Oil Prices

[RiversideGator]

And the weakness of the dollar plays a key role in the oil price problem:

Oil Is Up Because the Dollar Is Down
By DAVID T. KING
May 23, 2008

Back in December 2002, one dollar equaled one euro. But that exchange rate didn't last. The dollar was on its way down, a trend that had started more than a year earlier, and has lasted, with occasional oscillations, to this day.

On the day in 2002 that the value of a dollar was exactly the same as the value of a euro, the price of a barrel of oil was, therefore, the same in dollars and euros: about 25. Since that day, it's like the two currencies have traded on two different planets.
[Oil Is Up Because the Dollar Is Down]

Certainly energy prices have risen, regardless of what currency you use. In Europe, the price of oil has risen by 50 euros in the past five-and-a-half years. It now stands at about 75 euros per barrel, three times what it was then. But in the U.S., the price of oil has risen to over $120 per barrel, and is now almost five times what it was then.

The sole reason for this enormous difference is the incredible depreciation of the dollar against the euro. From one for one at the end of 2002, it now costs nearly $1.60 to buy a euro.

The chorus of complaints about the price of gasoline gets louder every day, and is even becoming a campaign controversy both across and within parties. The same old solutions we have heard for years are being proposed â€" conservation, increased domestic exploration, manipulations of the tax on gasoline. But no one is pointing to what is by far the biggest reason for today's $60 fill-ups. The collapse of the dollar exchange rate, alone, explains at least half of the increase in the pump price of gas over the past five years. If it wasn't for the falling value of the dollar, the price of gasoline wouldn't be an issue.

Maybe the reason nobody talks about it is because they don't think you can do anything about it, or that it's somehow too esoteric to talk about exchange rates. But, economically speaking, what is more fundamental to us than the value of our currency? Why have we allowed the value of a dollar to fall by half?

The conventional wisdom, followed by U.S. administrations for the past 30 years, is that "the market" knows what it's doing in setting these rates, based on "the fundamentals" of the economy. This is, by the way, more or less the same market â€" the same band of traders, both on and off Wall Street â€" who, based on some view of the fundamentals, valued Bear Stearns at $100 a share one year ago. As the prevailing view of its fundamentals rapidly shifted, Bear's stock value collapsed, but it hurt only Bear's stockholders. The collapse of the dollar hurts everyone â€" a lot.

The fact is that the dollar exchange rate is way out of line with the fundamental strength of our economy, and even with such well-known fundamentals as relative inflation rates.

But when it stays out of line for too long, it starts to feed back on the fundamentals themselves. The dollar has been so weak for so long that it's now causing inflation even at a time of recession. It's to blame for the excessive price of gasoline, and now is pushing dangerously into wholesale price inflation, based on the most recent data published by the Labor Department.

Will the market, accommodated by hands-off policy makers, now say that we need more depreciation to offset the inflation that depreciation itself has created?

We don't need gas tax holidays. Exchange rates can be managed. We need exchange rate policy.

Mr. King, a former chief of the New York Federal Reserve's Industrial Economies Division, is a managing consultant for Emerging Markets Group Ltd., in Arlington, Va.

http://online.wsj.com/article/SB121150088368615927.html?mod=opinion_main_commentaries

[RiversideGator]

Blame Washington, Not Oil Companies

By INVESTOR'S BUSINESS DAILY | Posted Thursday, May 22, 2008 4:20 PM PT

Energy: Senate Democrats, dragging executives from five major U.S. oil companies before them for a second day, say they're alarmed by our "failed" oil markets. What they should be is ashamed.

IBD Series: Breaking The Back Of High Oil

After all, it's mostly the fault of the Congress that we're in this mess. True, the Big 5 announced profits of $36 billion in the first quarter, as oil breached $100 a barrel and just kept going. This prompted nothing but contempt from Illinois Sen. Richard Durbin this week: "Where is your corporate conscience?" he asked the oil executives, forced to sit and listen.

Others concluded that this must be a market problem. "We need to get prices under control," said Sen. Herb Kohl of Wisconsin. "We can only conclude that the oil markets have failed."

Well, markets have failed. But the failure is due to Congress' refusal to let oil companies drill on federal lands, thereby cutting sharply into our supply of crude as world demand grows and prices soar both here and abroad.

Congressional ignorance of basic laws of supply and demand is at once bizarre, breathtaking and frightening. For example, the American Thinker Web site this week took note of a speech delivered by New York Democratic Sen. Chuck Schumer on May 13. In it, he urged the U.S. to force Saudi Arabia to pump a million barrels a day more of oil â€" which Schumer claimed would slash the price of crude by $25 a barrel.

What Schumer didn't say was that 1 million barrels is exactly the amount of extra oil the U.S. would today be pumping if President Clinton hadn't vetoed drilling in the Arctic National Wildlife Refuge in 1995. Despite this, Schumer still opposes drilling in ANWR.

As for those massive oil profits, Democrats want to slap Big Oil with a "windfall profits tax." In fact, since 2002 the U.S. oil and natural gas industry has earned about 8.1 cents per dollar of sales â€" exactly the same as all U.S. manufacturing, excluding autos. Not much of a windfall.

To listen to Congress, you'd think oil companies don't pay taxes. Nothing could be further from the truth. In 2006 alone, according to the American Petroleum Institute, U.S. oil companies paid some $138 billion in taxes to the IRS â€" and that doesn't include special oil severance, sales and use taxes companies also had to pay.

The total effective tax rate on oil is about 40%. This compares with a top income tax rate of 35% for all corporations. If anything, Big Oil is overtaxed.

A recent study by Ernst & Young notes that the same Big 5 oil companies that Congress harshly criticized this week earned $662 billion from 1992 to 2006. A lot of money, to be sure. But keep in mind that they invested $765 billion over the same stretch to bring us more oil from ever smaller pieces of the Earth's surface.

We are in the midst of a major global oil-supply crunch â€" one that can only be broken by Congress and other governmental bodies around the world taking concrete action.

A report released Thursday by the Department of the Interior notes that most of the oil and 40% of the natural gas under public lands in the U.S. is off-limits to drilling. That's about 19 billion barrels of oil and trillions of cubic feet of natural gas.

A separate report, this one from the International Energy Agency, warned of a looming global supply crunch resulting from the failure of governments â€" not private oil companies â€" to invest more or open up their lands for exploration and development.

One of the oil business's dirty secrets is that only 6% of all reserves are controlled by investor-owned oil companies such as those demonized by Congress. The rest are controlled by governments, one way or another. And 11 of the 15 largest oil companies are government-owned. Government is the problem, not "Big Oil."

That's why this ridiculous blaming of oil companies must stop, and why the companies must be allowed to get back into the business of pumping oil. Once this happens, we'll find that the markets that ignorant and demagogic politicians called "failed" will once again turn out plentiful energy at prices people can afford.

http://ibdeditorials.com/IBDArticles.aspx?id=296349069670261

[Lunican]

A report released Thursday by the Department of the Interior notes that most of the oil and 40% of the natural gas under public lands in the U.S. is off-limits to drilling. That's about 19 billion barrels of oil and trillions of cubic feet of natural gas.

So there are 19 billion barrels of oil off limits in the United States because of environmental concerns.

Considering that the U.S. consumes 20,687,000 barrels per day, those 19 billion barrels will last 918 days, or 2.5 years. This does not sound like such a great solution.

[Charleston native]

If you think alternative fuel choices that are equivalent or better in power than current oil are just going to magically appear by uniting Congress efforts and then be the magic pill for our energy needs, I have a 1,500 foot bridge in Arizona I can sell you. Congress has been completely inept in creating an energy policy for the country that will effectively and efficiently use all our resources. More interference and meddling by the government is only going to prolong our misery.

To honestly believe that hindering oil companies is the best policy to make alternative choices the primary choices in energy wreaks of lunacy.

And as far as "destroying wildlife", Stephen, that argument is false, delusionary, and tired. Seeing nature thrive around the Pipeline and other drilling areas totally negates that argument. Besides, I think that photo of the ANWR area speaks for itself. I hardly think they'll damage anything that basically contains nothing.

[Lunican]

And as far as "destroying wildlife", Stephen, that argument is false, delusionary, and tired. Seeing nature thrive around the Pipeline and other drilling areas totally negates that argument. Besides, I think that photo of the ANWR area speaks for itself. I hardly think they'll damage anything that basically contains nothing.

[Lunican]

How would an oil spill off the coast of Florida affect tourism?

[RiversideGator]

A report released Thursday by the Department of the Interior notes that most of the oil and 40% of the natural gas under public lands in the U.S. is off-limits to drilling. That's about 19 billion barrels of oil and trillions of cubic feet of natural gas.

So there are 19 billion barrels of oil off limits in the United States because of environmental concerns.

Considering that the U.S. consumes 20,687,000 barrels per day, those 19 billion barrels will last 918 days, or 2.5 years. This does not sound like such a great solution.

I believe those are the known reserves.  Since the areas are currently off limits to additional exploration, there is doubtless many more billions of barrels.  Also, by increasing the supplies you would lower prices.  This was sort of the point.

[RiversideGator]

A report released Thursday by the Department of the Interior notes that most of the oil and 40% of the natural gas under public lands in the U.S. is off-limits to drilling. That's about 19 billion barrels of oil and trillions of cubic feet of natural gas.

So there are 19 billion barrels of oil off limits in the United States because of environmental concerns.

Considering that the U.S. consumes 20,687,000 barrels per day, those 19 billion barrels will last 918 days, or 2.5 years. This does not sound like such a great solution.

Lunican, it totally isnt.  That is unless you mean a solution to the sucky electoral odds faced by the heavily oil identified republican party.

Its just another delay.

It would be different if these titans of the sacred public trust of capitalism were doing something intelligent like massively infusing their R and D departments for alternative energy options the way that T. Boone Pickens is and the Rockefellers are demanding, but they arent.

They literally have no plans beyond the present.

Stephen:  My plan is to go nuclear in a big (and safe) way until something better comes along.  You then continue to develop electric cars.  Eventually, the batteries will be such that they can be cheaply mass produced and will be able to exclusively power cars.  In the meantime however, we use the oil we have at our disposal.

[RiversideGator]

So much for the myth that the oil companies arent paying their fair share of taxes:

Investor's Business Daily -- In 2006 alone, according to the American Petroleum Institute, U.S. oil companies paid some $138 billion in taxes to the IRS â€" and that doesn't include special oil severance, sales and use taxes companies also had to pay.

Internal Revenue Service (Table 6, p. 41) -- In 2005 (the most recent year for which data are available), the bottom 75% of all individual taxpayers (about 100 million taxpayers out of 132 million total) paid about $130.9 billion in income taxes. Adjusting by the recent average of about $5 billion in annual increases in tax revenue from individuals, it is estimated that the bottom 75% of individual taxpayers (more than 100 million individuals) paid about $136 billion in 2006.

Bottom Line: In 2006, U.S. oil companies paid more in corporate income taxes to the IRS ($138 billion) than the individual taxes paid by the more than 100 million individual taxpayers in the bottom 75% of all individual taxpayers (estimated to be $136 billion, see chart above).

http://mjperry.blogspot.com/

[RiversideGator]

Now the trick is to get your ubermenschens to give you their money so as to initiate Project Nuclear Ragnarok.

Thats the rub.

In the meantime, to continue the metaphor, we seem hellbent on an American Gotterdammerung.

Many power companies want to go nuclear but the enviro-crazies will not stand for it.  And, the last time I visited France, they seemed quite content with their safe nuclear power.

[RiversideGator]

well, the oil companies already have 33 million acres of access to sensitive lands that they presently arent drilling.

As Bill Nelson pointed out in todays Times Union editorial, any oil that is presently in the ground, undrilled is at least 10 years away from a refinery.  So its not really any better of an argument than initiating petroleum alternatives that are non polluting.

Before anyone starts crying for the oil companies and their totally bogus limitations on oil drilling sites, its important to remember that all of the bellyaching on this score is totally based on the model that we are still using oil at the present rate in 10 years.

Its a blind alley.  Let the bastards exploit the 33 million acres they already have permission to drill.

1)  Oil companies need to have access to the land under which oil is located.  Allowing them to drill where no oil is located is not exactly helpful.
2)  Had the bill to allow drilling in ANWAR not been vetoed by Clinton 10 years ago, it would be pumping oil right now.  The solution here is not to prevent drilling but to accelerate it.  10 years will pass quickly but national poverty can last significantly longer.

[Lunican]

You post these as if they are everyday occurences.  I'm curious.  What are the dates these photos were taken?  Also, how many drilling sites do you think there are across the world that have NEVER had even a single spill incident?  I would say greater than 95% of the sites.  Probably closer to 99% would be my guess.

I would agree with you that probably more than 95% of oil is moved without any kind of release. I think if oil spills were any more frequent there wouldn't even be a debate about whether to open up protected land.

Check this website for a list of oil spills.
http://www.marinergroup.com/oil-spill-history.htm

I would have posted it here but it is far too long.

[RiversideGator]

According to Soros now, there is a bubble in oil prices.  And, according to midway, this must mean that there is a bubble in oil prices.   

Anyway, here is the excerpt:

George Soros: rocketing oil price is a bubble

By Edmund Conway, Economics Editor
Last Updated: 12:53am BST 27/05/2008

Speculators are largely responsible for driving crude prices to their peaks in recent weeks and the record oil price now looks like a bubble, George Soros has warned.

The billionaire investor's comments came only days after the oil price soared to a record high of $135 a barrel amid speculation that crude could soon be catapulted towards the $200 mark.

In an interview with The Daily Telegraph, Mr Soros said that although the weak dollar, ebbing Middle Eastern supply and record Chinese demand could explain some of the increase in energy prices, the crude oil market had been significantly affected by speculation.

"Speculation... is increasingly affecting the price," he said. "The price has this parabolic shape which is characteristic of bubbles," he said.

The comments are significant, not only because Mr Soros is the world's most prominent hedge fund investor but also because many experts have claimed speculation is only a minor factor affecting crude prices.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/05/26/cnsoros126.xml

[Charleston native]

You post these as if they are everyday occurences.  I'm curious.  What are the dates these photos were taken?  Also, how many drilling sites do you think there are across the world that have NEVER had even a single spill incident?  I would say greater than 95% of the sites.  Probably closer to 99% would be my guess.

I would agree with you that probably more than 95% of oil is moved without any kind of release. I think if oil spills were any more frequent there wouldn't even be a debate about whether to open up protected land.

Check this website for a list of oil spills.
http://www.marinergroup.com/oil-spill-history.htm

I would have posted it here but it is far too long.

Wow, from what you were referring to, I thought oil spills occurred every month. Of course, you seem to be forgetting the fact that millions of tons of natural oil actually seeps into the ocean from the ocean floor everyday. And yet, the ocean is still able to provide life for billions of aquatic forms of life.

How are the spill sites doing today? The Alaska site from the Valdez incident is actually thriving again as are other sites. Nature is resilient.

Does that mean we can carelessly drill and transport oil? Of course not, but you can't make your argument the end statement to inhibit drilling. Accidents do happen, and many companies are mostly proactive in ensuring that incidents like the ones mentioned are not frequent.

[Lunican]

Wow, from what you were referring to, I thought oil spills occurred every month. Of course, you seem to be forgetting the fact that millions of tons of natural oil actually seeps into the ocean from the ocean floor everyday. And yet, the ocean is still able to provide life for billions of aquatic forms of life.

Considering that there were more than 12 oil spills per year for the last 8 years, they do happen every month. At least.