect when a commodity rises in value.

by StFerdIII

Oil companies have a 6 % margin on retail gasoline sales. Such a margin level is below that of most industries. Yet due to the cartel called OPEC, hedge fund speculations, and increased demand, especially from China and Asia, coupled with a lack of refining capacity in North America, thanks to our eco-fascist state mandated regulatory environment, oil and gas prices have increased. Wonder of wonders. Let me see. Cartelized supply by mostly Arab nations, which gouge the wholesale price, plus increased demand, plus bottlenecks in refining and distribution, plus escalating economic demand from large growing economies and presto! We have higher prices. Remarkable is it not? No that is too logical, high oil prices are the fault of Bush, Halliburton and the American-Jewish-Bin Laden cabal. Truly.

So now we have the sad spectacle of Bill O’Reilly doing a mad man impersonation demanding along with many politicians, that the oil firms redistribute their profits back to the public. Great idea Bill. Let’s not address the sources of the problem, but let us try to destroy the firms that happen to be in this cyclical bull market, and make certain that all R&D, exploration and new development is stopped and that future oil supplies curtailed. Brilliant. At least O’Reilly has not yet proposed that we institute price caps, the most ludicrous and inane of bad government ideas, on gasoline. Such a Nixon-Carter policy of failure would only ensure long line-ups at the pumps, and reduced supply. Price caps and forced profit redistribution would only aggravate the issues, not resolve them.

But many complain that prices in the past few weeks have skyrocketed. Well there are good reasons for that. Hurricane Katrina affected at least temporarily, about 90% of Gulf crude oil production and about 80% of natural gas output. That translates into about 1.5-2.0 million barrels a day that are not available to consumers, or an 11% decrease in supply. So in order for prices to remain constant Americans would need to use two million fewer barrels of gas every day. Without a reduction in demand, and problems in the supply chain, prices of course will go up.

If you want to reduce gas prices, the first place to look is to reduce government taxes. Government taxation accounts for 40 % of retail gas prices. However, by reducing taxation and thereby stimulating demand through lower prices, you will not, in the near term, restrict future demand. This means that at some point given supply constraints, supply will run out, even as prices are increased. You can reduce the taxation level on gasoline [something that should be done] but then the question is how do we reduce our demand to stabilize prices ? If we agree that we should not reduce or stabilize demand [since we want to travel, heat our homes etc.], then we should be prepared to pay higher prices.

What about the charge that the oil firms are profiteering and gouging the poor consumer ? In
Canada and the US there are price-gouging laws, which state that companies can't charge significantly more than their cost. The determination of costs is entirely dubious and a fair profit margin is certainly something that we should NOT let government regulate of course. But more importantly, in oil as with some other markets, what matters for wholesalers and gas stations isn't what they paid for the last tanker of fuel but what they expect to pay for the next one. This is driven by oil commodity futures contracts. This future cost is what determines the retail price of gasoline. So the futures price contract for oil, driven in part by hedge fund speculators, impact your daily purchase cost of gasoline.

So what about the extra costs involved in our gas prices that no one talks about ? Inane costs include reformulated gas mandates, prohibitions on offshore and
Alaska oil drilling, and environmental regulations and price controls. These additional costs go a long way to explaining why not a single new oil refinery has been built in the U.S. or Canada since 1976. So even as world oil supply exceeds world oil demand by 2 million barrels per day – a rather slim but still healthy margin – we are unable to increase our distribution capability and thereby lower prices, since we are prevented from finding and then refining new supplies thanks to eco-regulatory costs.

In short high gas prices are necessary and are a response to supply-demand and cost pressures. Government, as usual, helped create these higher prices. By reducing taxation, increasing the incentives to build refineries and repealing eco-nonsense regulations, we would enjoy cheaper and more abundant oil supply and retail prices would be lower. If we don’t enact these changes, then we should stop crying and live with higher prices. ©

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