The idea that Congress will impose a windfall profits tax only a few months after they failed to eliminate subsidies for Big Oil (see An $18 Billion Drop in the Bucket) is absurd.
Meanwhile, Fox News Channel's Sean Hannity has once again added to the confusion by claiming that Big Oil makes only 8 cents per gallon of gas. Well, he's close, but the oil industry's own estimate for 2007 is 8.3 percent, after taxes, which would be 8 cents if you could still buy gas for a dollar. In the real world, this is about 55 cents a gallon profit before taxes, assuming the 40.7% corporate tax rate the industry claims (which is also inaccurate).
The oil industry's lobbying arm American Petroleum Institute (API) has published some very useful information on their web site. Even if we take this information at face value, it raises interesting questions:
It's safe to say that the current Return on Investment (ROI) is now over 25%, and far above the 5% to 10% historical average for oil and natural gas companies. The API makes a valiant attempt at showing that profits are in line with other industrial companies, but I don't entirely buy the argument, and I suspect the picture for 2007-2008 would look very different.
All companies operate within a range of normal supply/demand, but the question is: when does this rise to the level of profiteering? That is, at what point are profits excessive, simply because oil is a commodity in short supply, and they are in a position to take advantage of the situation? The question is important because we are likely to face the same issue for a variety of other commodities in the years ahead.
It would be unfair to blame the skyrocketing price of gasoline entirely on Big Oil. While I would like to see Big Oil tax subsidies eliminated, the larger culprit is the devaluation of the United States currency.
When compared with 2001 when George W. Bush took office, today's dollar is worth about 40% less when compared to its value against other foreign currencies 8 years ago. When you're buying goods that trade on international markets, this makes a big difference.
If Congress and our next President want to get serious about the issue, they'll begin to address the national debt. It's more than a coincidence that the dollar's value has been cut in half over the same 8 year period that the national debt has nearly doubled.
2 comments:
When is it profiteering? When there's collusion and price fixing, or war time. Extreme circumstances, these.
Not now. The US public dug its own grave by...
- deploying an auto fleet with the most dismal mpg's in the industrialized world and, incredibly, considering gasoline gluttony a form of status.
- relying almost exclusively on a finite commodity with the lowest gasoline tax and prices in the industrialized world.
- blowing a trillion-dollar wad on sprawl that required long commutes.
- repeatedly rejecting the widespread deployment of comfortable and convenient public transportation.
- accepting a blunt military fix in the face of declining world oil reserves, which by the way won't be the last invasion to bring freedom to an oil-producing country.
We're now witnessing the predicted outcome of our consumption habits. Oil prices are market driven and reflect what the worldwide market is willing to pay. Nobody is deliberately constricting supply; it is simply being outpaced by demand and it is harder to obtain as we slide into a permanent decline in production. We plucked the easy sources and the costly oil is represented on the decline curve.
The era of cheap oil is over. As gas prices rise the real impact won't hit us at the pumps but with anything and everything - especially food - costing much more and becoming more scarce.
Our poorly-planned infrastructure gave us short-term comfort but it is configured for cheap energy so the transition in retooling supply chains, rebuilding our aging rail lines to replace trucking, scampering to build nuclear reactors, and simply doing with less is going to be a pill we'll never swallow without the risking instability and unrest. Quick, dangerous and potentially violent political fixes will be offered by very bad people.
There are already calls to nationalize the energy sector. We'll try price caps, windfall profits taxation and might toy with complete public ownership of the oil industry. The result will be greater shortages.
But the slogan that our way of life isn't negotiable only means that we're going to ultimately negotiate with reality, the least flexible of negotiators, and our heads will still be up our butts while we're bent over with our pants down making amusing demands and wondering whom to blame.
Big oil was only too willing to meet demand and maximize profits. They gave us a degree of comfort unmatched in the history of civilization and we refused to accept anything less than short-term comfort. We believed what we wanted to believe because we wouldn't be the ones facing the long-term consequences. Blaming oil companies for rewarding stockholders and employees is easier than pointing the finger where it belongs. It also delays the tough choices that no politician can now make without facing unemployment.
As we enter this pending crisis with the still-lowest gasoline prices in the industrialized world we're also the least prepared nation in the industrialized world to face further reductions in energy consumption. This isn't a coincidence.
When things get better after they were much, much worse we'll find ourselves forced to adopt profoundly different values and maybe the idea that future generations deserve consideration will be less controversial. After future generations finish digesting our shortsighted fuckups they might be more likely to consider their own future generations. We might even start living sustainably after rethinking what really matters.
Excellent comments, and I agree that Big Oil isn't solely responsible for skyrocketing prices.
The government's lack of anything that approaches an energy policy is certainly part of the problem.
Other industries (especially the US auto industry) have promoted gas guzzlers, and are now paying the price in declining sales of pickups and SUV's and crashing share prices.
Obviously, consumers share responsibility, since they are buying all this stuff and will conserve only when forced to do so.
This still leaves the question of when the price of an essential commodity is excessive, and/or should be regulated. Utilities and insurance, for example, have been regulated for years. Neither industry enjoys anything approaching the profits of Big Oil.
As far as price fixing is concerned, there's substantial evidence that the price of oil is being manipulated by oil speculators.
The so-called "Enron loophole" to the Commodity Futures Modernization Act in 2000 exempts energy exchanges from most kinds of federal regulatory oversight, and is coming under increasing scrutiny.
A complex problem, but I'm not ready to let Big Oil off the hook just yet.
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