At TotalEnergies, a cleverly rehearsed rhetoric on supply and demand

On April 9, 1947, a trial began before the federal court of Southern California in San Diego, the outcome of which is still controversial today. In the dock are nine major companies, including the car manufacturer General Motors, tire manufacturer Firestone, Phillips Petroleum and the oil company Standard Oil of California, which will become Chevron.

The public authorities accused them of conspiracy for having constituted a monopoly having knowingly purchased, at low prices, the electric tram companies of Los Angeles, San Diego, Baltimore and many other cities in the United States, to convert them by gasoline bus and consecrate the reign of the all-automobile. Electric urban transport, which preceded the car, was no longer adapted to the modern times of suburban suburbs and penniless municipalities.

Retried many times, without any real conviction, this case remains the symbol of the omnipotence of the producer over the consumer. From cigarette manufacturers to those of beauty products or medicines, the list is endless of large industrialists who use their power to guide the choices of their customers.

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Is it the same today with oil? In other words, can the major players in the sector, familiar with cartel practices, still influence supply or are they content to follow demand? An essential question since it conditions a good part of the future of the energy transition. “There is this misconception that supply could dictate demand, declared the CEO of TotalEnergies, Patrick Pouyanné, to the Bloomberg agency on April 26. But it doesn’t work like that. »

“Price elasticity is zero”

So how does this work? In a capitalist economy, consumer demand can be stimulated by innovation, which creates a market – the tire, the internal combustion engine –, by influence, whether in the form of lobbying or advertising, and by regulation, itself subject to influence. But, in the end, the justice of the peace remains the prize. He is the great regulator of supply and demand. Well, most of the time.

When it comes to oil, it doesn’t work so well, argues economist Patrick Artus, who says that, in this area, “price elasticity is zero”. In other words, if the cost of gasoline increases, people continue to fill their tanks because they have no choice but to do so. On the other hand, these high prices encourage producers to produce more, or even to open new wells.

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