Oil Bubble?

Readers of this blog should be aware that I am NOT a "big business", Wall Street Journal type conservative.  I believe in the FREE MARKET.  As I have said repeatedly, free market theory CONFLICTS with businesses which are so big that they can visibly and/or knowingly influence the market in which they exist.  This is especially true of big business created by merger, as most of Big Oil (and Big Drug and Big Telecom and....so on) have been created.

 

As I have also said repeatedly the problem with central planning (socialism and communism and authoritarian systems of all kinds) is that there are too few decision makers.  If the decisions of any of those decision makers are wrong, as some inevitably will be, the result is absolute DISASTER.  This is true of big business empires the same as it is true of Big Gobvernment empires.  Free market sefl-correction fails to work in this situation (of huge corporate empires; the theory says it will not work in such situations--free market theory being based on the idea of an "invisible" hand of MULTIPLE market units making decisions which ultimately translate into the public good). 

 

Conservatives tend to have a blind spot in this area, because they reflexively (and correctly) distrust big government attempts to control private business.  However, government intervention to prevent big mergers PROTECTS free market theory, and does not interfere with free markets.

Rush Limbaugh, to take one example, periodically CRITICIZES big business, and "country club conservatives".  But he then will contradict himself, and say (for example) that government produces no oli, but that the big oil companies produce the oli we need.  The flaw here is that they would produce MORE oil, with less disastrous mistakes, if there were more separate companies.  Gulf, Mobil, Standard Oil of Indiana, Standard Oil of Ohio, Phillips, Unocal, Shell, Texaco, etc. and etc.--almost ad infinitum, used to be SEPARATE oilcompanies producing oil, with more DECISION MAKERS.  Mergers resulted in the disappearrance of all of those oil companies--NOT success in the production of oil  In fact, FAILURE in the production of oil was almost rewarded, because big oil companies could MERGE and obtain oil resources on the STOCK EXCHANGE (rather than finding and developing more oil resources as separate companies).

 

As I have said before, the reason that leftist Democrats do not make a bigger issue of big mergers is that they HELP the case for Big Government (providing easy targets for demagoguery).

 

With all of those billions of dollars, not generated by prodcution success but by MERGER, has Exxon accomplished a lot in terms of producing oil (even when the incentive is hisghest)?  Don't be silly.  See below.

 

Nevertheless, we are approaching a BUBBLE in oil.  That is not because we have encouraged competition, and a diversity of oil companies (and therefore a diversity of decision makers).  Nope.  We have pretty much ruined competition in oil and gasoline--aided and abetted by environmentalists preventing drilling and new refineries.   The reason we are approaching a BUBBLE (housing type--1980's/1990's type) in oil is that we still have a free enterprise system, even if we fail to try to implement rree market theory. 

 

Thus, you have the shallow oil formation from the Dakotas to Montana, that has BILLIONS of gallons of oil--at a high enough price.  It takes expensive, ;horizontal drilling to produce it (maybe $50.00 a barrel in cost).  We still have oil shale (massive amounts), and mssive amounts of environmentally sensitive coal.  Then there are the "alternative" energy sources, that become competitive at SOME price of oil. 

 

Pieces are falling into place (including economic slowdown) for a COLLAPSE in the price of oil.  As with housing, it is a DELUSION that the former economic forces have been supterseded in the case of oil.   Those forces will eventually have their way.  It may not be this year.  Maybe it will be next year.  But, as with housing, it WILL happen (and those who demand "bail outs", or are shoucked, when it does should simply be taken out and shot).

Meanwile, my brother is co-owner of a trucking companty.  See above as to the effect on conservative political arguments of allowing all of these big mergers.  My brother is by no means a leftist/liberal.  However, he is looking at these huge oil companies (again, created by MERGER, and not efficiency in finding oil) crying crocodile tears.  This causes my brother (and many others) to simply turn off their hearing aids (my brother does not actually have one--being younger than I am--and this is meant figuratively) to people like Rush Limbaugh saying that we should be GRATEFUL to Exxon for producing oil.  Here is the latest email conversation I had with my brother:

 

"Did you see the article (written by a main street media writer no less) about how Exxon plans no increase in production of oil through 2012.  This person actually managed to reason (Somebody must have tipped them off) that if Apple or GM had a growing market but planned no increase in production that they would be crucifed.  Why did Exxon plan no increases.  But you won't be dissappointed, they were easily misled by the answer.  Apparently it made sense to Exxon and the press that the reason there were no increases projected was because they have some fields that are winding down and the fields that are coming live are just going to cover the losses on the winding down fields.   But Exxon is spending $24 billion/year compared to $21 billion they were spending before on new production so they are right on top of things.  If this doesn't prove they and the 4 other oil companies are monopolies I don't know what does.  They are even so arrogant they don't even hide it. 

 

This is my reply:

 

 

As we know, even IF Exxon is actiong in good faith (a big "if"), Exxon is just too big.  These decisions are being concentrated in the hands of too few.  There should be at least FIVE separate companies spending that "24 billion" for oil production projects, and deciding how MUCH money should be spent.  And, from past experience, what will Exxon do if it NEEDS more oil (because its production efforts are not adequate)?  Exxon will simply try to BUY THE OIL ON A STOCK EXCHANGE BY ACQUIRING ANOTHER COPANY, OR ASSETS OF ANOTHER COMPANY WITH PROMISING OIL PRODUCING ASSETS. 

 

It is sad that no one seems to realize what has happened here.

 

Q.E.D.  Don't doubt me on this.  I know what I am talking about.  These big mergers--not only in oil, but in Big Drug, Big Telecom, etc.--are a disaster for the conservative cause.  They result in huge companies which which no one sympathizes, AND which violate free market theory.