A Strong, Stable and Competitive Oil Market Is Essential for America's Economic Health | Eastern North Carolina Now

    You've no doubt heard the famous quote from Charles Wilson: "What's good for GM is good for America." What you may not know is "the rest of the story." You can read it HERE. These days Wilson would likely say: "What's good for the energy industry is good for America."

    America has in the last few years achieved near independence from foreign oil. It has done so primarily because of "fracking" of shale oil. It is a bit of a stretch to say it, but an argument can be made that the reason shale oil has been so productive is because of independent oil companies, not so much because of the Major Producers. Horizontal disaggregation of oil production has been good for America and ultimately the American consumer.

    Meanwhile, a war is taking place in the Middle East between oil producing countries. Saudi Arabia, ostensibly to drive the price of oil down to bankrupt Iran, has thereby dragged Russia also to the brink of catastrophe. All of these companies need a floor to the price of crude. Without it, then it only becomes a matter of time before this trade war heats up to a fighting war. Someone once said: "more wars have been fought over oil (in the last century) than over anything else..." Whether that is literally true or not, what is not in dispute is that volatile oil prices produces instability.

    What exacerbates this volatility is the devastation that is being wrecked on the small, independent oil producers in America. Without a competitive oil market the number of people who can, and likely will, control America's energy market can be put in a small room. And a handful of people that almost no one knows who they are, much less unelected and not accountable, will control our future. America needs a competitive energy market and a competitive energy market needs many producers, not fewer.

    Today (4-20-20) the price of crude fell the $40 a barrel. That's the lowest crude has been since 1983. All of the major stock market indexes fell likewise. Need we say more?

    Probably not, but we will.

    America's oil industry is already very non-competitive because of "vertical integration." The short explanation of that phenomenon is that your local gas station likely buys all of their gas from only one supplier. They don't even call around when they are in need of a tanker of gasoline and diesel. They call only one jobber, or wholesaler, to order a load, no matter what the price is. In a highly volatile crude market they might be able to get a load at significantly lower prices but are unable to do so because of interlocking agreements, which actually eliminates competition at the wholesale level. You pay the "rack price" or you don't get any product. That works some of the time. But if there is a disruption of the supply of gasoline and the local gas station orders a load they may be told "we can't get any gas." But if you drive by the tank farm terminal in Selma you will no doubt see truck after truck pulling out to make deliveries, except for some retailers. Too much of this and your local station shuts down. Enough stations close and the few remaining can jack their prices up and you are stuck. That's how John D. Rockefeller built Standard Oil.

    Bottom line? Instability in the energy market and the lack of what little competition is already there is not good for America.

    Shortsighted people love lower priced gasoline at the pumps. But that is likely to be only the lull before the storm. Get ready for the crash.

    Click HERE to read more.