Saturday, February 26, 2011

Should gasoline be treated as a public utility..

There is little to question that petroleum is the lifeblood of the American economy.  Its not just a discretionary expense for most consumers, but a basic necessity.  True, consumers will find ways to reduce fuel usage as prices increase, but few of us can avoid using our cars or trucks altogether.

The supply of petroleum is not quite a free market system.  More like an oligopoly of a small number of mega-producers competing around the globe to make deals with the locals for the rights to drill there.  Good luck breaking into that business with a start-up firm. Oil is a global commodity, bought and sold in an open market the mechanisms of which I can't begin to explain but I trust is at least somewhat governed by the Supply-Demand curve.  I don't buy into any of the conspiracies that say an evil cabal of fill-in-the-blanks control the price of oil and crank it up and down at their whim.  That's nuts.  However there are some complicated purchasing schemes and speculative finances involved in the oil market, the main purpose of which is to make money for those involved lucky enough to cash in on a price spike from a panicky unstable market.

And that is why I wonder if petroleum shouldn't be treated at some level, like a public utility such as natural gas, electricity, water, etc and our system account for some degree of public oversight into long-term supply and pricing agreements for the Nation.  Do consumers really benefit from the cottage industry of speculating investors scheming to make a bundle trading oil back and forth between the time its loaded on a tanker and arrives at the port?  If they make a killing, its their cash.  If they lose a killing, we'll probably have to bail them out anyway.  Call me a cynic.

I have little idea how transforming the petroleum market here to something resembling a public utility could be accomplished.  Certainly there couldn't be long-term price guarantees, because there is no guarantee of stable long-term supply, and there is no telling how much another Nation might bid up the pricing and take away that supply.  So I'm not advocating that we jump into nationalizing any industry or turning the whole thing over to politicians and civil servant bureaucrats.  The immediate risk from any Government price controls would of course be shortages and no one wants that.  For that reason, I hesitate to advocate any Government involvement whatsoever.   

But I do think that as important as petroleum is to our economy and very society, we should recognize the importance of trying in some small way to stabilize supply and pricing for consumers.  A market this basic to our Nation's economic survival should not be fraught with layers of scheming investors looking to make windfall profits when uncertainty in the world leads to price spikes.  And to those dead-opposed to this, I would ask if its OK for the oil market, then why not open up the same Wild-West financial opportunities for speculative investing in the municipal water supply?    

Just a thought-starter.


  1. I am actually toying with this as an assignment on persuasive writing. Yours was the first search result I looked at. I don't know if the paper is doable in the short paper. Is it really that complex? You mentioned the water utility in the west. Is it that different? Will the speculators scream so much that it never will get traction?

    1. Hello LinzH20,

      Well first I can assure you that the speculators would object to any tampering of the system that makes them easy profits but don't let that disuade your effort. I think the idea would resonate with a large number of consumers and political leaders who are not beholden to special interests. I think the approach in a short paper would be to first explain why it is that other basic resources such as natural gas, electricity, and water supply are treated as public utilities and why their supply is not just left to the whims of free market capitalism. The example I gave of the water supply is a good one. I don't think a single reasonable person would promote the idea that futures in the public water supply should be bought and sold by speculative investors who could then hold back distribution in order to create a shortage and drive up prices to make a profit. Then I would point out why gasoline is similar in nature and just as important to the general public and the economy as those other commodities. Thus it should be considered unacceptable that investors and speculators who have no involvement in the production, storage or refining of oil are allowed to buy and sell futures in oil and gasoline strictly as an investment vehicle. It is in the best interests of consumers and the economy that the energy supply and prices are affordable and stable, yet there is not a single speculator who has the slightest concern for consumers or the economy in general. They only get involved in this market to make windfall profits off of of the uncertainty in the market which drives price increases. I think this could be key to an effective energy policy. Good luck with your paper.

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