Oil Company Myths - Tilted Forum Project Discussion Community

aceventura3 · 05-08-2008, 07:54 AM

The rhetoric against oil companies is getting louder and louder as prices for oil and gas increase. Personally I have started to look into the oil industry a bit deeper. I am discovering that some of the rhetoric used by Presidential candidates and many members of Congress is misleading. I want to address some of these issues and separate the facts from the myths.

The first one - the government subsidizes oil companies through tax credits while the oil companies make record profits.

The tax code is complicated and I don't question the fact that the government provides some tax credits to oil companies for some activities. I do question if these tax credits mean the government subsidizes oil companies.

This chart shows oil company profits and oil company taxes paid over time up to 2004.

Quote:

Figure 1 illustrates the magnitude of government tax collections versus industry profits between 1977 and 2004. During this period, the 29 largest domestic energy firms earned a collective $630 billion after adjusting for inflation. These profits varied dramatically—from a low of $7.9 billion in 1995 to a high of $42.6 billion in 2004—based upon world market demand, supply, and international events.

In contrast, the taxes paid or remitted by domestic oil companies have been consistently far greater than their profits and now total more than $2.2 trillion (adjusted for inflation) over the past quarter century. The largest share of those taxes is federal and state gasoline excise taxes. In 2004, governments collected $58 billion in gasoline excise taxes. Overall, governments have collected $1.34 trillion in gasoline excise taxes since 1977.

Today, U.S. consumers pay an average of 45.9 cents per gallon in gasoline taxes. The federal gasoline excise tax is 18.4 cents per gallon while the average state and local tax is 27.5 cents. The vast majority of these taxes are levied at a flat rate per gallon—regardless of whether a gallon of gas costs $1.49, $2.49, or $3.49. Thus, the effective rate of these taxes can vary wildly, from roughly 31 percent in the former case to 13 percent in the later.

Federal and state governments also collect a substantial amount of excise tax from the sale of diesel fuel. In today’s dollars, governments have collected $160 billion in diesel fuel excise taxes since 1977.

Oil companies also pay taxes to governments for the right to extract oil from public lands and waters. For example, the federal government has collected a total of $48.8 billion in royalty payments from oil companies in exchange for their ability to explore and drill in the U.S. outer continental shelf. Oil companies also pay severance taxes to state governments for the right to drill on state lands. Unfortunately, complete data on state severance tax collections for the period is not available at this time.

In contrast to excise taxes, corporate income tax payments vary as widely as industry profits. As mentioned above, domestic energy companies earned a total of $630 billion in post-tax profits between 1977 and 2004. Tax Foundation economists estimate that companies paid $518 billion in corporate income taxes to federal and state governments during the same period. These payments varied from a low of $5.1 billion in 1995 to a high of $40.4 billion in 1981.

http://www.taxfoundation.org/news/show/1168.html

It seems to me that government takes a larger portion of oil company revenues than the oil companies make in profits. The oil companies also use a portion of their profits to reinvest in future growth.

Using Exxon Mobil's income statement it shows that in 2003 they paid the following in taxes:

Sales Based taxes: $23.855 billion
Other Taxes/Duties: $37.645 billion
Income Taxes: $11.006 billion
Total: $72.500 billion.

They made $21.5 billion in profits.

In 2007:

Sales Based taxes: $31.728 billion
Other Taxes/Duties: $40.953 billion
Income Taxes: $29.864 billion
Total: $102.545 billion.

They made $40.61 billion in profits.

Taxes went up by $30.045 billion while profits went up $19.11 billion.

It seem on a dollar rather than percentage basis, the government is getting a bigger "windfall" profit than Exxon Mobil.

Also, keep in mind dividends, which are taxed at the individual level. In 2003 they paid $6.5 billion in dividends and in 2007 they paid $7.621 billion in dividends. If we use a 25% tax rate on the 2007 dividends the government collected another $1.905 billion in taxes from top line revenues.

Oil companies are making record profits, but they are paying record expenses and record taxes. Perhaps the above is not a myth, but those who use that kind of rhetoric are misleading people in my opinion.

I am open to hearing opposing views on this and perhaps we can discuss othe oil company myths using factual data.

loquitur · 05-08-2008, 10:00 AM

it would also be interesting to see whether the profits oil companies are making, compared to their cost of capital, are within the norms of most other companies. That's probably the most relevant comparison, and my undestanding is that the oil companies' returns are good but a bit on the low side. Certainly less than, say, Google or Microsoft or Procter & Gamble. That's off the top of my head, I could be wrong.

aceventura3 · 05-08-2008, 10:30 AM

Quote:

Originally Posted by loquitur

it would also be interesting to see whether the profits oil companies are making, compared to their cost of capital, are within the norms of most other companies. That's probably the most relevant comparison, and my undestanding is that the oil companies' returns are good but a bit on the low side. Certainly less than, say, Google or Microsoft or Procter & Gamble. That's off the top of my head, I could be wrong.

I looked at last fiscal year's return on assets (roa) and return on equity (roe).

Exxon Mobil: ROA 17%, ROE 34%
BP (British Petroleum): ROA 9%, ROE 39%
GOOGLE: ROA 17%, ROE 22%
Starbucks: ROA 13%, ROE 31%
Microsoft: ROA 22.3%, ROE 64%
Home Depot: ROA 21%, ROE 25%
Caterpillar: ROA 6%, ROE 70%
Proctor&Gamble: ROA 9%, ROE - not listed

Return on assets is not good for comparing companies in different industries because of the different capital requirements. In many cases our integrated oil companies may not own the oil in the ground, but may have licencing agreement to pump it, therefore the known oil in the ground would not be an asset.

Return on equity in many cases is a measure of how management manages the balance sheet and to what degree profits are reinvested.

dc_dux · 05-08-2008, 11:30 AM

I'm not particularly interested in comparisons to Home Depot, Starbucks or Microsoft.

IMO, and for the purposes of a national energy policy, the more relevant comparison would be the tax breaks/incentives to oil companies as opposed to renewable energy resources and alternative energy development.

The tax breaks/incentives in the 2005 energy bill were weighted heavily (65%-35%...if i recall correctly) towards oil and coal companies ($18 billion..if i recall correctly) at the expense of renewables and new energy technologies.

A 2008 bill try to reverse (or at least equalize) those tax breaks/incentives, but has been blocked by Repubs in the Senate, along with a Bush veto threat.

A national energy policy should be far more balanced in its tax treatment...and IMO, if its tilted at all, it should be tilted towards getting us off a dependency on oil.

Ustwo · 05-08-2008, 11:52 AM

Quote:

Originally Posted by dc_dux

The tax breaks/incentives in the 2005 energy bill were weighted heavily (65%-35%...if i recall correctly) towards oil and coal companies ($18 billion..if i recall correctly) at the expense of renewables and new energy technologies.

How does a tax break for energy producers come at the expense of hypothetical energy sources?

Did they foot 'the bill' instead?

aceventura3 · 05-08-2008, 12:24 PM

Quote:

Originally Posted by dc_dux

IMO, and for the purposes of a national energy policy, the more relevant comparison would be the tax breaks/incentives to oil companies as opposed to renewable energy resources and alternative energy development.

The tax breaks/incentives in the 2005 energy bill were weighted heavily (65%-35%...if i recall correctly) towards oil and coal companies ($18 billion..if i recall correctly) at the expense of renewables and new energy technologies.

A 2008 bill try to reverse (or at least equalize) those tax breaks/incentives, but has been blocked by Repubs in the Senate, along with a Bush veto threat.

A national energy policy should be far more balanced in its tax treatment...and IMO, if its tilted at all, it should be tilted towards getting us off a dependency on oil.

Can you give an example of a tax break currently given to oil companies that you want taken away?

dc_dux · 05-08-2008, 01:58 PM

Quote:

Originally Posted by aceventura3

Can you give an example of a tax break currently given to oil companies that you want taken away?

The best example is probably the various provisions in the 05 energy bill that provide relief from royalty payments for drilling on public lands (estimated at nearly $10 billion over five years)

Energy Policy Act of 2005, Subtitle E -Production Incentives (esp. secs 342-347)

But you havent addressed the question of why, if we use taxes as a component of a national energy policy, there should not be greater parity between tax breaks for oil companies as opposed to renewable energy resources or new alternative energy development.

Unless you believe we can drill our way to energy independence.

loquitur · 05-08-2008, 02:02 PM

I find it curious that dc_dux's premise wasn't examined - namely, that there is a national energy policy and that it is focused on tax breaks. I do'nt think there is anything that integrated at all.

We should get rid of "tax breaks" altogether and let the market decide which sources of energy have a future. Neither the existing oil companies nor the pie in the sky energy companies should have subsidies. Whatever works will succeed.

Ustwo · 05-08-2008, 02:04 PM

Quote:

Originally Posted by loquitur

We should get rid of "tax breaks" altogether and let the market decide which sources of energy have a future. Neither the existing oil companies nor the pie in the sky energy companies should have subsidies. Whatever works will succeed.

Isn't this in conflict with your desire to artificially raise gas prices via taxation?

aceventura3 · 05-08-2008, 04:02 PM

Quote:

Originally Posted by dc_dux

The best example is probably the various provisions in the 05 energy bill that provide relief from royalty payments for drilling on public lands (estimated at nearly $10 billion over five years)

Energy Policy Act of 2005, Subtitle E -Production Incentives (esp. secs 342-347)

But you havent addressed the question of why, if we use taxes as a component of a national energy policy, there should not be greater parity between tax breaks for oil companies as opposed to renewable energy resources or new alternative energy development.

Unless you believe we can drill our way to energy independence.

I think oil companies should pay a fair market price for the right to drill on public land. I would have never supported giving one company over another such an advantage nor would I have asked tax payers to subsidize an oil company in this manner.

However, if the government knows that giving an oil company an incentive up front to drill in a location knowing the risks, uncertainties of possibly not finding oil - but realizing a potential "tax windfall" at the back-end if the drilling is productive and profitable - then I would give the folks in Washington credit for making a good business decision and thinking long-term. Perhaps the question of why is more complicated than it seems on the surface, or maybe I potentially give the folks in Washington too much credit- and this was really an example of the politics of "you scratch my back and I scratch yours". Which do you think it is, or is there another possibility.

ASU2003 · 05-08-2008, 04:13 PM

Quote:

Originally Posted by loquitur

We should get rid of "tax breaks" altogether and let the market decide which sources of energy have a future. Neither the existing oil companies nor the pie in the sky energy companies should have subsidies. Whatever works will succeed.

Part of the problem is that we are setup to use cheap gas, coal and natural gas. There isn't a real easy way to say,one year from now I will be free from gasoline. I could spend about $10,000 and reduce my need by about 75% or so. If we subsidize research into alternative fuels/better batteries/public renewable fuel projects we could eliminate our need for foreign oil and reduce our domestic oil use as well. And that is just with the technology we have now, it could be done cheaper and improvements could be made if there was some more start-up funding and less risk in making this switch happen.

aceventura3 · 05-08-2008, 04:22 PM

Quote:

Originally Posted by loquitur

I find it curious that dc_dux's premise wasn't examined - namely, that there is a national energy policy and that it is focused on tax breaks. I do'nt think there is anything that integrated at all.

We should get rid of "tax breaks" altogether and let the market decide which sources of energy have a future. Neither the existing oil companies nor the pie in the sky energy companies should have subsidies. Whatever works will succeed.

I also find it an interesting use of logic - to heavily tax, give some tax relief in some areas although taxes paid go up, and then call that relief a tax break. As Shakespeare wrote: "A rose by any other name would sell as sweet."

loquitur · 05-08-2008, 05:26 PM

there is a difference between a consumption tax and an income tax, ustwo. You know that.

Ustwo · 05-08-2008, 05:53 PM

Quote:

Originally Posted by loquitur

there is a difference between a consumption tax and an income tax, ustwo. You know that.

Tax is tax. I'm more for a consumption tax but not for taxes for social engineering.

loquitur · 05-08-2008, 06:30 PM

the point of a targeted consumption tax is that people are free to make choices. They aren't forced to do anything they don't want to. That's the whole point.

Ustwo · 05-08-2008, 06:42 PM

Quote:

Originally Posted by loquitur

the point of a targeted consumption tax is that people are free to make choices. They aren't forced to do anything they don't want to. That's the whole point.

I don't see a clear distinction.

You are steering them to one choice you want them to make over the one they want to make using government force, in this case a overly high tax designed specifically to make them not make the choice they want to make.

It IS nicer than a ban, and as someone who is above average wage earnings I can still drive where I want, but I still see it as beyond the proper role of the federal government.

I suppose we can count on taxes on thick cut bacon next for the good of society, better land use, and to ease the costs of rising health care.

loquitur · 05-09-2008, 05:15 AM

1) Bacon doesn't have demonstrable economic negative externalities. Using gasoline-powered vehicles does.

2) Bacon isn't a foreign policy-driven issue. Gasoline is. Our country's principles and independence are endangered by reliance on petroleum and the need to accommodate the world's worst regimes.

If your SUV is worth that much to you, pay for it. If not, don't.

flstf · 05-09-2008, 07:00 AM

I believe that much of the corporate income, excess profit and consumption taxes are all paid by consumers in higher prices for gasoline as well as every product that has transportation costs. I often wonder why our political candidates are not challanged to explain this when they advocate increasing taxes on the rich oil corporations. Do they really not think that "Joe sixpack" will ultimately have to pay these taxes with higher prices for food, clothing, heating bills, gas for the car, etc..?

I guess one way to solve this would be to tax on the production end and fix prices on the consumer end but total control of the markets will probably not work for long.

loquitur · 05-09-2008, 07:59 AM

flstf, I'm proposing not to camouflage the extra cost but to tack it onto consumers' bills directly. That's much more honest than burying the additional charges in the oil companies' own bills, or the cost of a car, or any of the other ways that charges get swallowed by a company and then included in the price passed along to the consumer.

Burying and hiding the costs is one reason the public doesn't change its behavior. For instance - with CAFE standards, the enforced higher mileage adds to the price of a car and get financed at a few extra dollars a month, so no one notices. Plus, with better mileage people drive more and use more gasoline anyway. Leave car mileage alone and charge what petroleum really should cost, and you'll see massive migration away from gas guzzlers - sorta like what's happening now, only more marked.

Ustwo · 05-09-2008, 08:35 AM

Quote:

Originally Posted by loquitur

Leave car mileage alone and charge what petroleum really should cost,

Do you have any proof of what it really should cost?

loquitur · 05-09-2008, 09:06 AM

yeah, it's calculable. in principle it's basically the cost of extraction, transportation and refinement plus the cost of capital plus the cost of negative externalities.

I don't have that number. But you insist on leaving out the last piece. Ronald Coase would be displeased.

host · 05-09-2008, 09:31 AM

Quote:

Originally Posted by loquitur

yeah, it's calculable. in principle it's basically the cost of extraction, transportation and refinement plus the cost of capital plus the cost of negative externalities.

I don't have that number. But you insist on leaving out the last piece. Ronald Coase would be displeased.

loquitur, the following was intended to be "Part II" of the OP of the thread I put up last night, asking if nationalizing the assets of major oil corps. operating in the US should be considered now. I might as well post it here. I don't think your posts here indicate that you recognize anything but faith in the propriety and ethics of oil company executives. They don't simply have no recourse but to "pass along" costs of doing business....like tax increases, to their customers.

They have created excess profits, by successfully attempting to control supply of both domestically available crude oil to refine, and of refining capacity itself, choking it off.

If these parasites controlled and distributed the supply of medicinal blood or blood products in the US, and these were the reports about them....Shell lying about every facet of it's decision to close it's Bakersfield refinery in 2004, and dismantle it instead of selling it, there would probably be no question of siezing their BLOOD producing and distribution assets. Petroleum based fuels are the blood of the US economy. The major oil companies have no incentive to increase supply, even as land owners with proven petroleum deposits under the soil wait for the availability of infrastructure to drill for and extract that petroleum, due to a shortage, by design....see Chevron's stock buyback program....of experienced personnel and equipment to extract oil literally sitting next to refineries, robust transportation and storage, and end users of refined products:

Quote:

http://www.turnto23.com/news/3294287/detail.html

The Bakersfield Channel - KERO TV (California)
May 12, 2004

by Reporter: Heidi Carter
Shell Has No Plans To Cover Refinery's Loss
KERO Interviews Refinery Manager
BAKERSFIELD, Calif. -- As the closing date approaches, the controversy surrounding the closure of the Shell Refinery on Rosedale Highway continues to heat up, KERO reported.

Consumer Reporter Heidi Carter sat down with the refinery manager, who said the Bakersfield refinery isn't efficient enough to keep open, even though it's making a profit.

Amir Farid said the Rosedale refinery isn't as efficient as Shell's two other California refineries, which is why Shell will close it down at the end of September.

"This refinery is two separate refineries that have been stitched together over time," Farid said. "You also have simply the economy of scale. This is a 70,000-barrel-a-day refinery. Martinez is currently 145,000 and can produce up to 160,000 (barrels a day.)"

Farid said the refinery closing has nothing to do with the current price spikes for gasoline. But the current market is making the refinery profitable.

"Clearly, in the environment today, we are profitable at the moment, but this is a cyclical business," Farid told KERO.

Farid admitted Shell has no current plans to make up for the total loss of supply that will occur when the plant closes.

"There is going to be a gasoline shortfall that we are still working on and potentially can offset some of that from our refinery up in the northwest," Farid said.

Shell only has the capacity to make up about half of the diesel production that will be lost.

Jamie Court, the president of the Foundation for Taxpayer and Consumer Rights, said that closing the refinery is about shorting the market and ultimately keeping gas prices above $2.

Farid said in spite of the current profits, the refinery has a history of losing money.

Court said Shell should put the refinery up for sale, rather than short California consumers by closing it down.

While Shell has not put the refinery up for sale, they have received 14 inquires from companies interested in buying it, but so far no offers have been made.

http://www.energybulletin.net/717.html
Published on 20 Jun 2004 by The LA Times.
California: Shell to Reduce Summer Fuel Output at Bakersfield Refinery

by Elizabeth Douglass

....The Bakersfield refinery is surrounded by prolific oil fields that produce San Joaquin Valley heavy crude. The company, a part owner of several of those fields, has said it wants to close the facility so it can divert more of the heavy crude to its refinery in Martinez, which Shell has said is more efficient than Bakersfield <h3>and is suffering from "underutilization" because of dwindling supplies of the San Joaquin crude it is set up to process.......</h3>

The Bakersfield Californian
January 11, 2005

by Erin Waldner
<h3>Utah-based firm to buy Bakersfield, Calif., refinery for $130 million</h3>
Flying J Inc. has big plans for the Shell Bakersfield Refinery.

The Ogden, Utah-based company has signed an agreement with Shell Oil to purchase the refinery, reportedly for $ 130 million.

Flying J plans to "modernize" the circa-1932 plant so it can produce twice as much gasoline and slightly more diesel fuel,

according to Flying J spokeswoman Virginia Parker.

The refinery, on both sides of Rosedale Highway, makes 2 percent of the state's gasoline supply and 6 percent of the diesel. Oil

experts have warned that shuttering the refinery would lead to even higher fuel prices.

William Keese, chairman of the California Energy Commission, said Monday that any additional fuel supply is a good thing,

particularly for the valley.

"Clearly, when you have a shortage of supply, prices go up," Keese said.

Any upgrades will need regulatory approval and according to Jeff Utley, senior vice president of refinery operations at Flying J,

will take two years to complete. In the meantime, he said, refinery operations should continue as normal.

Just two months shy of the deadline Shell gave for closing the refinery, Shell announced Monday it had signed an agreement with

Big West Oil LLC, a subsidiary of Flying J, to sell the Bakersfield refinery. Neither company would disclose terms of the deal,

but according to Jamie Court, president of the Foundation for Taxpayer and Consumer Rights, which has criticized Shell's handling

of the refinery, Travel J is paying $130 million.

Shell expects to close the deal by the end of the quarter. The sale requires the approval of the U.S. Environmental Protection

Agency and Justice Department, both of which are expected to sign off on the deal.

Aamir Farid, general manager of the Shell Bakersfield Refinery, said Shell could exit day-to-day operations at the plant by the

end of March.

He said Shell will continue to supply gasoline and diesel to its branded customers in the area. He said the fuel will come from

the Bakersfield refinery, as well as other sources.

This will be Flying J's first foray into the California oil refining business. The company is best known here for its diesel fuel

stations, which it calls travel plazas.

Big West Oil operates a small refinery in North Salt Lake, Utah.

"This increases our refining capacity," Utley said.

The Bakersfield refinery can currently produce up to 70,000 barrels of oil per day.

Under the terms of the sale agreement, Shell will lease Flying J an adjacent terminal that's a pick-up point for tanker trucks.

Shell has been criticized for excluding the terminal from the sales process.

Shell said it will continue to own and operate pipelines that feed the refinery.

Utley said the oil the refinery will process will come from the local Kern River field, as well as Midway-Sunset and Elk Hills

near Taft.

When Shell announced in November 2003 that it was shuttering the refinery in 11 months, the company cited dwindling supplies of

San Joaquin Valley heavy crude oil, which the refinery processes.

Utley said Flying J believes there's enough oil in the area to keep the refinery running for the long-term.....

http://findarticles.com/p/articles/m...4?tag=rel.res1
Flying J plans to double gas output
Deseret News (Salt Lake City), May 9, 2006 by Robert Tuttle Bloomberg News

Flying J Inc., a refinery operator and fuel distributor, said it plans to double gasoline production at the Bakersfield, Calif.,

plant it bought from Royal Dutch Shell Plc last year.

Ogden-based Flying J has been obtaining permits to expand the refinery's gasoline and diesel output, the company said Friday in an

e-mailed statement. The upgrades are scheduled to be completed by the middle of 2008, the statement said.

Shell originally planned to close the refinery, saying the plant was losing money. It sold the facility to Flying J in March 2005.

Flying J will spend $500 million to upgrade its refinery, the Los Angeles Times reported last week...

Shell OIl had to be dragged, as it kicked and screamed that it was closing amd dismantling it's Bakersfield, CA refinery because it was "obsolete" and because there was a dwindling crude oil supply soon to be insufficient to supply it with raw material...<h3>into selling this refinery, for $130 million....instead of holding it off the market and dismantling it !!!!!!</h3>

Quote:

http://www.latimes.com/business/la-f...,4229890.story

Chevron posts profit of $5.2 billion
The oil company beats analysts' forecasts despite an 84% drop in earnings from refining and gasoline retailing.
By Ronald D. White, Los Angeles Times Staff Writer
May 3, 2008

....During the quarter, Chevron boosted its cash to $8.2 billion, up from $7.4 billion in the year-earlier period; increased capital spending on exploration, production and refinery projects by $1 billion, to $5.1 billion; and still had enough change left over to buy back $2 billion worth of its stock.

The only negative news was an 84% decline in earnings from the division that operates refineries and service stations, falling to $252 million from $1.6 billion in the first quarter of 2007. Like many fuel sellers, Chevron was unable to raise pump prices fast enough to keep up with booming oil prices.

Shares of Chevron rose 38 cents Friday to $95.32.

<h3>The stock buyback earned the ire of consumer groups, which said that the money could have been better spent to help motorists hit by record fuel prices.</h3>

"This is money that could have been invested in alternative energy research or capital expansion. It's wrong to use their excessive profits to buy shares and drive up the stock price," said John Simpson of Consumer Watchdog, formerly known as the Foundation for Taxpayer and Consumer Rights. "That only benefits executives whose excessive bonuses are tied to stock performance."

http://www.chicagotribune.com/news/n...,1761702.story
Million-dollar homes, billion-dollar oil patches make uneasy neighbors

By Michael Martinez | Tribune correspondent
6:47 PM CDT, May 4, 2008

<h3>...Long Beach drilled 70 new wells last year and is planning to drill about 60 more this year where it owns mineral rights. A shortage of engineers, geologists and drilling rigs keeps the city from additional drilling, said Curtis Henderson, manager of the city's oil operations....</h3>

loquitur · 05-09-2008, 10:30 AM

Host, let me make this clear so there can be mistake: YOU WILL NEVER SELL ME ON NATIONALIZING ANY INDUSTRY. Nationalizing industries does not work, has never worked, has led to disaster every time it's been tried and cannot be made to work.

Don't assume that merely because Ustwo and I agree on a small public policy issue that I think nationalizing an industry is a good idea. It would be a disaster. If you think we're paying a lot for oil now, just wait until the geniuses who brought us $600 screwdrivers get hold of the industry.

Ustwo · 05-09-2008, 10:36 AM

Quote:

Originally Posted by loquitur

yeah, it's calculable. in principle it's basically the cost of extraction, transportation and refinement plus the cost of capital plus the cost of negative externalities.

I don't have that number. But you insist on leaving out the last piece. Ronald Coase would be displeased.

He'll get over it

Since oil companies do run at a profit, I can only assume the cost difference would be from the public sector.

My question then is, is the infrastructure 'payed for' by the .47 a gallon tax imposed on average?

Without knowing that, the whole 'real cost' is hard to wrestle with.

host · 05-09-2008, 11:10 AM

Quote:

Originally Posted by loquitur

Host, let me make this clear so there can be mistake: YOU WILL NEVER SELL ME ON NATIONALIZING ANY INDUSTRY. Nationalizing industries does not work, has never worked, has led to disaster every time it's been tried and cannot be made to work.

Don't assume that merely because Ustwo and I agree on a small public policy issue that I think nationalizing an industry is a good idea. It would be a disaster. If you think we're paying a lot for oil now, just wait until the geniuses who brought us $600 screwdrivers get hold of the industry.

Do you really believe that oil companies have a simple business model of independently exploring for and extracting oil and nat. gas, refining and distributing the refined products, and pricing them on a cost plus reasonable rate of return, basis? If they aren't acting independently, and they are successful at constricting the supply of both raw material and finished product, what is a reasonable response?

Don't you think "the rules" were thrown out when the Fed started loaning money to investment banks that are not regulated by the Fed, on the strength of near worthless collateral? Isn't it possible that your "market vision" does not exist?

Isn't it a contradiction for you to believe that "government cannot do anything right", yet believe that it is capable of organizing, training, equipping, maintaining, fielding, and deploying, the "most effective military force in the world"? The USPS delivers mail to you, every day. Doesn't it's existence and functionality challenge your opinion?

roachboy · 05-09-2008, 12:18 PM

your statements about nationalization are simply false empirically, loquitor. one of these days, maybe you'll look at something of how western european economies actually operate.
of course the hayek/liberatarian ideology provides you with no particular reason to engage with the messiness of the actually existing world, so i do not expect that you'll do any research and so am not going to waste my time providing links to information that is self-evident to this extent.
but you might think about the french nuclear industry, it's not hard.
you can do it.
o i know that the neoliberal set thinks all kinds nasty thoughts about france--but in other contexts you argue for nuclear power, and yet market-y america doesn't have it and highly nationalized france does.

==========

the way this thread is pitched is so narrowly focused that a coherent discussion about oil corporations and by extension american energy policy is close to impossible, so i'll just let the string of affirmations of good faith on the part of those nice corporate citizens continue undisturbed by any reality, since they do not admit of it a priori.

if you want to talk about oil, catch me in another thread.
have fun, lads.

loquitur · 05-10-2008, 06:24 PM

host, the fallacy of your position is that it does not follow that merely because a core government function generally gets done in a way that is effective (albeit with inefficencies and corruption on the way to get there), it necessarily follows that all functions can be done by the government. National defense is probably the one function that everyone who isn't an anarchist thinks the govt has to do. It doens't therefore follow that the govt would be good at doing most other things that aren't analogous.

roachboy, the Soviet Union was such a smashing success that I really hesitate to criticize your position. As for France, you might want to look at how long Mitterand's nationalization program lasted and with which results. Lots of countries have this or that business being government owned (often it's media). Doesn't mean it wouldn't be done better if owned privately. And btw, I was only in France once, for a week, and I really loved the place.

EDIT: Not be flip as above, Roachboy, but aren't most power suppliers historically monopolies? In light of that, shoud it be surprising that the govt (also a monopoly, but with guns) supplies power in France? It does not follow that merely because the govt runs one (largely monopoly) business well (i'm taking your word for it on that one) that it therefore can run any business well. Like Renault, say.

aceventura3 · 05-12-2008, 08:05 AM

Here is a statement from Host (post #22):

Quote:

They have created excess profits, by successfully attempting to control supply of both domestically available crude oil to refine, and of refining capacity itself, choking it off.

I think his view here, that private oil companies control the supply of oil fuels his perception of the oil industry and is commonly held. The question, is it factually accurate or a myth? Do the private oil companies control the supply of oil?

The answer is no. Countries own 90% of the worlds known oil and gas reserves. They can pump or not pump as much as they want or they can contract with oil companies to do it. If company A won't do it company B might, if neither will do it the country can build there own infrastructure to do it. They can contract for exploration or do it themselves.

Quote:

"In fact, country-owned oil companies account for 90 percent of the ownership of the known oil and gas reserves. And we have examples like the countries of Saudi Arabia, Iran, Kuwait, Venezuela and Russia.

"These are countries that actually own the oil companies in their countries. So they are obviously getting rich.

"In fact, Exxon -- which is one of the biggest private owned oil companies -- they ranked only 14th in the world in the value of oil companies," Walden adds. "So when we see the price of oil rising, it’s really those nationalized companies and countries where there are big oil reserves –- they’re the ones that really benefit the most."

This can be verified from other sources as well, I just happened to pick this one.

http://www.ncsu.edu/project/calscomm...ns_the_oi.html

If private oil companies don't control the oil in the ground, how can they manipulate the market? As we think about that question, I am sure we will encounter more myths.

aceventura3 · 06-24-2008, 01:26 PM

Lately we have had many people saying speculators are driving the price of oil. I read a lot but no one explains how they think this is happening other that to say speculators are a higher percent of the futures market now than in the past. I am trying to understand how speculators can actually have an impact on prices. As I write this I might answer my own question, or someone with more insight may be able to help.

First, I think of a group of oil producers (OP), a group of speculators (S), one million barrels of oil, and oil refineries who would purchase and process the oil (OR).

Let say we have a direct market - OP delivers oil to OR. The OR pays a spot market price based on the oil available - supply, and what they need - demand. Let's say that price is $50 per barrel. And let's say that is going to be a constant, the real price (intrinsic price) based on supply and demand. All other things being equal in this market, with no risks, i.e. - political risks, shipping risks, inflationary risks, regulatory risks, etc. If we try to introduce S, there is no profit potential for them. If S could sell the oil for $51, why would the OP let the S make that dollar. Or if the S could purchase oil for $49 why would the OR let the S make that dollar? So in a market with no risk, there is no room for speculators. Speculators can not have an impact on price in a efficient market with no risk.

Now if we add risk. We have OP who may want to protect the downside. They may realize, in the future oil demand may go down. They may want to obtain money today for delivery at a future date (perhaps to fund war, fund investment in other things or more oil exploration). Introduce S. They are willing to take the risks of future delivery. They charge a price for this. The price has two components, profit and a risk premium. The OP may have to sell the futures oil contract at $45. Then the speculator sells the oil at $50 to the OR at the future date. The market works, all knowns are on the table, everyone is happy.

On the other hand we have the OR, who may want to manage risk. First they could become a S, and buy the futures contract at $45. But let's say the OR want to minimize the risk of future price increases in the market. They want to make sure they have an available supply at a known price. Again, the S can come in and assume the risk. They are willing to sell a futures contract to the OR at a price today for future delivery. Again this futures contract has two components, profit and a risk premium. Perhaps that contract sells for $55. The market works, all knowns are on the table, everyone is happy

So, the two price components involved with S is profit and risk premium. What happens if either of these components gets out of line?

Let's say there are more and more S's that come into the market all wanting to buy futures contracts for delivery of one million barrels of oil in 60 days. They all flock to the OP, bidding up the price of oil. Let's say they bid up the price to $130 per barrel for that future delivery. The intrinsic value of that oil is $50 per barrel, so we have a risk and profit premium of $80. What does the OR do? All other things being equal and if the OR had no options and they wanted to buy that futures contract on the day it peaked at $130, they would have to buy the oil at $130. If they then could pass the increased price on to consumers the $130 price would be supported.

What if the OR had other sources of oil? They could buy from those other sources, perhaps direct from the OP at a price less the profit for the S. Perhaps they could wait, and buy on the spot market for $50. Becuase we know that the S can not take delivery of one million barrels of oil so the closer we get to the delivery date the more incentive they have to lower the price and sell the contract.

What about the OP? Why would they sell their oil to S for less than $50, knowing that S can sell the oil to OR for $130? Or why would the OR buy at $130 when they could buy at $50 or less?

So, I am thinking at best S can only have a short-term impact on price and that eventually price will reflect the real intrinsic value. I think competition among S will in time lower profit margins to reasonable levels. However, I think the risk premium, is what it is, and that the risk premium is what is really driving the price.

ASU2003 · 06-24-2008, 04:30 PM

What happens if you have every hedge fund, every 401k, every bank, every investor dumping their money into the safe bet of oil (real estate, stocks, bonds every other sector isn't as good or is losing money lets say). They know that consumers would pay up to $1000/barrel (a guess, but I'm sure they have graphs of demand vs. price and they aren't too impacted by it. At least the profits on the expensive oil will make up for lower sales.)

The delivery thing is a problem, since the oil investors don't want the barrels of oil. But since demand has (and probably will) remain fairly constant (we cut our use by 3.8% since last year, price went up 30%), they know that the OR will buy it from them.

They aren't trying to corner the market or take a run at it by hording all the oil in a huge imaginary tank and preventing it from being sold, then selling it when we've run out of oil to the highest bidder. But, they are acting like middlemen and not adding anything of value. And if their (S) only role is to manage risk, then I think the OP and OR should be made to play the real game and have to lose sometimes. he thing is, as long as there is a demand for every ounce of oil produced, it will be treated as a commodity and the 'market' will set the price. If demand fell by half, I bet you would see them try to make it a product and set their own price (they would say we can't produce or refine it for less than $2/gal, even though it would only cost them $1 let's say) This would be the cartel setup that congress was trying to find.

guy44 · 06-24-2008, 08:44 PM

I call shenanigans.

From the Union of Concerned Scientists:

Quote:

Government directly subsidizes oil consumption through preferential treatment in tax codes. A multitude of federal corporate income tax credits and deductions results in an effective income tax rate of 11% for the oil industry, compared to the non-oil industry average of 18%. If the oil industry paid the industrywide average tax rate (including oil) of 17%, they would have paid an additional $2.0 billion in 1991. Our results are consistent with a report by the Alliance to Save Energy that estimated the benefits of individual federal corporate income tax provisions. Their results showed that in 1989 preferential treatment yielded $1.8 billion to $4.6 billion in individual income tax benefits to the oil industry (Koplow, 1993).

At the state and local levels, sales taxes for general revenues on petroleum products are lower than the average sales tax rates, and consequently, motorists underpay for general government services. (Sales taxes are charges on petroleum products above user fees [highway fuel taxes, tolls, and fees earmarked for infrastructure and services] that are used for general revenues.) Another study by the Alliance to Save Energy found that state and local governments taxed gasoline at about half the rate as other goods -- approximately 3% versus 6% (Loper, 1994) -- resulting in an estimated $2.7 billion revenue loss from gasoline sales alone in 1991. When home, industry, and office petroleum products are included, the total state and local revenue loss sums to $4.1 billion.

Here's the details of the 2005 Energy bill, from Public Citizen:

Quote:

OIL & GAS SUBSIDIES: $6 BILLION

Section 1329
Allows “geological and geophysical” costs associated with oil exploration to be written off faster than present law, costing taxpayers over $1.266 billion from 2007-2015. The provision claims to raise $292 million from 2005-06, and cost taxpayers $1.266 billion from 2007-2015. It originated in the House (there was no such provision in the original Senate bill). Record-high oil prices should provide a sufficient incentive for oil companies like ExxonMobil to drill for more oil without this huge new tax break.

Section 1323
Allows owners of oil refineries to expense 50% of the costs of equipment used to increase the refinery’s capacity by at least 5%, costing taxpayers $842 million from 2006-11 (the estimate claims the provision will actually raise $436 million from 2012-15). This provision was added by the Senate. Record high prices for oil and gasoline, and record profits by refiners like ExxonMobil and Valero should provide all the incentive needed to expand refinery capacity without this huge tax break.

Sections 1325-6
This tax break allows natural gas companies to save $1.035 billion by depreciating their property at a much faster rate. This tax break makes no economic sense, as natural gas prices remain at record high levels, and these high prices—not tax breaks—should be all the incentive the industry needs to invest in gathering and distribution lines.

Section 342
Allows oil companies drilling on public land to pay taxpayers in oil rather than in cash.

Sections 344-345
Waives royalty payments for drilling for some natural gas in the Gulf of Mexico.

Section 346
Waives royalty payments for drilling in offshore Alaska.

Sections 353-4
Waives royalty payments for gas hydrate extraction on the Outer Continental Shelf and public land in Alaska.

Section 383
Allows oil companies drilling in federal land off the coast of a particular state to pay the state 44 cents of every dollar it would have paid to the federal government for the privilege of drilling on federal land.

The royalty-in-kind provisions in this section allow corporations drilling for oil on public land to forgo paying cash royalties to taxpayers. Instead, companies provide an amount of the oil as an in-kind contribution to the federal government. Since federal land supplies one-third of the oil and gas produced in the United States, expansion of this program could have a significant impact on the federal treasury.

This proposal has its origins in Bush’s National Energy Policy, which requested that the Secretary of the Interior “explore opportunities for royalty reductions.”

A recent Government Accountability Office (GAO) report, however, criticizes the current royalty-in-kind program, concluding that the government is unable to determine whether taxpayers receive a fair shake from the program. For example, the GAO notes that the pilot program currently “relies upon royalty payors to self-report the amount of oil and gas they produce, the value of this oil and gas, and the cost of transportation and processing that they deduct from royalty payments” (emphasis added). The reporting system caused the GAO to express concern about “the accuracy and reliability of these data.”

Indeed, the industry’s cheerleading for the royalty in-kind program stems from recent court decisions that found U.S. oil companies, equipped with an “honor system” self-reporting system, routinely underreported the volume of oil and natural gas removed from taxpayer land, therefore allowing the companies to cheat the public. By seeking to end cash payments for the privilege of drilling on public land altogether, it appears as though the oil companies are attempting to hedge their losses from the embarrassing court decisions.

In 1998, the Mineral Management Service estimated that similar provisions would cost taxpayers between $140 million and $367 million every year.

There was a vote on April 21 in the House to strike the section providing a suspension of royalty payments for offshore oil and gas production in the Outer Continental Shelf (OCS) in the Gulf of Mexico, but it failed, 227 to 203.

Title IX, Subtitle J
This section would provide $1.5 billion in direct payments to oil and natural gas corporations to drill in deepwater wells. This section is a pet project of Texas Republican and House Majority Leader Tom DeLay. It would designate a private entity, Sugar Land-based Texas Energy Center, as the “program consortium” to dole out taxpayer money to corporations. The Texas Energy Center has strong ties to Tom DeLay, with six different executives (Herbert W. Appel, Jr., Robert C. Brown, III, Philip E. Lewis, Thomas Moccia, Ronald E. Oligney, and Barry Ashlin Williamson) giving a total of $8,000 to DeLay’s campaign since March 2004. In addition, three of the Center’s executives have given a total of $4,500 to President Bush’s 2004 re-election effort.

The Center’s lobbyist is Barry Ashlin Williamson. In 1988, Williamson went to work for the Reagan administration and became principal advisor to the U.S. Secretary of Energy in the creation and formulation of a national energy policy. President George H.W. Bush later chose him to be the U.S. Department Interior’s Director of the Minerals Management Service, which managed oil and gas exploration and production on the nation’s 1.4 billion-acre continent shelf. Williamson then served as Chairman of the Texas Railroad Commission from January 1993 to November 1995.

The Texas Energy Center will play host to The Research Partnership to Secure Energy for America, whose members include Halliburton and Marathon Oil.

A 2006 New York Times article:

Quote:

But last month, the Bush administration confirmed that it expected the government to waive about $7 billion in royalties over the next five years, even though the industry incentive was expressly conceived of for times when energy prices were low. And that number could quadruple to more than $28 billion if a lawsuit filed last week challenging one of the program's remaining restrictions proves successful.

"The big lie about this whole program is that it doesn't cost anything," said Representative Edward J. Markey, a Massachusetts Democrat who tried to block its expansion last July. "Taxpayers are being asked to provide huge subsidies to oil companies to produce oil — it's like subsidizing a fish to swim."

...

It is an account of legislators who passed a law riddled with ambiguities; of crucial errors by midlevel bureaucrats under President Bill Clinton; of $2 billion in inducements from the Bush administration, which was intent on promoting energy production; and of Republican lawmakers who wanted to do even more. At each turn, through shrewd lobbying and litigation, oil and gas companies ended up with bigger incentives than before.

I could go on, but I'll leave you with this quote from the hardly anti-big oil Energy Politics blog from Oil And Gas Investor:

Quote:

The U.S. government currently gives $18 billion in tax breaks to companies, which the Big Oil companies claim are necessary to invest in exploration, and also they added that they need to make maximum profits during “good times” to help support them during the down cycles. I suppose there is something to be said for the fact that the laws restricting exploration may necessitate extra funds.

So ultimately, Big Oil needs to give up the subsidies and the Congress needs to stop blocking exploration, and everyone will be happy.

Not to go all host on everyone, but the idea that Big Oil isn't receiving unnecessary and excessive subsidies from the U.S. government is just that ridiculous.

Tully Mars · 06-25-2008, 12:30 PM

Colbert had a piece a while back where he made fun of a full page ad the oil companies took out (NYT I think) showing where your dollars go when you buy gas. Basically the ad showed they make no money selling gas, all the money they bring in goes elsewhere. Somehow he found it odd they made no money from selling their product yet managed to post profits... record profits. How odd indeed.

If you're dumb enough to believe the spin the oil companies are putting out you deserve to pay $10 a gal.

william · 07-04-2008, 05:20 AM

You're a tool.
Prices are now being driven by speculators. Thank-you GWB and DC! The secret meetings worked!
When GWB took office, oil was at $20/gal, w/a promise to lower. Now we're at $140/gal. Strange - he's an oil man/Cheney is part of Haliburton. How does that work out? No wonder McCain is part of them.

Baraka_Guru · 07-04-2008, 07:26 AM

Quote:

Originally Posted by william

Prices are now being driven by speculators.

It's the rest of the time we have to worry about.

aceventura3 · 07-07-2008, 03:57 AM

Quote:

Originally Posted by william

You're a tool.
Prices are now being driven by speculators. Thank-you GWB and DC! The secret meetings worked!
When GWB took office, oil was at $20/gal, w/a promise to lower. Now we're at $140/gal. Strange - he's an oil man/Cheney is part of Haliburton. How does that work out? No wonder McCain is part of them.

GWB wants more oil produced in general and more oil produced domestically in particular. Democrats have been fighting Bush on producing more oil and are against increased domestic production.

Given the above and assuming speculators are driving the price of oil (which I don't think is true), what would be the one thing that would cause speculators to immediately drive the price down?

More oil production currently, them knowing more oil will be produced in the future and them knowing the future oil will come from a stable source, i.e. not the Middle East.

So assuming speculators are driving the price of oil, who is really to blame?

roachboy · 07-07-2008, 04:35 AM

ace--there's a combination of factors that are probably to blame for the price spikes of late---as usual, the econ 101 level supply-demand relationship is not adequate to think about much. it's therapeutically interesting, however, in that it reduces complexity.

on the other hand, it is difficult from the viewpoint of someone outside the games themselves to get adequate information--so finding a particular set of trends or actors to pin the spikes on is problematic. there is a supply issue. there have been shifts over the past 6 months in the way futures speculation has been carried out--if you believe george soros, one of these is the arrival of large-scale index speculators, which buy up huge amounts of futures and sit on them for predetermined periods---the argument as i understand it is that this tactic removes the futures from play in the shorter run---the effects has to be a function of the volume that is being taken out of play. but that's hard to say. in the oil/food thread, i've been assembling information about this from time to time and there's a debate about the relative importance of these actions--and i confess that i am agnostic about it simply because i don't feel that i can get close enough to real-time information and so can't see for myself what is going on.

i don't see the demand argument which pins all this on china and india as being coherent--i haven't see any data that backs it up (sudden rises in car sales in these places for example).

generally, though, i think the price spike is a function of
(a) the devaluation of the dollar
(b) irrational energy policies in general, particularly in the united states
(c) supply-level politics on the part of opec
(d) the war in iraq

i don't have time at the moment to explain d really--it ties to a in that i see it as a political factor that in part explains the devaluation of the dollar--note that i write "in part"

the domestic drilling issue seems to me a curious factor in all of this: basically it appeals to a sense of nationalism, a fantasy of control. i am not convinced that opening up drilling in the us will solve much of anything--the problem is more irrational energy policies in general--if the states can do something--and it won't happen with republicans in control--it is to re-examine the american transportation model and maybe take a significant percentage of the monies presently wasted on the national security apparatus and the idiotic "war on terror" and redirect it into infrastructure development (expanding public transportation) and encouraging alternative transportation technologies that benefit people who are not part of the ownership complex behind monsanto, for example.

gotta go.

aceventura3 · 07-07-2008, 07:05 AM

Quote:

Originally Posted by roachboy

generally, though, i think the price spike is a function of
(a) the devaluation of the dollar
(b) irrational energy policies in general, particularly in the united states
(c) supply-level politics on the part of opec
(d) the war in iraq

I think we agree on your item b. On one hand we have a Republican administration that want to drill for more oil, wants to use military intervention to stabilize the Middle East to protect the flow of oil. Then we have Democrats who want to minimize our carbon foot print and subsidize inefficient alternatives to oil. Over the years we have ended up with no real alternative to oil, we spend billions on our military in the Middle East, we spend billions subsidizing inefficient oil alternatives, and we are not producing any oil domestically.

I know that generally on TFP, members want to put all of the blame on Bush but it seems to me that the problem is bigger than Bush and predates his administration. It is going to get worse unless there is cooperation in Washington on this issue.

host · 07-07-2008, 07:13 AM

Quote:

Originally Posted by aceventura3

GWB wants more oil produced in general and more oil produced domestically in particular. Democrats have been fighting Bush on producing more oil and are against increased domestic production.

Given the above and assuming speculators are driving the price of oil (which I don't think is true), what would be the one thing that would cause speculators to immediately drive the price down?

More oil production currently, them knowing more oil will be produced in the future and them knowing the future oil will come from a stable source, i.e. not the Middle East.

So assuming speculators are driving the price of oil, who is really to blame?

ace....demand in the US is down....and "the market":

Quote:

Originally Posted by aceventura3

.....knowing more oil will be produced in the future and them knowing the future oil will come from a stable source, i.e. not the Middle East......

Three new Gulf of Mexico petroleum projects, all routing their production via the new "Mardi Gras pipeline" (see Chicago Tribune article below for details on pipeline....) to south Louisiana refineries.... all coming on line in the last six months....two of the three....just in the past month....combined expected increase in total domestic US oil and gas production is more than 7 percent....and price has done the opposite of what you say such a perception by "the market" will bring, ace..... you posted nothing more than republican party driven talking points....

Quote:

http://www.prnewswire.com/cgi-bin/st...4843493&EDATE=
Gasoline and Diesel Demand Drops, Survey Shows

Unregulated Market Speculation is Driving Prices, Says Trade Group

ALEXANDRIA, Va., July 3 /PRNewswire/ -- Once again, high fuel prices
are dampening travel plans this holiday. More Americans will stay home this
Fourth of July than last year, just as they did during the Memorial Day
weekend.

With fewer people on the road, retailers have seen demand for fuel
drop, according to data released today by NATSO, a trade group representing
the travel plaza industry.

Ask any economist what happens when a product's supply is ample but
demand is lower, and you'll hear that the price of that product is likely
to fall.

Not so with gasoline and diesel fuel this year, based on demand data
released today by NATSO, the national association representing America's
travel plazas and truckstops. Demand for both gasoline and diesel dropped
significantly in May, even while wholesale fuel prices (the cost of fuel
that retailers pay) continued to climb.

The number of gallons of gasoline sold fell nearly three percent in May
as compared with last May 2007, and diesel gallons sold dropped twice as
much that month, by about six percent. Declines of demand for fuel greater
than 2.5 percent are rare, even more so in a time that is considered to be
peak driving season.

Despite these declines, during that same month gasoline and diesel
wholesale prices surged. According to the Oil Price Information Service
(OPIS), the average wholesale cost of fuel sold to retailers climbed
throughout May and June. Retailers were paying an average 37 cents over the
prior month for gasoline and an average of over 60 cents more for diesel,
topping the $4 mark for the first time ever.

Softer demand and higher prices lends further support to experts who
have pointed to unregulated market speculation as a significant culprit in
higher fuel prices.

"In the past, when we've seen skyrocketing fuel prices like this, it is
because of some crisis that squeezes supply," said president and CEO of
NATSO Lisa Mullings. "We've seen no long lines at the pump; in fact, demand
has fallen and supply is adequate, so it is clear that there is another
factor driving up prices."

The price of crude oil on the commodities markets has surged this year,
up 40 percent over the past six months. Where once these markets served as
a management tool for oil producers and oil consumers such as refiners and
airlines, the markets have attracted a new breed of
speculator-non-commercial traders, such as Wall Street investment firms,
pension funds, and others who have no involvement with the commodities they
are buying and selling and who never intend to take delivery of a barrel of
oil. These non-commercial speculators, called "paper traders," now account
for two-thirds of all crude oil trading, double the number active in the
markets since the year 2000.

A number of congressional hearings have focused on the role of
speculators in soaring fuel prices, and a number of legislative proposals
are under consideration to limit the role of speculators in the market and
increase the regulatory authority of the Commodities Futures Trading
Commission.

While consumers feel the squeeze of the higher prices, for fuel
retailers the surging price of fuel strains their credit lines and makes
cash flow difficult to manage. A tanker truckload of diesel fuel, which a
couple of years ago cost a little more than $10,000, now costs more than
$32,000. Wholesale prices can increase as much as 10 to 15 cents in a
single day, making it more challenging than ever to manage fuel inventories
at travel plazas and gas stations.

NATSO is the professional association of America's $42 billion travel
plaza and truckstop industry. Founded in 1960, NATSO represents the
industry on legislative and regulatory matters; serves as the official
source of information on the diverse travel plaza and truckstop industry;
provides education to its members; conducts an annual convention and trade
show; and supports efforts to generally improve the business climate in
which its members operate.

Quote:

http://www.energycurrent.com/index.p...&storyid=11660
Neptune platform begins production in Gulf of MexicoFiled from Houston
7/7/2008 2:28:57 PM GMT

HOUSTON: BHP Billiton and its partners have begun production of oil and gas from the Neptune development in the deepwater Gulf of Mexico. Neptune is being developed with a tension leg platform installed in Green Canyon Block 613 at a water depth of 4,250 feet (1,300 m).

The Neptune facility is 120 miles (195 km) off the Louisiana coast and is BHP Billiton's first operated standalone deepwater production platform in the Gulf of Mexico. The facility has a capacity of 50,000 b/d of oil and 50 MMcf/d of gas. It recently underwent remediation to strengthen components inside the hull's pontoons. ....

Quote:

http://www.chicagotribune.com/news/l...,6657061.story
May 28, 2007

.....Against this backdrop, Thunder Horse, sitting atop a reserve that possibly holds 1.5 billion barrels, promises to deliver up to 250,000 barrels of oil a day, making it one of the gulf's biggest producers (this sentence as published has been corrected in this text). For U.S. consumers now paying an average of $3.10 a gallon for gas, Thunder Horse would relieve some of the price pressure: Fully operational, it would boost total U.S. production by 5 percent.......

...Leading a reporter on a tour of the complex onboard systems that separate oil, water and gas, McDaniel pointed to a pipe from the platform that plunges deep into the ocean. By the time Thunder Horse goes into production, the pipe will connect to Mardi Gras -- a $1 billion pipeline BP is building that one day will carry half of all the oil pumped from the deep-water gulf."This is the top end of the Mardi Gras pipeline," McDaniel said. "When the oil leaves here, it's gone."

For BP, and for gas-hungry consumers across the U.S., it can't happen soon enough......

Quote:

http://uk.reuters.com/article/busine...LA495020080617
BP's Thunder Horse starts oil and gas production
Tue Jun 17, 2008 12:41pm BST
Crude oil, US drive Europe shares to day's high

More Business & Investing News... LONDON (Reuters) - BP (BP.L: Quote, Profile, Research) said it started to commission its Thunder Horse platform in the Gulf of Mexico on June 14 and that the platform would be in continuous production by year-end.

"We started producing and exporting oil and gas from one well on June 14," a spokesman for BP said on Tuesday. "We would expect to complete full startup of the field by the end of the year."

The long-delayed field, 150 miles southwest of New Orleans, will produce a maximum of 250,000 barrels per day of oil and 200 million cubic feet per day of natural gas when it reaches peak production.

Quote:

http://209.85.215.104/search?q=cache...lnk&cd=1&gl=us
Business

June 16, 2008, 6:34PM
Thunder Horse platform finally pumping after three-year delay

By KRISTEN HAYS
Houston Chronicle Copyright 2008

BP's long-delayed Thunder Horse platform in the Gulf of Mexico is finally pumping oil and gas.

BP spokesman Ronnie Chappell said today that Thunder Horse started pumping from a single well on Saturday, launching the start of a lengthy commissioning process.

"There's still a lot of work to do. There are other wells to prepare for production and others to drill and complete. But we're on track, making good progress, and on schedule to have the field online by year-end," he said.

When the structure 150 miles southeast of New Orleans reaches its full daily capacity of 250,000 barrels of oil and 200 million cubic feet of natural gas, Thunder Horse will be the biggest producer in the Gulf.

Thunder Horse originally was slated to start producing three years ago. But system and design troubles prompted lengthy delays for repairs.

Ballast system failures left the installation listing 20 degrees after Hurricane Dennis blew through the Gulf in July 2005. About a year later a crucial piece of equipment on the seabed sprung a leak, forcing BP to haul the piece back to shore for repairs.

When running at full tilt, Thunder Horse alone will increase overall U.S. oil and gas production by 3.6 percent. Add BP's Atlantis platform that started up last year, and the boost grows to 6.4 percent.

Analysts have said that is likely the biggest production increase from just two locations that the U.S. has seen in a decade.

BP owns three-fourths of Thunder Horse and Exxon Mobil Corp. holds a one-fourth interest.

Baraka_Guru · 07-07-2008, 07:23 AM

The issue is larger than even Washington. I think a lot of this has to do with the producing nations' questionable ability to fill demand over the next few years. It is the catalyst. It is what spurs speculators to make things worse.

Demand in China and India is a real thing. Car sales there isn't the best indicator because it would be an isolated one. The growth in demand is tied to expanding economies. As an economy expands--and modernizes--it uses more oil products in virtually every aspect of the economy: industrial, commercial, and residential.

But while these two nations are in the spotlight, they aren't the only expanding economies. Producing nations as a whole are having a tough time expanding their production capacity when it comes to sweet light crude...the good stuff...and some nations in particular are faltering in this respect and are seeing diminishing production. The data is out there.

Washington has a big role in this game, but they aren't the only players. America consumes much of the oil that is produced, but the demand is shifting to other economies. Also consider the impact of oil-producing countries when the prices spike: their own economies expand. This generates more demand even within their own borders, let alone where they happen to ship the oil. Look at the Calgary area. They've had trouble finding enough people to fill jobs, not just in the oil industry, but many others in general as a result of the booming growth. Now picture this happening in virtually every oil-producing nation in the world, who are benefiting from high oil prices.

This is a convoluted problem that no means of simple summary can describe. It is the problem of our time.

aceventura3 · 07-07-2008, 07:25 AM

Quote:

Originally Posted by host

ace....demand in the US is down....and "the market":

Three new Gulf of Mexico petroleum projects, all routing their production via the new "Mardi Gras pipeline" (see Chicago Tribune article below for details on pipeline....) to south Louisiana refineries.... all coming on line in the last six months....two of the three....just in the past month....combined expected increase in total domestic US oil and gas production is more than 7 percent....and price has done the opposite of what you say such a perception by "the market" will bring, ace..... you posted nothing more than republican party driven talking points....

Host,

If I explain the flaw in your argument will you take the time to read it and try to understand it?

But first, let see if I understand your point. You seem to be saying that in spite of an increase in domestic oil production of 7% and a decrease in domestic demand of gas and diesel, oil prices have gone up rather than go down. Is this a correct sumation of your point?

05-08-2008, 11:30 AM	#4 (permalink)
dc_dux Location: Washington DC	I'm not particularly interested in comparisons to Home Depot, Starbucks or Microsoft. IMO, and for the purposes of a national energy policy, the more relevant comparison would be the tax breaks/incentives to oil companies as opposed to renewable energy resources and alternative energy development. The tax breaks/incentives in the 2005 energy bill were weighted heavily (65%-35%...if i recall correctly) towards oil and coal companies ($18 billion..if i recall correctly) at the expense of renewables and new energy technologies. A 2008 bill try to reverse (or at least equalize) those tax breaks/incentives, but has been blocked by Repubs in the Senate, along with a Bush veto threat. A national energy policy should be far more balanced in its tax treatment...and IMO, if its tilted at all, it should be tilted towards getting us off a dependency on oil. __________________ "The perfect is the enemy of the good." ~ Voltaire Last edited by dc_dux; 05-08-2008 at 11:40 AM..

05-09-2008, 12:18 PM	#26 (permalink)
roachboy Super Moderator Location: essex ma	your statements about nationalization are simply false empirically, loquitor. one of these days, maybe you'll look at something of how western european economies actually operate. of course the hayek/liberatarian ideology provides you with no particular reason to engage with the messiness of the actually existing world, so i do not expect that you'll do any research and so am not going to waste my time providing links to information that is self-evident to this extent. but you might think about the french nuclear industry, it's not hard. you can do it. o i know that the neoliberal set thinks all kinds nasty thoughts about france--but in other contexts you argue for nuclear power, and yet market-y america doesn't have it and highly nationalized france does. ========== the way this thread is pitched is so narrowly focused that a coherent discussion about oil corporations and by extension american energy policy is close to impossible, so i'll just let the string of affirmations of good faith on the part of those nice corporate citizens continue undisturbed by any reality, since they do not admit of it a priori. if you want to talk about oil, catch me in another thread. have fun, lads. __________________ a gramophone its corrugated trumpet silver handle spinning dog. such faithfulness it hear it make you sick. -kamau brathwaite Last edited by roachboy; 05-09-2008 at 12:21 PM..

05-10-2008, 06:24 PM	#27 (permalink)
loquitur Junkie Location: NYC	host, the fallacy of your position is that it does not follow that merely because a core government function generally gets done in a way that is effective (albeit with inefficencies and corruption on the way to get there), it necessarily follows that all functions can be done by the government. National defense is probably the one function that everyone who isn't an anarchist thinks the govt has to do. It doens't therefore follow that the govt would be good at doing most other things that aren't analogous. roachboy, the Soviet Union was such a smashing success that I really hesitate to criticize your position. As for France, you might want to look at how long Mitterand's nationalization program lasted and with which results. Lots of countries have this or that business being government owned (often it's media). Doesn't mean it wouldn't be done better if owned privately. And btw, I was only in France once, for a week, and I really loved the place. EDIT: Not be flip as above, Roachboy, but aren't most power suppliers historically monopolies? In light of that, shoud it be surprising that the govt (also a monopoly, but with guns) supplies power in France? It does not follow that merely because the govt runs one (largely monopoly) business well (i'm taking your word for it on that one) that it therefore can run any business well. Like Renault, say. Last edited by loquitur; 05-10-2008 at 08:14 PM..

06-24-2008, 01:26 PM	#29 (permalink)
aceventura3 Junkie Location: Ventura County	Lately we have had many people saying speculators are driving the price of oil. I read a lot but no one explains how they think this is happening other that to say speculators are a higher percent of the futures market now than in the past. I am trying to understand how speculators can actually have an impact on prices. As I write this I might answer my own question, or someone with more insight may be able to help. First, I think of a group of oil producers (OP), a group of speculators (S), one million barrels of oil, and oil refineries who would purchase and process the oil (OR). Let say we have a direct market - OP delivers oil to OR. The OR pays a spot market price based on the oil available - supply, and what they need - demand. Let's say that price is $50 per barrel. And let's say that is going to be a constant, the real price (intrinsic price) based on supply and demand. All other things being equal in this market, with no risks, i.e. - political risks, shipping risks, inflationary risks, regulatory risks, etc. If we try to introduce S, there is no profit potential for them. If S could sell the oil for $51, why would the OP let the S make that dollar. Or if the S could purchase oil for $49 why would the OR let the S make that dollar? So in a market with no risk, there is no room for speculators. Speculators can not have an impact on price in a efficient market with no risk. Now if we add risk. We have OP who may want to protect the downside. They may realize, in the future oil demand may go down. They may want to obtain money today for delivery at a future date (perhaps to fund war, fund investment in other things or more oil exploration). Introduce S. They are willing to take the risks of future delivery. They charge a price for this. The price has two components, profit and a risk premium. The OP may have to sell the futures oil contract at $45. Then the speculator sells the oil at $50 to the OR at the future date. The market works, all knowns are on the table, everyone is happy. On the other hand we have the OR, who may want to manage risk. First they could become a S, and buy the futures contract at $45. But let's say the OR want to minimize the risk of future price increases in the market. They want to make sure they have an available supply at a known price. Again, the S can come in and assume the risk. They are willing to sell a futures contract to the OR at a price today for future delivery. Again this futures contract has two components, profit and a risk premium. Perhaps that contract sells for $55. The market works, all knowns are on the table, everyone is happy So, the two price components involved with S is profit and risk premium. What happens if either of these components gets out of line? Let's say there are more and more S's that come into the market all wanting to buy futures contracts for delivery of one million barrels of oil in 60 days. They all flock to the OP, bidding up the price of oil. Let's say they bid up the price to $130 per barrel for that future delivery. The intrinsic value of that oil is $50 per barrel, so we have a risk and profit premium of $80. What does the OR do? All other things being equal and if the OR had no options and they wanted to buy that futures contract on the day it peaked at $130, they would have to buy the oil at $130. If they then could pass the increased price on to consumers the $130 price would be supported. What if the OR had other sources of oil? They could buy from those other sources, perhaps direct from the OP at a price less the profit for the S. Perhaps they could wait, and buy on the spot market for $50. Becuase we know that the S can not take delivery of one million barrels of oil so the closer we get to the delivery date the more incentive they have to lower the price and sell the contract. What about the OP? Why would they sell their oil to S for less than $50, knowing that S can sell the oil to OR for $130? Or why would the OR buy at $130 when they could buy at $50 or less? So, I am thinking at best S can only have a short-term impact on price and that eventually price will reflect the real intrinsic value. I think competition among S will in time lower profit margins to reasonable levels. However, I think the risk premium, is what it is, and that the risk premium is what is really driving the price. __________________ "Democracy is two wolves and a sheep voting on lunch." "It is useless for the sheep to pass resolutions on vegetarianism while the wolf is of a different opinion." "If you live among wolves you have to act like one." "A lady screams at the mouse but smiles at the wolf. A gentleman is a wolf who sends flowers."

06-25-2008, 12:30 PM	#32 (permalink)
Tully Mars Living in a Warmer Insanity Super Moderator Location: Yucatan, Mexico	Colbert had a piece a while back where he made fun of a full page ad the oil companies took out (NYT I think) showing where your dollars go when you buy gas. Basically the ad showed they make no money selling gas, all the money they bring in goes elsewhere. Somehow he found it odd they made no money from selling their product yet managed to post profits... record profits. How odd indeed. If you're dumb enough to believe the spin the oil companies are putting out you deserve to pay $10 a gal. __________________ I used to drink to drown my sorrows, but the damned things have learned how to swim- Frida Kahlo Vice President Starkizzer Fan Club

05-08-2008, 10:00 AM	#2 (permalink)
loquitur Junkie Location: NYC	it would also be interesting to see whether the profits oil companies are making, compared to their cost of capital, are within the norms of most other companies. That's probably the most relevant comparison, and my undestanding is that the oil companies' returns are good but a bit on the low side. Certainly less than, say, Google or Microsoft or Procter & Gamble. That's off the top of my head, I could be wrong.

05-08-2008, 02:02 PM	#8 (permalink)
loquitur Junkie Location: NYC	I find it curious that dc_dux's premise wasn't examined - namely, that there is a national energy policy and that it is focused on tax breaks. I do'nt think there is anything that integrated at all. We should get rid of "tax breaks" altogether and let the market decide which sources of energy have a future. Neither the existing oil companies nor the pie in the sky energy companies should have subsidies. Whatever works will succeed.

05-08-2008, 05:26 PM	#13 (permalink)
loquitur Junkie Location: NYC	there is a difference between a consumption tax and an income tax, ustwo. You know that.

05-08-2008, 06:30 PM	#15 (permalink)
loquitur Junkie Location: NYC	the point of a targeted consumption tax is that people are free to make choices. They aren't forced to do anything they don't want to. That's the whole point.

05-09-2008, 05:15 AM	#17 (permalink)
loquitur Junkie Location: NYC	1) Bacon doesn't have demonstrable economic negative externalities. Using gasoline-powered vehicles does. 2) Bacon isn't a foreign policy-driven issue. Gasoline is. Our country's principles and independence are endangered by reliance on petroleum and the need to accommodate the world's worst regimes. If your SUV is worth that much to you, pay for it. If not, don't.

05-09-2008, 07:00 AM	#18 (permalink)
flstf Easy Rider Location: Moscow on the Ohio	I believe that much of the corporate income, excess profit and consumption taxes are all paid by consumers in higher prices for gasoline as well as every product that has transportation costs. I often wonder why our political candidates are not challanged to explain this when they advocate increasing taxes on the rich oil corporations. Do they really not think that "Joe sixpack" will ultimately have to pay these taxes with higher prices for food, clothing, heating bills, gas for the car, etc..? I guess one way to solve this would be to tax on the production end and fix prices on the consumer end but total control of the markets will probably not work for long.

05-09-2008, 07:59 AM	#19 (permalink)
loquitur Junkie Location: NYC	flstf, I'm proposing not to camouflage the extra cost but to tack it onto consumers' bills directly. That's much more honest than burying the additional charges in the oil companies' own bills, or the cost of a car, or any of the other ways that charges get swallowed by a company and then included in the price passed along to the consumer. Burying and hiding the costs is one reason the public doesn't change its behavior. For instance - with CAFE standards, the enforced higher mileage adds to the price of a car and get financed at a few extra dollars a month, so no one notices. Plus, with better mileage people drive more and use more gasoline anyway. Leave car mileage alone and charge what petroleum really should cost, and you'll see massive migration away from gas guzzlers - sorta like what's happening now, only more marked.

05-09-2008, 09:06 AM	#21 (permalink)
loquitur Junkie Location: NYC	yeah, it's calculable. in principle it's basically the cost of extraction, transportation and refinement plus the cost of capital plus the cost of negative externalities. I don't have that number. But you insist on leaving out the last piece. Ronald Coase would be displeased.

05-09-2008, 10:30 AM	#23 (permalink)
loquitur Junkie Location: NYC	Host, let me make this clear so there can be mistake: YOU WILL NEVER SELL ME ON NATIONALIZING ANY INDUSTRY. Nationalizing industries does not work, has never worked, has led to disaster every time it's been tried and cannot be made to work. Don't assume that merely because Ustwo and I agree on a small public policy issue that I think nationalizing an industry is a good idea. It would be a disaster. If you think we're paying a lot for oil now, just wait until the geniuses who brought us $600 screwdrivers get hold of the industry.

06-24-2008, 04:30 PM	#30 (permalink)
ASU2003 immoral minority Location: Back in Ohio	What happens if you have every hedge fund, every 401k, every bank, every investor dumping their money into the safe bet of oil (real estate, stocks, bonds every other sector isn't as good or is losing money lets say). They know that consumers would pay up to $1000/barrel (a guess, but I'm sure they have graphs of demand vs. price and they aren't too impacted by it. At least the profits on the expensive oil will make up for lower sales.) The delivery thing is a problem, since the oil investors don't want the barrels of oil. But since demand has (and probably will) remain fairly constant (we cut our use by 3.8% since last year, price went up 30%), they know that the OR will buy it from them. They aren't trying to corner the market or take a run at it by hording all the oil in a huge imaginary tank and preventing it from being sold, then selling it when we've run out of oil to the highest bidder. But, they are acting like middlemen and not adding anything of value. And if their (S) only role is to manage risk, then I think the OP and OR should be made to play the real game and have to lose sometimes. he thing is, as long as there is a demand for every ounce of oil produced, it will be treated as a commodity and the 'market' will set the price. If demand fell by half, I bet you would see them try to make it a product and set their own price (they would say we can't produce or refine it for less than $2/gal, even though it would only cost them $1 let's say) This would be the cartel setup that congress was trying to find.

07-04-2008, 05:20 AM	#33 (permalink)
william Psycho	You're a tool. Prices are now being driven by speculators. Thank-you GWB and DC! The secret meetings worked! When GWB took office, oil was at $20/gal, w/a promise to lower. Now we're at $140/gal. Strange - he's an oil man/Cheney is part of Haliburton. How does that work out? No wonder McCain is part of them.

07-07-2008, 04:35 AM	#36 (permalink)
roachboy Super Moderator Location: essex ma	ace--there's a combination of factors that are probably to blame for the price spikes of late---as usual, the econ 101 level supply-demand relationship is not adequate to think about much. it's therapeutically interesting, however, in that it reduces complexity. on the other hand, it is difficult from the viewpoint of someone outside the games themselves to get adequate information--so finding a particular set of trends or actors to pin the spikes on is problematic. there is a supply issue. there have been shifts over the past 6 months in the way futures speculation has been carried out--if you believe george soros, one of these is the arrival of large-scale index speculators, which buy up huge amounts of futures and sit on them for predetermined periods---the argument as i understand it is that this tactic removes the futures from play in the shorter run---the effects has to be a function of the volume that is being taken out of play. but that's hard to say. in the oil/food thread, i've been assembling information about this from time to time and there's a debate about the relative importance of these actions--and i confess that i am agnostic about it simply because i don't feel that i can get close enough to real-time information and so can't see for myself what is going on. i don't see the demand argument which pins all this on china and india as being coherent--i haven't see any data that backs it up (sudden rises in car sales in these places for example). generally, though, i think the price spike is a function of (a) the devaluation of the dollar (b) irrational energy policies in general, particularly in the united states (c) supply-level politics on the part of opec (d) the war in iraq i don't have time at the moment to explain d really--it ties to a in that i see it as a political factor that in part explains the devaluation of the dollar--note that i write "in part" the domestic drilling issue seems to me a curious factor in all of this: basically it appeals to a sense of nationalism, a fantasy of control. i am not convinced that opening up drilling in the us will solve much of anything--the problem is more irrational energy policies in general--if the states can do something--and it won't happen with republicans in control--it is to re-examine the american transportation model and maybe take a significant percentage of the monies presently wasted on the national security apparatus and the idiotic "war on terror" and redirect it into infrastructure development (expanding public transportation) and encouraging alternative transportation technologies that benefit people who are not part of the ownership complex behind monsanto, for example. gotta go. __________________ a gramophone its corrugated trumpet silver handle spinning dog. such faithfulness it hear it make you sick. -kamau brathwaite

07-07-2008, 07:23 AM	#39 (permalink)
Baraka_Guru warrior bodhisattva Super Moderator Location: East-central Canada	The issue is larger than even Washington. I think a lot of this has to do with the producing nations' questionable ability to fill demand over the next few years. It is the catalyst. It is what spurs speculators to make things worse. Demand in China and India is a real thing. Car sales there isn't the best indicator because it would be an isolated one. The growth in demand is tied to expanding economies. As an economy expands--and modernizes--it uses more oil products in virtually every aspect of the economy: industrial, commercial, and residential. But while these two nations are in the spotlight, they aren't the only expanding economies. Producing nations as a whole are having a tough time expanding their production capacity when it comes to sweet light crude...the good stuff...and some nations in particular are faltering in this respect and are seeing diminishing production. The data is out there. Washington has a big role in this game, but they aren't the only players. America consumes much of the oil that is produced, but the demand is shifting to other economies. Also consider the impact of oil-producing countries when the prices spike: their own economies expand. This generates more demand even within their own borders, let alone where they happen to ship the oil. Look at the Calgary area. They've had trouble finding enough people to fill jobs, not just in the oil industry, but many others in general as a result of the booming growth. Now picture this happening in virtually every oil-producing nation in the world, who are benefiting from high oil prices. This is a convoluted problem that no means of simple summary can describe. It is the problem of our time. __________________ Knowing that death is certain and that the time of death is uncertain, what's the most important thing? —Bhikkhuni Pema Chödrön Humankind cannot bear very much reality. —From "Burnt Norton," Four Quartets (1936), T. S. Eliot Last edited by Baraka_Guru; 07-07-2008 at 07:25 AM..