The Cost Of Oil

Oil costs just over $57 per barrel. This seems like a significant drop in price compared to the $65 per barrel that was being paid in August. Considering just two years ago, OPEC sought to maintain the cost of oil at $20 - $25 per barrel because this promoted stability regarding the commodity, the drop in the current oil cost is not significant at all since we are still nearly three times more than OPEC’s preferred price.

The cost of a gallon of gas and heating oil do not reflect the actual cost of oil on the open market. When the cost of oil was only $20 per barrel the cost of a gallon of gas was just over $1.50. For the past couple of years, the costs have slowly increased, but when it hit $65 per barrel we suddenly saw gas costs at over $3 per gallon. Now that the cost of oil has come down a mere $8 per barrel we are again seeing the cost of gas back around $2 per gallon. In fact, the cost at the pump, right before hurricane Katrina, went up three time faster than the cost of crude.* These swings in price do not seem proportionate with one another.

The oil companies have recently announced that they have made record profits. The major oil companies in the US announced that they have made tens of billions of dollars in profits for the first nine months of the year: Exxon-Mobile $25 Billion (the most profitable corporation in the world); Royal Dutch Shell $21 Billion; British Petroleum $15 Billion; Conoco Phillips $10 Billion; and Chevron-Texaco $10 Billion. The high costs of gas coupled with record profits shows that these companies are using their monopoly on the commodity to improperly jack up prices and unjustly reward themselves with unseemly profits.

There are only five major oil companies in the United States today. Since the cost of oil and the cost of gasoline are not moving in proportion to one another, and all of the oil companies have gasoline prices within a few cents of one another, it would appear that there is a coordinated effort to increase the prices collectively. In other words, the oil companies appear to be colluding to increase prices and generate these profits. Such actions, if true, are a violation of the anti-trust laws.

If oil companies are jointly manipulating the cost of gas and home heating oil to improperly maintain artificially high costs and profits, then they are in violation of the law. Anti-trust laws were created to prevent just such a scenario. While we know the US Attorney General, who is an employee of an administration in the pockets of big oil will not go after these trust violators as the federal government did when Teddy Roosevelt was President, we must wonder where the state attorney generals such as Elliot Spitzer are as this price gouging continues.

* As reported by the Energy Information Administration