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Don't kill the messenger... these aren't my words (I won't say who's, because an instant bias will occur. But it's a perspective that's worth taking into account regarding this issue. Read on:
"Well, we were talking a lot about the oil price yesterday, as you know. And here's a little bit of a See, I Told You So, right off of the Associated Press wire: "Even as oil prices ascended to new highs of more than $124 a barrel this week, many oil and gas industry executives say they expect the price to fall significantly by year's end, a new survey shows. Fifty-five percent of 372 petroleum industry executives surveyed by KPMG LLP said they think the price of a barrel of crude will drop below $100 by the end of the year. Twenty-one percent of respondents predicted a barrel of oil will end the year between $101 and $110, while 15 percent forecast the year-end price to be between $111 and $120 a barrel."
At some point is going to come down; trust me on this. It has to, particularly if it goes a whole lot higher, it's going to have to come down. The market just will not support this. When I was talking about this yesterday, I got a bunch of e-mail notes because I asked the question, "Have you thought about at what price a gallon of gasoline will make you either swear off of it or choose another mode of transportation?" And I got e-mails from people, "You idiot! You don't understand. It's not like we can swear off gasoline. If movie ticket prices got to 50 bucks, yeah, screw it, I'm not going. But gasoline, I have to use it no matter what the price. I've gotta make adjustments elsewhere."
That's the point. When you start making adjustments elsewhere, when you stop going to the movies, when you stop taking your summer vacation, when you don't have money to go to Sea World or Disney -- and, by the way, have you seen the record crowds at the Disney theme parks both in Orlando, and out in Los Angeles? Record crowds out there, in this battered recession-era economy, which of course is not what this. But, nevertheless, it all works together. So if the gasoline price would hit ten bucks a gallon, and using that is an arbitrary number, yeah, you'd still have to use gasoline to get to work and so forth but you're not going to do all these other fluffy things, and that will have impact on all these fluffy businesses that you're not patronizing along with a whole lot of other people. This will bring market pressure. We're not going to sit here and let the tourist industry go broke and bankrupt and shut down. It's not going to happen. Time Is Tight, Booker T. & the MGs, 1968. But the price is going to come down. It simply has to. By the way, the price hit $126 today of a barrel of oil because of Hugo Chavez.
The speculation market, the commodities market is all in a tizzy because Hugo Chavez says that he's going to back the rebels in Colombia trying to overthrow our friendly government there, and this is causing the United States to say, "Fine, you do that and we'll put sanctions on you, Hugo," and Hugo is saying, "Fine, you put sanctions on me and I'll stop selling oil to you." And so the commodities market says, "Oh, no, that's going to interrupt supply to the US." It will not interrupt the supply to the US. What will happen is Hugo will sell his oil to whoever wants it. There will be buyers even if he freezes us out, and whoever buys the stuff will in turn sell it back to us. There will not be a shortage of oil if Hugo Chavez decides to freeze us out. It will go up because there will be a middleman price to pay, but we'll not do without oil. The profit motive alone will cause these middlemen that Hugo sells to, to turn around and sell it to us, we're going to need it and we'll have to pay through the nose for it, but there will be oil. In the meantime, "OPEC may consult on whether the group needs to boost oil output before a scheduled meeting in September should crude oil prices keep rising, an OPEC source said on Friday. 'If the price keeps going up, OPEC may consult on an increase in production before it meets in September,' the source said."
The expert here said that OPEC would have to raise the production by more than 500,000 barrels a day to have any impact on the price. Wrong. I mean, in a static supply and demand market, true, but you let the speculators get hold of the news that OPEC might increase production by half a million barrels and they're going to go nuts the other way. It's going to be happy days are here again, more oil on the market. The stuff is just academic, really, it's not that complicated, other than the role the speculators have in the market."
AND REGARDING THE "Windfall Profits" ASPECT (a la Obama):
The term "profited greatly” depends on which measure one uses for that determination. The industry did make $150 billion in profit, but that came from more than $1.7 trillion in sales. Their profit margin came to a whopping 8.3%, which underperformed the entire manufacturing sector as a whole. For investors in the oil industry, and 8.3% return on investment doesn’t exactly equate to screamingly fabulous growth, especially when looking at pharmaceuticals (18.4%) and beverage makers (19.1%).
Describing an 8.3% return as “windfall” demonstrates the economic illiteracy of the Democrats. Of course, so does the notion of combating high prices through an increase of the tax burden. Where does Obama believe that tax goes? It gets paid by hiking prices at the pump, as the relatively thin margins on sales will dissipate rapidly without a price increase to balance it. Otherwise, it will come out of the pockets of investors, which means people who own stock through 401Ks and mutual funds. That means millions of Americans will have to delay retirement, as lower growth will require more years and more contributions to earn enough money to stop working.
IBD reminds us that the Carter-era policy flopped the last time we tried it:
"Besides, we’ve tried windfall profits taxes before, in the early 1980s, and they were an utter failure. As the Congressional Research Service found, revenues produced for the government were nearly 75% below what was expected. Meanwhile, domestic oil output fell 8%, while oil imports surged 16%. ….
Oh sure, Big Oil’s profits are up. But so are the taxes they pay. In 2006, that came to $90 billion — up 334% in just four years.
This is how Clinton/Obama-style populism works. It starts with ignorance and ends with serious damage to our economy.
Oil prices aren’t high because profits are up; they’re high because we don’t have enough oil. By clamping down on drilling, refusing to move forward on nuclear energy and hitting producers with punitive taxes, Congress is doing all it can to ensure we don’t have enough in the future.
Once again, industries have three ways to lower prices: produce more, lower demand, or reduce cost overhead on production and sales. The Obama and Clinton plan essentially kneecaps oil companies by refusing to lift restrictions on drilling and then making it much more costly for them to buy and sell gasoline. It’s a prescription for even more reliance on foreign oil, skyrocketing prices, and economic instability.
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Oil Companies
