29 April 2006

ON OIL: We SHOULD Shoot The Messenger

The message we are getting on this "crisis" is all smoke and mirrors. This is one of those "you had the power all along, just click your heels three times" moments. First, remove the "crisis" mentality. THAT is raising gasoline prices. Of course, there are global factors. The most serious concern out there is the standoff with Iran, OPEC's second-largest oil producer, over its nuclear ambitions. But it really is as simple as: price is determined by the market, the market reacts to fears and consumer behavior. It appears this nation is all about mega-consumption and that in itself is dictating the price we pay for it.

On labeling the oil companies as the culprit...

Ask yourself (at least three times) if you really want to cap the profits a company can make. An oil slick slippery slope there! First, let's put the profits in perspective. The oil companies are making about 8.5% profit. If that is just too much for us allow then there are many in line before them to be cut off at the knees. Banking: 19.1%, The Drug industry: 17.6%. Profits for the oil companies are sure up in the 2006 first quarter but before you draw your sword, would you be surprised to find out that Yahoo first quarter earnings are more than double the oil company's earnings? Now, our nation is not dependent on Yahoo of course (although some may argue that). But do you believe that companies providing necessary products have a heavier burden and less right to profits than those providing discretionary products? One might argue they may be even more deserving of profit windfalls...they are supporting a global infrastructure.

On Bush's challenge to oil companies saying he expects them to invest their profits in oil production and exploration...

This is a ruse. Bush and his Big Oil buddies know it. This was Bush patting us on the head and pacifying us. (political party posturing) Before you write the oil companies saying "Yeah! What Bush said!". The oil companies already do this in a Big Oil way! And now, they are spending more on exploration - on average 53% more than last year. While we are on this subject, don't think the Federal Government is doing a lot of crying over all this. In this first quarter alone, Exxon, Chevron and ConocoPhillips turned over a combined $13.8 billion in sales taxes - about 7% of their total revenue.

The Federal tax on gas is 18.4 cents per gallon. There has been some call to lift all or a portion of this. On the surface it sounds great, doesn't it? It really isn't. We go back to consumer behavior here. There will be a rush on those drives down the coast and we will hop in our RVs and we will take the SUV down the street for a loaf of bread instead of walking. All that would do is raise demand as well as worsen the government deficit.

On the Windfall tax...

First, let's not forget this is no new idea. It has been tried before. It didn't work in the 80's and there is no reason it would work now. If the oil companies are taxed further, who do you think will pay for it? The end-user of course. Also, according to a report of the Congressional Research Service (CRS), the windfall profit tax of the 1980's drained $79 billion in industry revenues that could have been used to invest in new oil production, leading to 1.6 billion fewer barrels of oil being produced in the United States from 1980 - 1988.

Frustrating problem we have here, I know. But if you need a culprit, shoot the messenger because the messages we are getting are deliberately convoluted. The more we look to government to solve this problem, the more disappointed we will be. We can take the biggest and most effective step on our own. Lower our personal consumption. The price will be driven down. We want it to be more complicated than that and it just isn't.

Buy 3 fewer gallons of gas a week. Pssst....3 fewer gallons of gas a week - pass it on.

8 comments:

utenzi said...

I certainly agree with your conclusion that we need to reduce oil consumption, Megan. I might disagree with one of your suppositions, however.

The crisis mentality isn't having an affect on prices, at least not in terms of consumers. Most oil is purchased ahead of time on the commodity market so consumer behavior--which affects the spot market--just isn't a factor. Of course you might have meant just this when you referred to the "crisis mentality". Since it is a type of panic that is forcing the price of oil futures upward.

Kevin Leary said...

Simply excellent post Megan; too often is puffed up rhetoric allowed to dominate the situation whenever gasoline prices are mentioned. Thanks for a truly refreshing read.

C'est Moi said...

Utenzi, this is much of what I meant but you clarify a very important point. Thank you. Also, thank you for accepting my bid, I look forward to spending some time on your blog.

Kush, thank you for the compliment. You are right. I understand it is difficult when it hurts us in our wallets but we are best served by keeping things in perspective and not buying into the rhetoric.

Ben said...

If you're going to bid now would be a good time.

Ben said...

PS We live in a world of infinite possibilities. Therefore the oil will never run out. Therefore "peak oil" is crap.

I am so damn logical.

Floyd said...

Great post, and very perceptive I might add.

utenzi said...

You've been very quiet this past week. I hope everything is all right with you, Moi. I look forward to reading future posts. :-)

C'est Moi said...

Utenzi, thank you so much. I have been pretty ill actually. I have been around but have not been up to putting my thoughts to blog. I started putting together a couple of posts actually and your message gave me just the encouragement I needed. Look to find me spouting off again by tomorrow I am sure.