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Oil company funny bizness 'splained

A new report from the Congressional Research Service does not furnish material useful in blaming the president for precipitously rising prices at the pump. It gives no obvious opening to those who might think of appealing to oil companies for help in the matter, either, like pleading for increased production. And, in view of its statistics, it furnishes no obvious information elucidating why oil companies receive tax breaks and constant government energy policy subsidies.

The CRS report is entitled "Financial Performance of the Five Major Oil Companies, 2007-2011."

Such reports are requested by Congress, usually as ammo for hearings or background for some other type of activity in which various members of Congress pontificate and, perhaps, even legislate. However, CRS reports do not tell which members ordered them. And Congress does not make them available to the public.

Which is why Steve Aftergood's Secrecy blog does. And he has put it on-line here.

One part of it reads:

The incentive of higher and rising oil prices in 2007-2008 and 2010-2011 did not result in observably higher production of the five oil companies. Similarly, the disincentive of lower or falling oil prices did not result in observably lower production by the companies ... The five major oil companies seemingly have not behaved in accord with market economic theory with respect to output adjustments in relation to changing prices. That theory depends on the responsiveness of firms to price signals to expand output in times of higher and or rising prices and to provide reductions to output during lower and or falling prices. In this way price volatility in the market is reduced while keeping supply matched to demand.

The report observes that oil companies do not obey market economics and that the "oil market ... is difficult to fit into the model of free market adjustments."

Perhaps the five largest oil companies could be viewed as a power unto themselves. Like a cartel.

"Bringing new oil supplies on the market can be a double-edged sword for oil producers," continues the report.

"While the oil companies need to expand their reserve bases to replace losses due to production they ... may find it not in their best interest to expand available supply too much, too quickly. When oil supplies flood the market and excess capacity rises to excessive levels, the price of crude oil can tumble. A sharp decline is not in the interest of oil company profits ... "

The illogic, then, of allowing "excess capacity rising to excessive levels" seems indisputable. If somewhat vexing and evil.

"The capital expenditures of the [oil companies] have not succeeded in increasing their production of oil and natural gas," concludes "Financial Performance of the Five Major Oil Companies, 2007-2011."

"They have been successful in providing returns to their shareholders."

The report, again, is here.

We can thank Steve Aftergood and the Secrecy blog for making its analysis available to all. Even when the information is not comforting.

This post was originally published at Dick Destiny blog.

The opinions expressed in this article and the SitRep website are the author's own and do not reflect the view of

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