Oil Prices

[willydenn]

Good article from the WSJ.  I'm sure it will "displease" some of the Move-on crowd that frequent this site. 

"REVIEW & OUTLOOK 
 

Windfall Profits for Dummies
May 3, 2008; Page A10

This is one strange debate the candidates are having on energy policy. With gas prices close to $4 a gallon, Hillary Clinton and John McCain say they'll bring relief with a moratorium on the 18.4-cent federal gas tax. Barack Obama opposes that but prefers a 1970s-style windfall profits tax (as does Mrs. Clinton).

Mr. Obama is right to oppose the gas-tax gimmick, but his idea is even worse. Neither proposal addresses the problem of energy supply, especially the lack of domestic oil and gas thanks to decades of Congressional restrictions on U.S. production. Mr. Obama supports most of those "no drilling" rules, but that hasn't stopped him from denouncing high gas prices on the campaign trail. He is running TV ads in North Carolina that show him walking through a gas station and declaring that he'll slap a tax on the $40 billion in "excess profits" of Exxon Mobil.


The idea is catching on. Last week Pennsylvania Congressman Paul Kanjorski introduced a windfall profits tax as part of what he called the "Consumer Reasonable Energy Price Protection Act of 2008." So now we have Congress threatening to help itself to business profits even though Washington already takes 35% right off the top with the corporate income tax.

You may also be wondering how a higher tax on energy will lower gas prices. Normally, when you tax something, you get less of it, but Mr. Obama seems to think he can repeal the laws of economics. We tried this windfall profits scheme in 1980. It backfired. The Congressional Research Service found in a 1990 analysis that the tax reduced domestic oil production by 3% to 6% and increased oil imports from OPEC by 8% to 16%. Mr. Obama nonetheless pledges to lessen our dependence on foreign oil, which he says "costs America $800 million a day." Someone should tell him that oil imports would soar if his tax plan becomes law. The biggest beneficiaries would be OPEC oil ministers.

There's another policy contradiction here. Exxon is now under attack for buying back $2 billion of its own stock rather than adding to the more than $21 billion it is likely to invest in energy research and exploration this year. But hold on. If oil companies believe their earnings from exploring for new oil will be expropriated by government â€" and an excise tax on profits is pure expropriation â€" they will surely invest less, not more. A profits tax is a sure formula to keep the future price of gas higher.

Exxon's profits are soaring with the recent oil price spike, but the energy industry's earnings aren't as outsized as the politicians seem to think. Thomson Financial calculates that profits from the oil and natural gas industry over the past year were 8.3% of investment, while the all-industry average is 7.8%. And this was a boom year for oil. An analysis by the Cato Institute's Jerry Taylor finds that between 1970 and 2003 (which includes peak and valley years for earnings) the oil and gas business was "less profitable than the rest of the U.S. economy." These are hardly robber barons.

This tiff over gas and oil taxes only highlights the intellectual policy confusion â€" or perhaps we should say cynicism â€" of our politicians. They want lower prices but don't want more production to increase supply. They want oil "independence" but they've declared off limits most of the big sources of domestic oil that could replace foreign imports. They want Americans to use less oil to reduce greenhouse gases but they protest higher oil prices that reduce demand. They want more oil company investment but they want to confiscate the profits from that investment. And these folks want to be President?

Late this week, a group of Senate Republicans led by Pete Domenici of New Mexico introduced the "American Energy Production Act of 2008" to expand oil production off the U.S. coasts and in Alaska. It has the potential to increase domestic production enough to keep America running for five years with no foreign imports. With the world price of oil at $116 a barrel, if not now, when? No word yet if Senators Clinton and Obama will take time off from denouncing oil profits to vote for that."

[jaxnative]

Good article.  Hillary came up with another idea of economic ignorance to pander to the ignorant.  She now wants the evil oil companies to pay for the federal gas tax holiday over the summer from their obscene profits.  None of the candidates has offered any solutions that will improve the energy problem and, in fact, have offered ideas that will make things much worse.  Hillary's and Obama's old and disproven idea's of taxes, taxes, and more regulation, and McCain's apparent appeasement to the environmental lobby do not bode well for the future well being of the economy and people's standard of living.  The answer is staring them in the face but welcome to the new hysterical world where more and more lemmings are lining up at the cliff.

[jaxnative]

why are the prices so high again?

Because the market( the oil producing nations, the companies, the shippers, the refiners, the commodities dealers, the retail sellers )  continue to view the insane and potentially disasterous energy policy of the US Congress as they ride the road to economic hell paved with the false sense of good and morally superior intentions.  Unless a miracle breakthrough occurs in hydrogen fuel technology and even less so in any of the other alternatives, we will continue to decline until we reach a critical point where our Congressmen will be afraid to walk the streets until they do the right thing and get the hell out of the way.

[willydenn]

how, exactly, did oil go from the low 30s to 120 a barrel in three years again, willy?

Price is generally set when supply meets demand.  When demand goes up so do prices. 
Maybe it was George Bush or the evil oil companies?  I have an idea.....let's regulate a company's profit when we don't like how they are making their money.  You mean someone has already thought of that?  Darn! 

[willydenn]

In all seriousness though, drilling off Florida, California, and or ANWR would significantly help.  Building a refinery more than once every 35 years is a good idea.  Nuclear energy is an excellent way to go!  It's clean and we already have the technology!  There are multiple of options if only Congress would get off their "cave in to special interest" butts.  The idea of regulating profits is silly and gets us on another very slippery slope. 

[Lunican]

Oil Passes $120 as Dollar Weakens

Filed at 3:35 p.m. ET

NEW YORK (AP) -- Oil futures surged to a new record over $120 a barrel Monday, raising concerns about higher prices for gasoline and goods and services throughout the economy. Retail gas prices fell more than a cent over the weekend, but oil's advance increased the likelihood that pump prices would resume their climb.

Supply threats that emerged overseas and a weaker dollar sent light, sweet crude for June delivery to a new trading record of $120.36 a barrel on the New York Mercantile Exchange before futures retreated slightly to settle up $3.65 at a record $119.97.

http://www.nytimes.com/aponline/business/AP-Oil-Prices.html

[willydenn]

how, exactly, did oil go from the low 30s to 120 a barrel in three years again, willy?

Price is generally set when supply meets demand.  When demand goes up so do prices. 
Maybe it was George Bush or the evil oil companies?  I have an idea.....let's regulate a company's profit when we don't like how they are making their money.  You mean someone has already thought of that?  Darn! 

so........
we spend three trillion to guarantee oil supply.
the price instead goes from 32 dollars a barrell to 120 dollars a barrel in 3 years after taking 100 years to get from 1 dollar a barrel to 30 dollars a barrel.
the economy, in serious trouble from the money spent on the war is nearly crippled by the prospect of higher energy prices and
suddenly the oil companies are making their most gigantic profits in the history of the business.

I agree with you willy.  Dont tax the bastards.
Just make them pay for the war instead.

Its great that you think the oil companies should get to keep all the money that they can stuff into a safe.

Its too bad that you hate regular american so much that you dont give them the same rights.

Oil prices have spiked due to the weakening of the dollar and ever increasing demands around the world (especially China and India).     

Why shouln't oil companies keep thier own money?  They earned it.  They are publicly traded which means many "regular americans" own it.  Maybe you should buy a few shares........if you don't have some already?  

The real indicator of any "gouging" is an increase in profit MARGIN, which is never talked about by our politicians.  The profit margin has held steady at about 10%.

Overall you nailed it.  I hate regular Americans.  And I "do not want to give them the same rights."....whatever that means

[Midway ®]

C'mon, you guys, stop fooling around. Nobody will buy a script for Idiocracy II. The first one went right to DVD!

[Lunican]

Oil soars to settle above $133

Futures surge after a government report shows a surprise drop in crude and gasoline stockpiles.

NEW YORK (CNNMoney.com) -- Oil prices hit a fourth straight closing record Wednesday - shooting over $133 a barrel - after the government said crude and gasoline stockpiles decreased last week, surprising analysts who were expecting an increase.

U.S. light crude for July delivery settled at $133.17 a barrel, up $4.19, on the New York Mercantile Exchange. Prior to the 10:30 a.m. ET report, oil was down 29 cents to $128.69.

Over the last four days, oil has gained more than $9 per barrel.

http://money.cnn.com/2008/05/21/markets/oil_eia/index.htm?postversion=2008052115

[thebrokenforum]

Oil Execs went before congress today citing "supply and demand" as the reason for high gas prices.


http://thebrokenforum.wordpress.com/2008/05/21/oil-exec-says-supply-and-demand-to-blame-for-rising-fuel-costs/

[Driven1]

the oil execs represent the supply side.

BRIC...
Brazil
Russia
India
China

there is your demand side.

[Midway ®]

Oh, don't worry. Oil will be down to $60.00 barrel by midsummer when the speculators all leave........

None of this is being driven by demand, nobody wants or uses oil, they all just speculate on it. Kind of like a parlor game, you know, like Monopoly.

everything will be just fine......

As you were.

[RiversideGator]

Supply is constrained in the US at least because government refuses to allow the exploration for and drilling of oil in much of the US.

[vicupstate]

Supply is constrained in the US at least because government refuses to allow the exploration for and drilling of oil in much of the US.

'That can't explain the run up in prices.  That was the case 6 months ago, 12 months, 5 years ago, 10 years ago.  The supply has not been 'newly' constrained, the demand has risen dramatically.   

That is like saying I have stomach pains because I don't wear bigger trousers after gaining weight.  Did the pants cause the pains or the weight gain?   

Too bad Raegan repealed the higher energy standards put in place by Jimmy Carter.  We would be foreign-oil free by now.  Not to mention no need for foreign oil, means no excuse for wars for oil.   

[Charleston native]

Yeah, those higher energy standards from good ol' Jimmuh sure prevented long lines at the gas station and calmed people from panicking as gas prices rose. 

Let's look at the overall big picture. Supply is constrained due to the federal government's idiotic policy to not drill and not explore for more domestic production of oil and gas, demand is up, and the value of the dollar has fallen. All of those facts are creating a perfect storm of price increases.

As indicated earlier, profit margin is a true indicator of price gouging. However, I notice that nobody even remotely cares about other "necessities" being priced out of our asses. Case in point, what about cell phone service? Isn't that deemed a practical necessity for the modern world? While the highest profit margin for any oil company was Exxon Mobil at 43.3%, cellphone service carrier Alltel had 57.2%, for example.

OK, maybe cell phones can be considered a "luxury". What about regular phone service with the telecom industry? Bellsouth = 59%,  Qwest = 59.2%, Sprint = 60.7%. How about tech companies like Microsoft, Google, and Intel? I believe that you would have great difficulty even posting here without their services. Gross profit margins? 81.4%, 69.3%, and 62.5% respectively.

Notice that the majority of the people who constantly complain about oil companies are the ones who have an environmentalist agenda. I think if you're going to convict companies for excessive prices for profit, you should at least have consistency in your argument.