Suburban Bureau

Unraveling the Gas 'Conspiracy'

People will believe anything if it means preserving our entitlement to cheap gasoline.

By Trey Shaughnessy
Published October 07, 2005

They are to blame. They are profiteering. They are gouging us. We need some price control. They have technology to allow us to stop using oil but they won't let us have it.

Who are they? You have probably guessed it - oil companies. That's right, the only industry in a free-market capitalist system not allowed to make a profit - at least from a consumers' point of view.

I don't hear anyone complain when Stelco posts a profit - Hamiltonians practically want to make it a national holiday.

The truth is there is no conspiracy, price-fixing, or gouging. Although there were a few gas retailers that made news headlines after Katrina and before Rita for charging what was perceived as excessive prices - welcome to capitalism.

The very word implies capitalizing on an opportunity and the system requires that people do. The same people that claimed "greed is good" in the yuppie late 1980s are now crying for regulation and making conspiracy accusations. The reason is that cheap gasoline is a sacred cow. You cannot mess with the people's cheap gas.

Cheap gas and automobiles has been the great equalizer of North America. The road and highway networks are the result of the largest socialist program ever undertaken in North America: roads planned and built by the government with taxpayer's money and shared by wealthy and poor alike.

The poor, the middle-class, and millionaires drive on the very same roads. I think I saw Michael Lee Chin beside me on highway, although he was driving a Ferrari and I was in a Honda, we still shared the same roadway. Isn't that wonderful.

However, rising gas prices threaten to destabilize the middle class. In the long term it threatens to do a lot more damage than that. The results will eventually lead to inflation that will cause higher interest rates and ultimately a 20-year economic depression.

And that's probably the best-case scenario. But I digress; this is about the "conspiracy".

In order for a conspiracy to be successful, it needs to be secretive. If this were a planned conspiracy, do you think the oil companies would increase the price of gas by 30 percent in nine months? That would be obvious, but a ten percent increase for five years would be much less noticeable.

Adam Smith, an eighteenth-century economist, used the analogy of the baker. A baker doesn't provide bread out of charity but out of self-interest. In other words, if there is a lack of profit, the product isn't provided.

Regulating gas to an arbitrary price to keep it affordable for everyone will only put gas retailers out of business. Paying $2.50 per litre will be better than not having any gas at any price. Price capping will also have the same effect, temporarily closing gas stations for the duration of the price-cap.

Adam Smith's analogy isn't really applicable to oil extraction. Bread is a manufactured product, produced from raw grain and ovens that are made possible from energy. Bread is produced, but oil is extracted. The so-called 'invisible hand' of the free-market can't slide in and produce more oil in the ground.

Bread is produced - oil is
extracted. Adam Smith's 'invisible hand' doesn't apply to the oil
industry - it won't produce more oil in the ground.

The current price of gas reflects the world's capacity to produce crude oil, which cannot keep growing with demand. The phenomenon is called Peak Oil and refers to Hubbert's peak.

M. King Hubbert was an oil geologist who predicted that the United States' oil production would peak between 1965 and 1970. His colleagues and economists thought he was insane, but American oil production peaked in 1970-1 and has been declining ever since.

Hubbert later predicted the world's apex of oil production would be around 1995. He didn't count on the OPEC shocks of 1973 and 1979 reducing demand and delaying the global peak.

Oil extraction peaks then declines in a ypical "bell curve" fashion. No amount of drilling and exploration is able to stop the downward slide of extraction. Although the downward slide sometimes has hiccups and it appears that we are increasing extraction, the illusion is due to the fact that the price increase, decreases demand temporarily, crude reserves build up, and the price drops for a short time.

There will always be people who believe in a permanent oil industry conspiracy, no matter how much explaining you do. This is unavoidable, much the same way oil peak production is unavoidable. I think most people want to believe there is a conspiracy. That way, they could find and prosecute these conspirators and return their cheap gas privilege.

It's not going to be that simple. Dr. Colin Campbell, author of The Coming Oil Crisis, convener and editor of the Association for the Study of Peak Oil and trustee for the Petroleum Institute of London, said, "When the peak of oil production first occurs, people will suspect a conspiracy and be looking to blame someone".

When the peak of oil
production first occurs, people will naturally suspect a conspiracy and
be looking to blame someone (Dr. Colin Campbell, The End of Suburbia)

So are the oil companies conspiring to increase prices? No. They are simply operating the same way as banks, car manufacturers, and department stores; that is, like a business to produce a profit.

We can hope they use their profits for the research and development of alternative sources of energy, so they too can remain in business. Until then we'll have to accept a new life without cheap oil. Maybe that means driving cross-country and flying to the Caribbean will be out of reach for the middle class.

When we eventually come to the realization that oil isn't produced and the 'invisible hand' won't make more for us, we may actually be content to enjoy a simpler, slower life. Until then, happy capitalism.

Trey lives in Hamilton with his family. He is co-owner of an advertising agency, and develops brand awareness and creative services for the entertainment and tourism industry. His essays have appeared in The Energy Bulletin, Post Carbon Institute, Peak Oil Survival, and Tree Hugger, and he has appeared on Toronto's Goldhawk Live. Trey volunteers with the London Chapter of The Council of Canadians.

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By BROKE MAN (anonymous) | Posted None at

WHY DID CHEVERON PROFIT 40 BILLION DOLLARS ALST YEAR!!!! PROFIT!!! BUT GASS IS STILL GOING UP!!!

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By eroc (anonymous) | Posted June 12, 2007 at 13:13:43

i agree with Broke man these people are makeing jokes out of us and we take it like a bunch of suckers....for god sakes dont use gas for a F-in
day show them we dont need umm, but this is america and the Gov always wins

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By just a guy (anonymous) | Posted March 13, 2008 at 14:43:07

"In order for a conspiracy to be successful, it needs to be secretive. If this were a planned conspiracy, do you think the oil companies would increase the price of gas by 30 percent in nine months? That would be obvious, but a ten percent increase for five years would be much less noticeable."

Is it obvious YET? In the last 5 years gas has gone up about, what, 100% But that's normal. And we're also NOT in a recession, right?

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By realcity (anonymous) | Posted March 28, 2008 at 22:54:26

just a guy.... this is the point of the article.... THERE IS NO CONSPIRACY.... It's the fact of Peak Oil and supply and demand. The reason why oil prices have risen so much is because oil production (ie the easily available extractable oil in the earth) can't keep up with the demand. This isn't a case of a baker just producing more bread for a larger demand. This is a case of a baker not having enough raw ingredients available for purchase to produce enough bread for the demand.

What is happening now has nothing to do with capitalism. But has everything to do with a depletion of reserves. No amount of demand and price increase will produce more oil in the earth.

To that end.... we are fcked when it comes to producing cheap oil, so that we can drive around endlessly in the suburbs we've created, shopping for Transformers and Miley Cyrus posters.

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By intownfarm (anonymous) | Posted April 02, 2008 at 13:40:34

Great insight but hard to adjust to. I want to blame someone too. I love my big gas guzzling truck, a little compact might be in my future though!

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By GasSaver (anonymous) | Posted April 21, 2010 at 22:11:52

spam comment deleted by administrator

Comment edited by administrator Ryan on 2010-04-21 21:24:22

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