by Christopher P Shelley

Created on: June 03, 2008

Lawmakers cannot free us from "market forces" because the oil market is not "free". In truth it's the most heavily government-regulated market from source to consumption, that exists in the world.

Let's start with supply: World oil supply is controlled by OPEC. OPEC is a cartel made up of 12 oil exporting governments. It's chaired by the Kingdom of Saudi Arabia, which sits atop the largest concentration of light sweet crude in the world. OPEC controls the world price of oil by purposely ignoring the free market and limiting production of crude oil. Meetings are held at OPEC headquarters in Vienna to determine each members quota and the supply (and therefore world price) that is exported. So on the supply-side, this product is controlled not by "free market" forces but by the subjective consensus of a few mid-east governments. If you control the supply, you control the price and OPEC has the world oil market "cornered".

Call me a economic maverick, but a board meeting used to pre-set the price of a product does not sound much like a "free market". In a true free market high prices would spur more drilling, exploration and refinement which eventually would introduce additional long-term supplies to the market and thereby bringing and keeping prices down. But oil is a market where this "freedom" is completely non-existent. Governments, through various regulations curtail the very market forces that would protect consumers from marginally high prices that we presently have.

I laughed out loud when I saw the title of this article. Governments control the supply, the production, and with taxes, all sales of oil and gasoline. So it's Government(s) and not the free market that truly sets the price of gasoline. Now one could argue rationally that there are important environmental concerns that must be considered when dealing with production and consumption of oil products, and governments need to play a role in protecting its citizenry. However valid the rationale of government intervention, the fact remains that it will degrade or even extinguish free market forces.

Think of it this way: What would happen to the price of gasoline if the governments of OPEC decided to disband and let production meet demand? And what if our government allowed people to drill in Alaska, Florida and North Dakota? My guess is a more palatable equilibrium between supply and demand would be found.

Should lawmakers free us from market forces? No. Lawmakers should inject some.

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