John M. Koren, Sr. – 2/2/05

This page was last updated on February 5, 2005.

Control the oil prices; John M. Koren, Sr.; Beaver County Times; February 2, 2005.

Below is a detailed critique of the subject letter.

“January 2002, No. 2 home heating oil was 89 cents a gallon; January 2005, home heating oil is $1.68 if you pay cash and $1.74 on a budget plan.

“Gasoline prices have doubled, too.

“I pay more than $2,000 a year just for school taxes on a house on a one-lane, dead-end road with no gas, water or sewerage. I worked 45 years in a steel mill to earn a livable pension and am on Social Security. Grocery prices are so high a person can only buy the bare necessities.

“When are the federal, state and local governments going to say enough is enough? We are gouging the people with taxes and high cost of living and they are fed up with losing jobs, their homes and their pride.

“How can oil companies lower gas prices 20 cents one month then raise them back up the next? Can’t the government control the oil prices?”

[RWC] It appears Mr. Koren doesn’t keep up with current events or economics. First, price controls never work. If the controlled price were below the true market value, the first result of price controls would be shortages. If a business can’t sell a product for a profit, the company stops supplying the product. If the controlled price were above the true market value, consumers would end up paying more than the product is worth.

Second, oil companies produce relatively little of the crude oil they refine into gasoline, heating oil, jet fuel, et cetera. Most of the oil must be purchased on the open market and from governments that set prices. That means oil companies are not in control of the prices they pay for raw materials, i.e. crude oil. Wide fluctuations are caused by various factors. Sometimes a refinery experiences an unplanned outage that reduces product supply. Given that most U.S. refineries run close to capacity most of the time, the U.S. refining system is not in a position to make up unplanned production losses. Another factor is uneasiness about activities in the Middle East. If people believe supplies from the Middle East will be interrupted, the price rises. When people worry less, the price drops.

None of us like to pay more for gasoline, but the free market tends to work as it should to balance supply and demand.

Why did Mr. Koren pick on oil companies when he claimed he was also being “gouged” by high taxes and grocery prices?

“Has anyone heard of an oil company filing for bankruptcy?”

[RWC] Yes. Texaco filed for bankruptcy protection in 1987. Yukos, a Russian oil company, filed for U.S. bankruptcy protection in 2004. While it is rare for major oil companies to go “belly up,” a lot of smaller oil companies we never heard about have gone bust. During the 20+ years I worked for Texaco/Star Enterprise we routinely went through cost cutting programs as did all other oil companies. In some cases, the cost cutting involved layoffs.