Oil Prices: Corporations and ECON 101

Let's get a ground rule established: The oil companies are NOT government owned, controlled or regulated. (Maybe they should be ... and might just end up that way if world oil supplied become critical.) They are operated as a public corporation and BY LAW must act in the best interest of the stockholders - NOT the consumers! What does "best interest" mean? It means, for example, that Exxon/Mobil is required to run the business in a manner that produces the most return to the stockholders.

What would happen if Exxon/Mobil decided to be benevolent and cut retail gas prices and be a "good guy?" The first thing that would happen is the stockholders would find a group of attorneys with vicious sharp teeth and sue the "you know what" out of Exxon/Mobil. The cause of action would be that Exxon/Mobil was not acting in the best interest of the stockholders and therefore, the stockholders were losing money to which they feel entitled.

Regardless of all the investigating, posturing and pure BS by the current crop of political guru's, there is NOTHING they can do to adjust the prices charged by Exxon/Mobil ... or Nike, for that matter. Yes, the politico's can reduce taxes or change environmental regulations which might make manufacturing the product easier and cheaper, but the bottom line is still the same: They charge what they want and if you don't like it - don't buy it!

I hear that some politicians recommend suspending federal gas taxes for a period of time, possibly through the summer. Consider this: Let's assume that the current price of a certain grade of gas is $3.75/gal. If the Fed's cut the tax by $.50, then the same gallon of gas should be $3.25. Ahh, but wait a minute: So far, albeit with loud complaints, we're currently paying the asking price of $3.75 and using virtually the same amount of gas. So if the price suddenly drops to $3.25, with tax suspension, Exxon/Mobil, acting in the best interest of STOCKHOLDERS, knows full well that if they raised the price of gas, so that the consumer is still paying $3.75/gal. the stockholders profits will be even greater and the consumer will complain even more - but will continue to buy virtually the same amount of gas! Same amount of gas, higher prices, more money for stockholders - good deal! Buy Exxon/Mobil stock. (I do!)

ECON 101, clearly states that the best price for any goods or services is the highest price you can charge before the customer starts cutting back on purchases. Even then, the best price for maximum return to the company is that price where there actually is some cutback in demand. Bottom line: Until the gas consumer actually cuts back in purchases, which so far is negligible, the price keeps going UP!

Where the government can act, is in the case of an "Enron type" of market manipulation. This seems likely, but my guess is isn't. Enron was acting in a stealth mode, thinking they could could get away with it. With all the spotlights on the oil companies, it would take a "village idiot" mentality to try to manipulate the market. Ain't going to happen ... no need for it. The consumer just pumps more money right into the pockets of all the stockholders.

Do I need to say it again? The government is impotent in bringing down gas prices. Don't believe the BS the politico's are tell us.