Feeling Gassy: High Prices Do Not Equal Fraud

The federal government is putting together a task force to investigate fraud in energy markets.  Attorney General Eric Holder announced the formation of the Oil and Gas Price Fraud Working Group to "monitor oil and gas markets for potential violations of criminal or civil laws to safeguard against unlawful consumer harm."  The announcement continues:

“Rapidly rising gasoline prices are pinching the pockets of consumers across the country,” said Attorney General Holder.   “We will be vigilant in monitoring the oil and gas markets for any wrongdoing so that consumers can be confident they are not paying higher prices as a result of illegal activity.   If illegal conduct is responsible for increasing gas prices, state and federal authorities should take swift action.”

Pander, pander.  I'm assuming someone will check into the "pinched pockets" of Verizon customers who no longer get the same deals when renewing their phone contracts as they once did.  And, of course, Apple consumers, must be getting pinched.  With profits up 95% how can the Justice Department ignore the magical, gravity defying Apple?  According to one report,

"The numbers have gotten too big to ignore as Apple defies the law of gravity with 83 percent year-over-year revenue growth," JP Morgan analysts said. "In our view, Apple is the magical growth story in large-cap tech."

Gas prices are high around the world.  In a rare move, on Wednesday, Chinese truckers protested the high fuel costs in Shanghai. Everybody, it seems, is irritated by the costs of fuel.  But that doesn't make it fraud. I'm not saying there isn't fraud in some energy markets, but price fluctations in a relatively open and global market are hardly shocking.  If we want to control prices, then we should have the government buy all the country's fuel to level prices.  Or we could all take measures to hedge and lock in prices. But we don't. Most of us prefer to buy in the spot market. 

On March 2, when the prevailing view seemed to be $4 per gallon gas by the 4th of July, I wrote that I thought gas prices would hit $4 per gallon by Memorial Day.  We're almost there in most of the country, and already there in a few places.  I never said I wanted to be right on that (quite the contrary), but it's what I expected.  I didn't make that prediction based on my anticipation of massive fraud.  It's just my sense of the market. 

I am speaking later today at The Third Annual Biofuels Law and Regulation Conference, “Exploring Cutting Edge Legal Issues at the Nexus of Bioenergy,” at University of Illinois at Urbana-Champaign’s Illini Union about renewable fuels and the psychological hurdles that are impeding our process of fuel switching from oil as our primary transportation fuel.  Without ignoring the enormous technological hurdles we have remaining, it is clear to me we think we can still manage oil -- from exploration to extraction to market -- in a way that is entirely unrealistic, especially as world demand has grown.

Don't get me wrong.  I'm all for ferreting out fraud. I just don't see high prices in a global market as very good indicator that fraud is occurring.  And I think our efforts, on the fraud front and on the energy policy front, would be better focused somewhere else. 

And, for what it's worth, I don't think we'll see $5 per gallon gas this summer (but it might get close).

--JPF