The big oil rip off
March 14th, 2008 at 11:31am Don R. Gugliuzza
Oil prices have reached $110 per barrel……. and nothing is done. The oil companies post record 4th quarter profits while receiving tax rebates….. and nothing is done. No new refineries have been applied for in 20 plus years… and nothing is done. We have a president and a vice president who are oil men…… so nothing will get done.
They said last year that gas would reach an all time high of $3 per gallon and it did. They’re saying that gas will reach $4 per gallon and it will.
Our president, an oil man, pleads innocence when a reporter asks him about $4 per gallon gas. Never heard that.
And WE do nothing. Shame on him and shame on us He has correctly assessed the situation that the American public and the Congress are a bunch of sheep who have done nothing, will do nothing and can do nothing. Shame on us again.
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11 Comments Add your own
1. dt | March 14th, 2008 at 12:42 pm
as as we get over populated and pump more jobs overseas things will get worse,enjoy
2. Don R. Gugliuzza | March 14th, 2008 at 1:04 pm
You are exactly right. Yes, things will get worse, they already have.
3. Dan R | March 14th, 2008 at 2:00 pm
Don:
What is your point??
I hate to burst your bubble, but there is no conspiracy.
I guess you’ll only see what you want to see, regardless of the facts.
Oil is a GLOBAL commodity and the price of oil is set in the GLOBAL marketplace, not by the US President!
Great Britain and European countries now pay $7-8 per gallon, so the US price is relatively cheap.
Do you honestly think the US President sets the global price of oil?
Do you want the Prez to freeze the price of gasoline like Nixon did in the 1970’s? If so, be prepared for long lines at the gas pump.
The truth is, there is no simple answer.
Gasoline will never be as cheap as it was 30 years ago.
As the third-world economy (China/India, etc.) develops, there is more & more demand which pushes up the global price.
The only thing we can do is increase production/supply of oil by drilling in sensitive areas like ANWR or offshore.
We could develop more nuclear power to reduce demand for oil.
We can also conserve energy and reduce the demand.
The best thing Congress & the prez can do is lower the federal & state gasoline tax.
Blaming all of this on Bush is complete bunk.
4. Don R. Gugliuzza | March 14th, 2008 at 4:49 pm
Dan.
Is it OPEC that’s selling it’s oil on the open market? I don’t think so. If the oil companies buy their oil on the open market, why are their profits skyroketing? I realize that there are a lot of pressures that come into play in oil, and most of them are controlled by the oil companies.
I remember not too long ago that the oil minister of Saudi Arabia said that they could pump more oil, but wanted to know who would refine it. Our refineries were working at near capacity at the time. Every summer we hear that gas prices go up because demand exceeds supply. Perhaps if we had more refineries on line, they could meet more of the demand.
Then there’s the supposed energy policy that was written by a committee made up of members that still are unidentified.
When congress had the opportuity to require automakers to raise the gas mileage in their cars, The Democrats, at the urging of their fellow Democratic Senators from Michigan bailed out on us.
You were right about Richard Nixon. But do you remember the excess profits tax that was levied against the oil companies? I do. That seemed to energize the oil companies to lower their gas prices.
No, I don’t expect gas prices to ever go back to what they were 30 years ago or 20 years ago. But I would like to see them at a level where the oil companies were making a good, sustainable profit and not the rediculous amounts they are making now and that lead me and others to think they are gouging the public.
5. Samal | March 15th, 2008 at 3:07 am
Don, you really need to check the facts rather then repeat the talking points of current conventional wistom.
- Oil is sold as a commoditity just like corn or sugar. The producers drill and pump the oil and sell that oil on an open market. Refiners purchase the oil on the futures market - because they are purchasing it for future delivery. The traders charge premiums based on anxiety, storms, break downs, and demand in part to run up the price and in part because of the actual fluctuations in acquiring the product.
- Do you know what profit margin is? Not profit dollar, but profit margin. Do you realize that the margin has remained relatively consistent? Higher volumes and consolidation (remember Exxon and Mobil combined) have increased the amount of oil that flows through today’s companies. If you sell more of an item you will make more dollars, but not a higher percent.
- We haven’t had a new refinery built for 30 years, not 20. The reasons are as follows:
1) The windfall profits tax removed any incentive the companies had to expand.
2) The supply glut in the 1980’s pushed the price of oil down into the 20/barrel price.
3) The major reason in the last 15 years or so is the extensive and costly environmental regulations and lawsuits. Many companies have overseas refineries and import the actual gasoline which is not very efficient, but it beats 10 years of legal challenges and the costs associated with them.
- Worldwide demand has skyrocketed, particularly in China and India. Increase demand and the cost will rise.
- Opec could pump more, however they make their decision based on the existing inventory worldwide. Worldwide inventory is not low. If they overproduce they will see a plunge in price like they did for the 20 years prior to the recent increases. That is not in their best interest. Of course seeing the world enter a recession is not in their interest either.
- Summer gas price increases are so severe because there are about 20 different gasoline blends mandated by environmental requirements. The problem is that a refinery has to reblend the gasoline for each blend, and do so based on what they project the need to be in a given area every month. You can’t just transfer some from the east to Chicago because it is the wrong gas (ever head of anything so stupid in you life?) Then there are the nationwide pipelines. They were built with the concept of ONE type of gasoline. They have to ship one blend, stop and then a mix that has to be shipped back to be re-refined, then ship another blend. As an alternative they mix blends locally, but that leaves the issue of shipping the ethanol. It CANNOT be shipped in the pipelines or in regular trucks as ethanol corrodes the steel and degrades the seals. That means it has to be trucked in specially lined trucks.
- Top all that off with things like the government previously mandating additives to gasoline for environmental requirements. When it ends up that the additive caused water problems and is a carcinogen the government refused to offer any immunity to the companies for its cleanup.
You state that the windfall profit tax forced the drop in price, but you are as far from the truth as you can be. There were many reasons for the drop in price including the threat to the market of the supply from the Alaska oilfields, the drop in use, the collapse of OPEC’s influence as more non OPEC producers came online all contributed. But one of the big contributors was the very profits that were soon taxed. They made money selling oil so they did what they could do to find more oil!
All the windfall profit tax did was discouraged the reinvestment in new oil sources and refinary capacity.
Think about it, do you really thing companies actually pay taxes? No, they either raise the price of the product they sell or they reduce costs perhaps increasing unemployment. If they don’t make a profit per share that fits in with the market they will not have investors. If they don’t have investors there is no company.
Rather then rail on the oil companies you should really thank them for the amazing job they actually do! They employ people, they keep you and I warm, they let us go on vacation, they keep the lights on, all while being sued, bad mouthed, protested against, and in some places kidnapped or shot at.
All for a profit margin below many industires.
6. Dan R | March 15th, 2008 at 3:11 pm
Amen to Samal. You are completely correct.
People like Don would rather not investigate this complex issue when it is easier to say “Big Oil is bad!” and “It’s all Bush’s Fault!”.
His personal feelings about the current US prez also prevent him from being objective.
Profit MARGIN is the key. Not overall profits.
The major oil companies have a profit margin that is much, much lower than Coca Cola, Microsoft, and most other industries.
Because they sell trillions of dollars in oil, their profits are in the billions.
There are no easy answers, and a “windfall profits tax” will just be passed along to consumers,
All I ask of the government is to get out of the way and reduce the taxes on gasoline.
7. Ray | March 16th, 2008 at 3:27 pm
sounds like dan and samal are invested in big oil. The truth is that oil traders are beyond greed, this is where they are currently making big money and they could care less if they tank the entire global market system, because after all they will have theirs!!!!. There is no oil shortage just manipulation by big oil and big money.
8. Don R. Gugliuzza | March 16th, 2008 at 7:09 pm
Samal and Dan R. I would like to point out that I did not suggest that we level a windfall profits tax as has been done in the past. I merely pointed out that it had been done in the context that, at least something had been done as opposed to nothing being done now.
In April of 2006, Senator Arlen Spector, R. Pennsylvania, indicated that a windfall profits tax should be considered along with removing the OPEC exemption from our anti trust laws. He also stated that he felt the merger of oil companies such as ExxonMobil and ConocoPhillips have removed the competition in the industry. I disagree with him on the OPEC item but agree with him on the merger issue. Either he was right about less competition or all oil companies, big and small, operate with the same efficiency as reflected in literally the same prices being charged for each grade of gasoline in a given area.
Several months ago, the CEO of ExxonMobil was reported as saying he would charge as much for his product as he possibly could. Now, I understand that a person in business is there to make money. No doubt about it. I’m in business for the same reason. But, I don’t think I owe him a vote of thanks as if he were a philanthropist selling his product for my benefit.
One last point. Dan R, I will readily admit that I am no fan of George Bush for more reasons than just the economic mess we’re in. I would also ask that you be honest in your support of him. You rise to his defense and ignore the fact that I was equally as harsh on Congress, making no distinction between the previous Republican controlled Congress and the current Democratically controlled one.
It seems to me that the only fiscal policy the Conservative Republicans can support is one that cuts taxes. I have no problem with cutting taxes but don’t believe that giving the biggest tax cuts to the top 1% of the wealthiest Americans does much for the economy, especially at a time when we have historically high budget deficits and are fighting a war.
It used to be that the Liberals were accused of taxing and spending. What we have now is Conserviatives cutting taxes and spending us into horrendous budget deficits. I fail to see the merit in either philosophy. Here’s my uneducated proposal. Keep the taxes we had prior to the Bush tax cuts, cut spending and pay down the debt. When that is done, reduce taxes to support a reduced level of spending. My first three fiscal moves would be to remove the tax cuts on the wealthiest one percent of our citizens, eliminate the tax rebates given to companies that send our jobs to other countries and remove the tax rebates for oil companies. The entire industry is reporting record levels of profits and doesn’t need tax breaks. Again, I know this is a very simplistic
approach, but I’m a very simple person.
9. Samal | March 17th, 2008 at 1:38 am
Don, again I ask you to PLEASE check the facts rather then repeat talking points. Your responses sound like the inaccurate spin from the fever swamps of the far left blogs.
The numbers in 2000, the last year of Clintons taxes looked like this:
Percentiles Percentage of Federal Personal Income Tax Paid
Top 1% 37.42%
Top 5% 56.47%
Top 10% 67.33%
Top 25% 84.01%
Top 50% 96.09%
In 2005 the numbers looked like this:
Percentiles Percentage of Federal Personal Income Tax Paid
Top 1% 39.38%
Top 5% 59.67%
Top 10% 70.30%
Top 25% 85.99%
Top 50% 96.93%
So, the top 1% pay 2% more of the total tax then they did in 2000.
Middle class families with younger children are the ones who actually received the greatest tax benefit. You can check the tax rates and credits available at the IRS site, they keep the booklets in pdf format. If you do check it out, as I have, you can actually calculate the tax for a rich family and a middle class one in both years. You will see the greatest percentage drop in taxes was by middle class families (the bottom 50% pay nearly 1% less today then they did under Clinton there is no way to cut their tax as most don’t have any tax due).
Regarding the windfall profits tax, you said:
Leaving aside the fact that there is no such thing as an, “excess profit.” All profit is excess, as in, “above expenses.” I pointed out above that the tax did more harm to the industry and comsumer then it did to the corporations.
Even knowing that you still state, you would rather do something even if it makes things worse then not do anything. That is just foolish. More likely you read what I wrote but didn’t let it past your political filters then you responded as if it never happened.
As an additional point the tax was actually passed under Carter not Nixon. It was repealed under Reagan. That elimination of the tax helped continue the economic expansion through the 90’s as oil prices continued to drop due to the factors I mentioned above.
Your tax plans are not simplistic, they are however anti-growth policies that have already been tried. JFK reduced the personal top rate from 91% to 70%. When he took office the top 1% only paid 20% of the taxes today it is nearly double that with 1/2 the tax rate.
When Kennedy took office the top corporate tax rates were 52%. He dropped them to 48% and today they are about 39%.
The “tax rebates” you would change are NOT U.S. REBATES!
Here is how it works, a corporation makes a product in Germany to sell here in America. They pay sales tax (VAT) on the supplies used to produce the product. They also pay corporate income taxes (the average rate in the EU is 24%, 15% below ours) on profits. However, under a provision of our aid to Europe following WWII EU contries are allowed to rebate the VAT and the corporate income tax on any product sold overseas.
There is your rebate, you can’t outlaw or eliminate it! We tried to chage that provision several times since the 1970’s (most recently in 2004) by changin our tax code but the WTO proclaims the law illegal and our European allies refuse to discuss this in any trade negotiations.
Exxon paid $30 billion in taxes last year on $70 billion in net earnings. The remaining profit belonged to the shareholders (They also paid $73 billion dollars off the top in sales, other taxes, and duties — that’s right, they paid over $100 billion total taxes and duties.)
I can’t find any rebate given to oil companies. There was a credit given for producing alternative fuels but only if oil is under $70 per barrel (which it hasn’t been for over a year) and even that 1979 credit expired January of this year.
Most tax incentives given to oil companies are also given to other manufacturers. In addition there are additional incentives given to independent producers that are not given to the big integrated corporations. A recent study concluded that the incentives reduce the world oil price by less than 0.1 percent. That’s right, the incentives reduce the price we pay.
If you want to bring jobs back to the United States cut or eliminate the corporate income tax. It is only paid by you and I, either as consumers in higher prices or as reduced returns on investments.
I will never understand the demonizing of corporations, after all they are all of us who have a 401k or any investment of any kind — we are them.
10. Samal | March 17th, 2008 at 3:46 am
Don, let me just clarify that I don’t think you are demonizing anyone, I was speaking in general of that attitude by some.
11. Kim O | April 5th, 2008 at 11:20 am
We need to stop buying oil from the Arabs that is financing the terrorist. Send the environmentalist to an island , they are the biggest problem, and start drilling and building new refineries here. I also agree that Bush has no reason to stop the oil company’s because he is a oil Man herd this on the news that the oil company’s are making a profit of 10 million dollars per hour. while the rest of the county is going broke. The Truckers need to shut down Now… Across the USA.
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