Congress might lose its mind over energy, WSJ analyst warns

Gas prices at 106The Wall Street Journal‘s Energy Roundup blog passes on some thoughts from (oddly named) heavyweight finance reporter Worth Civils about what might happen if the price of energy commodities like gasoline keeps going up:

With income disparities in the U.S. at their widest since the late 1920s — sure to be a major political issue as the 2008 presidential election draws closer — both the Democrats and Republicans are sounding increasingly populist. That could put energy stocks on the hot seat in the months to come.

…“Our guess is that future such hearings resulting from the squeeze of middle-class incomes will have greater frequency and more impact on companies’ earnings,” [Merrill Lynch strategist Richard] Bernstein said. “Investors might want to increasingly consider the rising potential for political backlash if the summer season’s headlines are about food and energy inflation instead of about the Yankees’s renewed dominance of Major League Baseball.” (including windfall taxes and investigations into speculators’ activities)

The note here is written for investors, warning that Exxon might not be a great investment if the U.S. Congress decides to score some points on behalf of the middle class and take a whack at some highly profitable energy companies just for the look of the thing. It contains wisdom for consumers about the problems of dumb populism.

Exxon and other oil companies, in particular, are so damned profitable because they’re highly integrated, highly efficient companies that are in the business of providing a substance, gasoline, that a lot of people have simply decided they won’t do without. They make money off every step of the supply process from the moment a drop of crude comes out of the well to the moment a drop of refined gasoline falls into a car’s tank. Some of them even offer gas-station credits cards so they can make profits lending consumers the money to buy their products.

But there’s nothing dishonest about this. Nobody forces drivers to drive, or to drive cars that burn a lot of gasoline. There are alternatives that drivers choose not to use.

Every, but every legislative complaint about the price of gasoline and the profits that oil companies make supplying it, relies on denying this fact. Sometimes explicitly, sometimes in passing, but without exception.

Congress or Parliament or whoever can tax the hell out of these companies’ profits, which only discourages them from supplying the stuff their customers keep pulling in to buy. Legislators can, if they want, fix the price of gasoline, which would only lead to shortages.

As long as they only fulminate, and maybe drag successful businessmen and -women in front of them for the occasional ritual humiliation, then fine. They’re not doing too much harm except wasting time. But the only real solution to high gas prices does not rest on the Senate or the House of Representatives or any parliament building, it’s in the brain of every consumer who looks at the big sign with the dollar figure on it, lets loose a sigh that turns into a growl at the end, and then pulls in and fills up.

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