Congressional Attack Dogs Bark Up Wrong Tree!
by Doug Edelman (5/24/08)
Once again, in response to constituent outcry over gasoline prices, Oil Company executives have been hauled before Congress to get their posteriors ripped into by self-serving grandstanding Senators.
Senator Leahy went so far as to question the salary of the execs – as if this was in some way relevant.
But these self-appointed watchdogs are barking up the wrong tree. The Oil Companies are not to blame for our pain at the pump!
Oil companies profit margins are around 10%. They actually make only around 8 cents profit on a gallon of gas! The station owner only makes around 2-3 cents per gallon. Where does the rest go? Part goes to the well owner – in most cases an OPEC nation. A good portion is represented by the costs to transport the crude across the world, to refine it into gasoline, and to distribute it to the local gas station. Some goes back into exploration, and R&D. The rest is taxes!
Last year Exxon Mobile may have profited $40 Billion – but they paid $105 Billion in taxes! Just WHO is the oil profiteer? Our friendly watchdogs in Congress!
In truth, our high gas prices are due to a great number of influences, and MOST of them can be blamed directly on the environmentalists! We can’t drill, we can’t build refineries, and we must produce boutique fuels.
ANWR: Nope, can’t drill there – we might disturb the porcupine caribou. But this species migrates over 1500 miles annually, and the enviro-wonks think our drilling in an area the size of Kennedy Airport (YES that’s all it would take!!) will threaten their existence!
Offshore: OMG! What if there’s a spill? (Environmentalists will cry.) But we have seen real-life demonstrations of the safety of offshore oil rigs. Hurricane Katrina tore some existing rigs in the Gulf loose and tossed them onshore. How much oil was spilled? NONE! After the storms, the rigs were repaired, towed back into place, and production began again!
On the other hand, our current oil needs are met by floating billions of barrels across the oceans on ships! VERY environmentally friendly! Hundreds of diesel burning ships traverse the planet continuously, each carrying an eco-disaster load of oil in its hold. While shipping spills of the magnitude of the Exxon Valdez are rare – ships DO get into trouble on the high seas… and what is the first course of action for a ship in trouble? Lighten the load by dumping cargo! Now THERE’S a nightmare scenario for you! (Remember, Exxon Valdez only spilled a PORTION of its cargo!)
Refineries: We haven’t built a refinery since the Carter Administration due to environmentalist objection. In the interim, a number of refineries have come off-line for a variety of reasons. Even if our crude supply increases, our refining capacity is already running at or near 100% now. And they have a further obstacle in their way…
Boutique Fuels: Environmental regulations require region-specific formulations of fuel. It’s illegal to sell fuel blended for one region in another region. Refineries must predict demand for a particular blend – produce that blend, then RETOOL to produce another blend. If they inaccurately predict demand – there may be a shortage in one region and a glut in another. The surplus of one region can’t be tapped to meet the shortage in the other. A price disparity occurs, with the price rising in the shortage area – and the next thing you know – they notice they’re paying more than their neighboring region, and they cry “GOUGING”!
But let’s get back to those “obscene” profits of the Oil Companies.
WHO gets those profits? No doubt the execs make a good salary – and they deserve it! There are only a handful of companies who manage to provide the needs of the oil hungry planet! Individuals who can manage such enterprises, which operate on such a massive planetary scale efficiently and profitably, are worthy of a premium salary. But all the exec salaries combined represent a very small percentage of the companies’ earnings – so where does it go? Well, apart from reinvestment into exploration, research & development etc… it goes to the SHAREHOLDERS. Virtually every mutual fund has some of its money in oil… so if you have an IRA or a 401K, you yourself probably reap some oil profits.
So what else is driving our gas prices up?
TAXES: Federal, state and local taxes on a gallon of gas exceed 75 cents in some locales!
Speculation: Commodity futures are traded based on EXPECTED prices – and uncertainties drive prices UP. Given our mid-east oil dependency… middle east turmoil or instability increases uncertainty.
Weak Dollar: Global economic conditions have weakened the dollar making it less valuable abroad. Since we are dependent on FOREIGN sources of oil – it takes more dollars to pay the same value in foreign currency – so even if THEY were charging the same price in their own currency as before… it would cost more in dollars than it did!
Supply and Demand: Yes, real economic fundamentals are in play! As emerging nations are entering the 21st century – their demand for oil products is growing exponentially! The US is not the only HUGE consumer of oil. Africa, India, China and other nations are growing their economies, and their energy requirements have exploded. And while we’re no longer the only game in town, we can’t just waltz into Saudi Arabia and tell the Prince “what’s what” and demand increased production or lower prices. They can tell us to pound sand, because there are other markets happy to pay the price and buy the oil! Until we begin to dramatically increase domestic production and reduce our dependency on foreign sources to meet our demand – we will remain at the mercy of less than friendly nations who can now afford to cut us off entirely if they desire, as they have adequate alternative markets to sell to!
The time has come to tell the enviro-wackos to just shut up, and to drill in ANWR, drill offshore off Alaska, California, in the Gulf, and off Florida. (We’d BETTER get to it in the Gulf and Caribbean before our environmentally responsible friend and neighbor CUBA lays claim to all the oil in that region!) We must build refineries. We must pursue technologies to extract oil from oil shale. We must build nuclear plants to provide electricity without burning fossil fuels. If an initiative was announced to accomplish these items within 5 years – we’d see oil prices drop OVERNIGHT, as those very futures traders would forsee reduced prices down the road.
Copyright © 2008 by Doug Edelman
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