Thursday, May 22, 2008


OIL SURGES OVER $134 ON SUPPLY WOES, WEAK DOLLAR. (Reuters – May 21, 2008) Weakness in the U.S. dollar encouraged Wednesday's buying spree by bolstering the purchasing power of buyers holding other currencies, dealers said.”

“With demand for oil growing in the developing world, and little end in sight to supply problems in producing countries such as Nigeria, few analysts are willing to call an end to crude's rally.”

So, is it the weak dollar or the time-honored story of supply & demand? Whatever the underlying cause, the fact remains: we have an energy crisis, so what do we have to do to solve it? Not to worry. Our politicians are stepping up to face this newly emerging crisis.

1. The Senate calls in the oil company executives (May 21, 2008) and Senator Durbin (Illinois Democrat) berates them for having no “corporate conscience”. "Is there anybody here that has any concerns about what you're doing to this country with the prices that you're charging and the profits that you're taking?" Durbin asked.

According to the unbiased reporter from Associated Press, “The titans of America's oil industry sat quietly for a moment.” And further, from that fair and balanced reporter, “The executives, sitting shoulder to shoulder in the hearing room, said they understood people were hurting, but they tried to blunt the emotion with economic analysis.”

How dare the Oil Company executives blunt emotion – and with economic analysis, of all things?

2. The House votes to pursue legal action against OPEC “CONGRESS' LATEST ANSWER TO RISING GASOLINE PRICES: SUE OPEC” (The Los Angeles Times, May 21, 2008)
“Defying a White House veto threat, the House on Tuesday overwhelmingly approved legislation that would allow the Justice Department to pursue legal action against the Organization of the Petroleum Exporting Countries for conspiring to restrict supplies or drive up prices.”

So, the Democratic House goes in a direction different from the Democratic Senate and wants to lay the blame for our oil-related problems squarely on OPEC, of all people.

3. Barack Obama “wants windfall profits tax on oil companies.” (The Guardian April 25, 2008). “Democratic presidential hopeful Barack Obama today called for a windfall profits tax on oil companies, which he said would be used to ease the burden of rising energy costs on poor and middle-class Americans.”

So, Barack Obama throws his lot in with the ‘tax windfall profits’ gang founded by Jimmy Carter (and we know how well that worked for him) and recently joined by Venezuela’s Hugo Chavez. Chavez announced his ‘windfall profits tax’ in April 2008, claiming that it is necessary to fund key social programs as part of his effort to implement an economic and social system he calls "21st-century socialism."

With all this political posturing, confusion, finger pointing and hand wringing, where do we look for answers? Certainly not to our elected officials who have never some to grips with the fact that, other than through enacting tax related measures and caving in to the manic demands of the environmental lobby, they have negligible power over global markets. In fact, the sum total of their proposals will not produce one additional drop of oil. We are in the Hydrocarbon Age, reaping the rich harvest of rewards of this gift from God. Just as the Stone Age did not come to an end because we ran out of stones, the Hydrocarbon Age is not coming to an end because we're running out of oil.

According to the website (a project of The American Petroleum Institute), "As global demand for oil increases, many people are asking how our nation’s oil needs will be met in the coming decades. The good news is that America isn’t running out of oil—and neither is the rest of the world."

"New extraction and refining techniques have opened up opportunities to explore for oil cost-effectively in oil sands, oil shale, and coastal lands and waters. New oil discoveries worldwide would provide billions of barrels of oil for years to come. In the U.S. and Canada alone, these discoveries include:

Up to 4.3 billion barrels of oil in oil shale in North Dakota’s Bakken Formation
• Up to 19 billion barrels of oil in oil sands in Utah
• More than 30 billion barrels of oil in Alaska’s coastal plains and the Chukchi Sea

• An estimated 173 billion barrels of oil from oil sands in western Canada

• More than 1.2 trillion barrels of oil in oil shale in the Green River Formation in Colorado, Wyoming, and Utah.

What does it mean? 1 billion barrels of oil could provide enough fuel to keep more than 1 million cars running for the next 30 years."

Now I know that Big, Bad Oil is supposed to be the enemy, Congress is our friend (assuming you pay no attention to Nancy Pelosi & Company's approval ratings) and the environmentalists all have our best interests at heart.

How about a novel approach? Might it not make sense to listen to the people who best know about oil, the oil industry itself?

Wednesday, May 14, 2008



Windfall Profits Tax 101: How to Make the Producers Pay and Damn the Consequences.


In the United States, President Jimmy Carter signed the Crude Oil Windfall Profits Tax Act into law in April 1980.

The windfall profits tax was forecasted to raise more than $320 billion between 1980 and 1989. However, the government collected only $80 billion in gross tax revenue and, to the extent that the tax was deductible against corporate income, the actual net realized was closer to $40 billion.

According to the Congressional Research Service, the 1980 windfall profits tax depressed the domestic production and extraction industry and furthered our dependence on foreign sources of oil.


Venezuela starts collecting new windfall profits tax on oil companies, as part of President Hugo Chavez' plan to gain a larger share of oil company profits.

President Chavez, a Socialist, has said the tax is necessary to fund key social programs as part of his effort to implement an economic and social system he calls "21st-century socialism."

Critics say the tax will slow investment and development in the oil sector, and also discourage other foreign direct investment in Venezuela.


“Obama wants windfall profits tax on oil companies” (The Guardian April 25, 2008). “Democratic presidential hopeful Barack Obama today called for a windfall profits tax on oil companies, which he said would be used to ease the burden of rising energy costs on poor and middle-class Americans.”

Campaigning in Indiana, Obama selected a gas station as the forum in which to announce his attack on “…the energy lobby, (who) have blocked ‘meaningful relief’ to consumers hard hit by high gasoline prices.” He went on to say that, "It isn't right that oil companies are making record profits at a time when ordinary Americans are going into debt trying to pay rising energy costs. That's why we'll put a windfall profits tax on oil companies and use it to help Indiana families pay their heating and cooling bills and reduce energy costs".

Obama's campaign did not indicate how much money a windfall profits tax would raise.

I shouldn’t be surprised at Mr.Obama’s evocation of the present policy of Hugo Chavez or the past policy of Jimmy Carter. I was surprised, however, that he decided to make his policy announcement at that gas station. He very well could have caused a crowd to gather, evoking images of the lines of those waiting for gas in Jimmy Carter’s time.

Oh well. Just another example of Mr. Obama’s commitment to change.

Now, we know that the Socialists, Liberals and Progressives all love the idea of taxing, their DNA demands it. Most especially, they insist on taxing the producers for, as Willie Sutton explained that he robbed banks ‘cause that’s where the money is’, Liberals tax where they can find the most capital. The possibility that such capital might better be utilized by the producers to expand exploration and production has no appeal.

And specifically, we should ask why the whole question of windfall profit taxation exerts such a strong attraction for the Democrats. Why is it their philosopher’s stone? Is it because there is such an imbalance between the ‘obscene’ profits of the oil companies and the taxes they pay in the normal course of events? Is it because of the extremely beneficial impact that these windfall profit taxes will have on the underlying problem of energy use and availability? Well, at the risk of being accused of using facts rather than emotion, let’s see what history shows us.

It may be an oversimplification, but the truth of the matter is that the price paid by the consumer for oil products is only partially dependent on the price of crude and the costs of transporting and refining it. Historically, "..taxes of various kinds add substantially to the price of the finished product, and greatly exceed the cost of the original petroleum."
(THE AGE OF OIL - Leonardo Maugeri, 2006)

As to the comparison between oil profits made and taxes paid, in the final quarter of the last Century the oil companies paid about 2 trillion in taxes to the federal and state governments – about triple what their profits were for the same period. So, it seems that the real recipients of windfall profits were the governmental taxing agencies who made three times what the rapacious oil companies made. Do you suppose it might be possible for these agencies to impose windfall profit taxes on themselves?

As to the beneficial impact of such Liberal policies on the underlying problems of energy availability and cost, do you remember asking yourself about that as you waited in Jimmy Carter’s gas station lines then - or do you ponder over all the promises made by Nancy Pelosi and company a year and a half ago and the complete lack of accomplishment since then?

The Democrats are trying to characterize John McCain’s campaign as an attempt to establish the 3rd term of the George Bush presidency. Would that they were right. I would much prefer that to what Obama is promising, the 2nd term of Jimmy Carter.