David Strom, the affable former president of the Taxpayers League of Minnesota will give a Citizens League “Policy and a Pint” audience this evening (event details here) his thoughts on what makes the price of gasoline go up and down. And those thoughts are these thoughts:

The price of gas would be a lot lower, except that governments in places like the United States won’t let the oil companies develop oil aggressively due to environmental concerns, and because too much of the easily reached oil is under the control of inefficient state-run oil companies in countries like Iran, Venezuela and Russia.

Strom, has noted with sadness the tendency of some to believe big oil companies and other malefactors of great wealth and power may be manipulating prices to the detriment of the gas-buying public. This belief that can lead to suggestions that the government step in. In short, too many people want more government in the picture, while less government would be the best policy.

Says Strom, who recently stepped down as Taxpayers League president and now runs the league’s Minnesota Free Market Institute:

“My main point is that prices are not established by any cabal or conspiracy as some people seem to think, but by the simple operation of the laws of supply and demand.”

Demand for oil has risen over recent years, substantially driven by the rise of the giant Asian economies of China and India. China especially, he said, is growing fast and uses oil very inefficiently. Rising demand puts upward pressure on prices unless met by increased supply.

And that increase in supply would probably happen, said Strom, taking aim at the notion that the world is running out of oil. “The known reserves of oil are quite large, larger than they were 20 years ago,” says Strom.

“People like the idea of cheap oil, but they don’t like what has to be done to extract it,” says Strom. “There’s no technological reason that the supply can’t increase quickly. The problem is political.”

(In case you’re wondering about Strom’s beliefs about whether oil interests are a factor in the decision to go to war with Iraq, he said no.) A fuller discussion of the Strom/Taxpayers League view of oil issues is available at the League’s site, in a paper titled “Gasbags.”

After getting Strom’s views, I ran them by Daniel J. Weiss, who follows energy issues for the Washington-based Center for American Progress.

Weiss agreed that there is “no smoking gun” proving that an “official cabal” is orchestrating oil prices. But the role of the big oil companies is not that of a leaf being blown about by the laws of supply and demand, as they appears in Strom’s vision.

The price of a barrel of oil is not at its record high, Weiss said, but the profits of the big oil companies have been regularly hitting record highs, Weiss said, so this makes him a little suspicious that something fishy is going on.

The annual combined profits of the Big Five oil companies have risen for at least five straight years from $35 billion in 2001 to $118 billion in 2006, Weiss said, and the first-quarter 2007 figures suggest that another record will be set this year.

He agrees with Strom that a major factor pushing up gasoline prices is that supply has lagged behind demand. But supply is also affected by the amount of oil that gets refined into gasoline.

The big oil companies operate most of the refineries, and no new refineries have been built in the United States for about three decades.

If the oil companies used some of their record profits to increase refining capacity, it would increase the supply of gasoline and drive down prices, Weiss said. Instead, they have been using their profits to buy back their stock, which adds to the wealth of their shareholders and their executives.

“So no, there’s no official cabal,” Weiss said. “The oil companies have the opportunities to increase profits by keeping the refining capacity low, and they have a lot of influence over the refining capacity, which remains low.”

For the truly obsessed, here is a May 2007 study by the non-partisan U.S. Government Accountability Office of factors that influence gas prices. It covers most of the points made by both Strom and Weiss.

What think?