02/18/2006 07:08 am ET Updated May 25, 2011

OPEC Pushing To Refine Our Addiction

As its latest favor to Western consumers, Opec plans to increase refinery capacity in the Persian Gulf by 60 percent over the next decade. If we want to lower oil prices, said Saudi Oil Minister Ali Al-Naimi just a few days ago, "Build refineries, build refineries, build them right now!"

Naimi reminds me of Tom Lehrer's Old Dope Peddlar, spreading joy wherever he goes- and building
tomorrow's business by giving the kids free samples.

Led by Naimi, OPEC has been claiming for several years that it is lack of refining capacity that is driving oil prices ever higher. But the argument is transparently false. A shortage of refineries could certainly account for higher prices of refined product--gasoline, diesel oil, jet fuel, and the like. But it would not push up the price of crude oil. In fact, if crude oil were flowing freely and there weren't enough refineries, that would tend to drive the price of crude down. If you haven't noticed, the reverse is happening. Yet again OPEC simply wants to hide the fact that it is manipulating the oil market with phony shortages and artificially high prices.

It's true enough that we are pushing the limits of refinery capacity in the United States. Largely because of enviromental concerns and understandable not -in -my -back -yard reactions from local communities, there haven't been any new refineries built in this country for three decades. But existing refineries have been expanded and moderniized, and we have been importing enough refined product, mostly from Latin America and the Carribean, to keep up with demand.

If we don't want refineries in our back yard, the OPEC nations will be happy to build them in theirs. But this sample from the peddler will have two main effects. First, it isn't really free: The producers will keep the refining profits on top of the circa $60 a barrel that they already get for their crude--an enormous windfall. And more important the Persian Gulf will become the world's biggest source of refined product as well as making up the major portion of OPEC's 40 percent share of the world's crude production. In other words, even as President Bush vows to reduce America's dependence on Middle East crude by 75 percent, the reality is that we would become even more deeply addicted.

Have a snort kiddies. It's really cool!!