--- ATWEDITOR@aol.com wrote:
> David,
>
> The Internet is a vast sea of misinformation and poorly remembered
> facts,
> but this statement below, unless tongue-in-cheek, really is a
> topper. It was
> first the oil shortage, THEN the windfall profits tax. In a
> curious
> arrangement that exists to today, when the source price of this
> commodity goes up, the
> oil companies use the opportunity to increase their profit margin,
> and their
> profits soar while the users--that would be us--get shafted twice.
The initial shortage was caused by the Arab oil embargo, which
caused prices to rise. In healthy economy, the increase in
price would lead marginal producers to enter the market because
their product would now be competitive at the higher price.
A new equilibrium would be reached at the higher price.
However, the government stepped in with this windfall profits
tax and what happened? Oil companies were forced to price
their product at a government-mandated price which reflected
the cost of production of their most efficient wells.
This artificially low price prevented marginal producers
from entering the market, causing a shortage. It also
prevented oil companies from putting their own low-efficiency
wells into production because, since oil is fungible, it's
impossible to segregate each gallon from the others and
establish a price for each gallon reflective of it's specific
cost of production. Therefore the market suffered stupendous
shortages as a result of a government action which in essence
mandated that only the cheapest gas be sold, and that gas
was in short supply. The government caused the gas lines
that snaked for miles, not the oil companies.
As far as profits rising on a rising market, that's a simple
law of economics. Most commodities are sold on a FIFO
basis, and it only follows that marginal profits will be
higher for a time as the commodity price of the oil rises.
This is simply a result in the time lag between the time
the oil is pumped and the gas is sold. However, the same
process works in reverse when the price declines, and the
oil companies take it in the shorts on a falling market.
I don't hear many people complaining about that. Even at
$2.50 a gallon, gas is still cheaper than bottled water.
Abundant, inexpensive energy is a blessing we receive from
private industry seeking profit, not government largesse.
David Breneman david_breneman@yahoo.com
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