Big Oil Messes with Supply to Stimulate Price

Nov. 26, 2006: The News Journal—Oil Companies Crimp, Hoard Supplies

Summary: "You’d think it was Texas. Dusty roads course the scrubland toward oil tanks and warehouses. Beefy men talk oil over burritos at lunch. Like grazing herds, oil wells dip nonstop amid the tumbleweed — or even into the asphalt of a parking lot.

That’s why the rumor sounded so wrong here in California’s lower San Joaquin Valley, where petroleum has gushed up more riches than the whole gold rush. Why would Shell Oil Co. simply close its Bakersfield refinery? Why scrap a profit maker?

The rumor seemed to make no sense. Yet it was true.

The company says it could make more money on other projects. It denies it intended to squeeze the market, as its critics would claim, to drive up gasoline profits at its other refineries in the region."

Of course companies can make more money if they tighten supply of their most sought-after commodity. But they have to be careful not to let things get too expensive, or the plan can backfire. It almost did, this past year, when oil company execs were called before Congress. But powerful Republicans blocked efforts to force the execs to testify under oath, enabling them to prevaricate with impunity.

Keep it up, Big Oil. The more expensive a gallon of gas, the more consumers will see the wisdom of alternative powertrains that use less of it. Pretty soon they’ll realize that breathing cleaner air doesn’t take such a sacrifice, after all.

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  • richard

    :zzz
    Oil has gone up less than iflation since the 70′s
    Obviously this guy’s has zero freaking clue about how companies allocate capital between competing projects

  • BY

    Richard, you hit the nail on the head.