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Ned Cantwell’s recent editorial piece drove home the point that most of America cannot, will not, or does not have the time to understand the reasons for the increase in the price of oil and gasoline. Since I have had the time, I hope I can clear up a few myths.
Myth #1: “Big Oil” is responsible for the price of oil and could choose to lower it.
Oil is a global market; its price is determined by the intersection of world demand (increasing fast) and world supply (stagnating).
Increasing demand and stable supply results in higher prices, the basic law of markets. Any sort of price fixing would take an incomprehensible conspiracy on a global scale. A more detailed discussion of the economics can be find the Congressional Research Service’s (CRS) report at www.fas.org/sgp/crs/misc/RL32530.pdf.
Myth #2: “Big Oil” is making reprehensibly high profits at the expense of consumers.
Yes, American oil companies are making huge profits but it is important to put those numbers in perspective. Oil companies are absolutely massive and so require nominally huge profits to operate.
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