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Posts Tagged ‘gas prices’

Gas prices and wackonomics

Posted by Richard on October 30, 2008

Last night, I gassed up at King Soopers (that's a supermarket, a Kroger subsidiary, for you easterners). Taking advantage of the ten-cent discount I'd earned buying groceries, I paid $2.239 per gallon. That's quite a drop from the $4.19 or so I paid back in July. So I completely understand Walter Williams' latest column, Wackonomics:

For the U.S. Congress, news media, pundits and much of the American public, a lot of economic phenomena can be explained by what people want, human greed and what seems plausible. I'm going to name this branch of economic "science" wackonomics and apply it to some of today's observations and issues.

Since July this year, crude oil prices have fallen from $147 to $64 a barrel. Similarly, average gasoline prices have fallen from over $4 to a national average of $2.69 a gallon. When crude oil and gasoline were reaching their historical highs, Congress and other wackoeconomists blamed it on greedy oil company CEOs in their lust for obscene profits. But what explains today's lower prices? The only answer, consistent with wackonomic theory, is easy: Oil company CEOs have lost their lust for obscene profits. …

Speaking of CEOs, there's the "unconscionable," "obscene" salaries they receive, in some cases over $10 million a year. Wackonomics has an easy answer for these high salaries: it's greed. However, CEOs don't have the corner on greed. There are other greedy people we don't scorn but hold in high esteem. According to Forbes' Celebrity 100 list, Oprah Winfrey receives $275 million, Steven Spielberg gets $130 million, Tiger Woods $115 million, Jay Leno $32 million and Dr. Phil $40 million. I need to talk to these people and learn their strategy. I've been making every effort to get that kind of money. I go to bed greedy, dream greedy dreams, awaken greedy and proceed through the day greedy. Despite my heroic efforts, it's all been for naught; I earn a pittance by comparison.

Read the whole thing.

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American Energy Freedom Day is coming

Posted by Richard on September 18, 2008

October 1 is being called American Energy Freedom Day because that's the day on which the current bans on oil shale and offshore drilling expire. Congressional Democrats are between a rock and a hard place on this one. That's why, as Investor's Business Daily noted, they hurriedly threw together an "energy bill" and rammed it through the House the other day:

The move won them misleading headlines declaring that Pelosi's Democrats had "eased offshore drilling ban" in what the press described as "a stark reversal." 

But Texas Rep. Jeb Hensarling, the Republicans' Study Committee chairman, correctly called the bill "a sham" with no provision addressing the dire need for construction of new oil refineries, "no clean coal, no energy exploration in arctic Alaska, no nuclear energy and — if you read it — no exploration in the Outer Continental Shelf for energy in their bill." 

Behind this bill to drill that doesn't is radical environmentalist ideology.  "They look at our oil and gas reserves and see toxic waste sites," Hensarling quipped.  "Republicans look at our oil and gas reserves and see vast and valuable natural resources that will ease pain at the pump and lessen our dependence on foreign oil."

The bill appears to have no chance in the Senate and would almost certainly be vetoed if passed. IBD pointed out that this presents Republicans with a terrific opportunity, since an overwhelming majority of Americans favor more drilling: 

Republicans could take that Oct. 1 deadline and act like a winning football team — by running out the clock.  President Bush and Sen. McCain could lead the chorus counting the days to American Energy Freedom Day. 

Then once the clock has run out and the drilling ban is gone, McCain and other GOP candidates can spend the final month of the campaign basking in the credit they'd get from the American people — especially since oil prices are sure to drop in reaction to the ban's expiration.

There's just one complication: As is usually the case when the GOP is about to win one, members of their own party have tried to snatch defeat from the jaws of victory. Ten Republican senators have joined with ten Democrats (the "Gang of 20") to propose a "bipartisan compromise" that would cost $84 billion, increase energy taxes (which you and I will pay) by $30 billion, and only pretend to increase access to more new oil supplies. Colorado's Republican Senate candidate Bob Schaffer quite accurately described it as "40% tax increase, 10% energy and 50% snake oil."

Chris at My Vast Right Wing Conspiracy totally demolished the five key parts of this plan in a must-read post, concluding:

This is a disaster. If it doesn’t pass the media and democrats will light up with “Republicans kill increased drilling”. If it does pass, the republicans lose an issue to beat Obama up. Even worse is if it gets stuck in committee. Here’s that scenario. Mr. Representative wanna-be, where do you stand on drilling? “I support the ‘American Energy Act’ sitting in congress. I’ll make sure it’s passed”. Bam. Good bye issue. Of course, when he wins and the dems keep control, it will never come up and we’ll be stuck with high oil and gas prices as Nancy Pelosi tries to save the Earth.

The other problem is that even if it passes, it won’t increase supply. Two years from now, people will be wondering what the heck happened to all that drilling they had heard was coming. They won’t remember that it provided no incentives for the states to drill. They’ll just blame those evil oil companies and their republican allies.

We have the chance to win with this issue. If we do nothing over the next 2 weeks, the ban ends and the democrats will have to vote to re-instate it. The gang of idiots needs to be stopped before they can disarm the only issue that the republicans can win with.

According to The Hill, the Gang of 20 has now decided not to introduce a bill until after the election, instead issuing a "statement of principals (sic) outlining their agreement on a host of divisive issues, including expanded offshore drilling." Which makes it clear that the gang — Republicans and Democrats alike — are simply gutless, unprincipled opportunists who put this sham plan together so they could talk out of both sides of their mouths to the voters back home (9 of the 20 are up for reelection). 

Call and/or email your senators and congresscritter and tell them to let the ban expire. Tell them we don't need new taxes or massive new porkbarrel spending, we just need Congress to stop blocking access to energy.

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Dems feeling heat over energy bill

Posted by Richard on July 24, 2008

Judging by Harry Reid's hissy fit today, Democrats are beginning to buckle under the pressure to do something useful about oil and gas prices — like let us drill here and drill now. Have you helped apply that pressure by signing the petitions I posted about last week, or by contacting your senators and representative directly?

Here's another step you can take: for $15, Grassfire.org will fax your personal message to Harry Reid, key House and Senate leaders, and your senators and representative. For larger donations, they'll send your fax to additional senators who need to feel the heat.

Tell them you're not impressed by Democratic efforts to shift the blame to "speculators" when those "speculators" have just spent the last week bidding down the price of oil. Tell them you're not impressed by grandstanding about the two or three days' worth of oil in the strategic reserve, you want long-term solutions. 

Tell them to stop locking up our vast domestic oil supplies at the behest of environmental extremists. Tell them to pass the Gas Price Reduction Act (S.3202).

Tell them that you're mad about the Democratic convention committee getting cheap, tax-free gas for the last four months, and the least they can do is enact McCain's gas tax moratorium so that you get a bit of a price break, too.

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Demand an end to the OCS drilling ban

Posted by Richard on July 19, 2008

After President Bush lifted his daddy's executive order banning off-shore drilling, the price of crude oil dropped three days in a row. On Thursday, it closed below $130, an 11% decline. Some people quickly suggested a causal connection, but I thought that was premature.

For one thing, Nigerian production went back up about the same time (or a day or two earlier). Nigeria is the #5 source of U.S. oil imports, and its output has been reduced significantly by attacks on pipelines and other infrastructure. So maybe the good news from Nigeria triggered the declines?

Well, it may have been a factor. But on Thursday, a new pipeline attack further disrupted Nigeria's output, and today the price only rose about 1%. 

I'm thinking that Bush's action, although theoretically only symbolic until Congress acts, really did affect traders' views of the long-term outlook. It — together with recent polls and other signs of increasing pressure on Congress — made future domestic supply increases much more likely, and that exerted downward pressure on the current price. 

Now is the time to increase pressure on Congress further and try to get a vote on drilling in the outer continental shelf before the August recess. Did you sign that Drill Here, Drill Now, Pay Less petition I wrote about last month? Did you donate $10 or more to get the bumper sticker? It's not too late. The first 1.3 million signatures have been delivered to Congress, but they're still collecting more. 

Don't stop there, though. Freedom's Watch has a petition to Congress, too. It'll take you only a few seconds to sign it here.

Then there's the Grassfire.org emergency petition to Congress, which lets you choose up to five calls to action to include (ANWR, oil shale, etc.).

Finally, on a different but related matter, GreenWatchAmerica is petitioning John McCain to reconsider his position on global warming.

Sign them all, please.

(Yeah, you'll get some email from the sponsoring organizations, but they're all pretty reputable, don't sell your address to spammers, and provide an unsubscribe link on their emails. So you can opt out of each as soon as you get the first email, if you want.) 

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Dems oppose increasing Iraq’s oil output, too

Posted by Richard on July 2, 2008

Democrats in Congress, who seem to believe they can wave a magic wand and convert the country to solar planes and trains and wind-powered cars and trucks, don't just oppose more domestic oil production. And they don't just want to micromanage and regulate every aspect of the U.S. energy industry. Democrats in Congress are now working to limit Iraq's oil output and dictate Iraq's energy policies! From Investor's Business Daily:

Baghdad has invited foreign oil firms to bid on contracts to increase production in eight lagging oil fields.

Thanks to our liberation of that country, which cost the U.S. and Iraq so much in lives and resources, Baghdad is now able to begin to make full use of its oil reserves of as much as 112.5 billion barrels — after Saudi Arabia, the largest petroleum deposit in the world.

But Iraq needs private companies because they have the kind of know-how and resources the country needs to rebuild its energy infrastructure and revive oil production after suffering under Saddam Hussein for so long. Baghdad's goal is to improve output from the current 2.5 million barrels a day to 4.5 million barrels by 2013.

Last week, Democratic Sens. Charles Schumer of New York, John Kerry of Massachusetts and Claire McCaskill of Missouri sent a letter to Secretary of State Condoleezza Rice calling on her to get the Iraqi government "to refrain from signing contracts with multinational oil companies" because Iraq "currently does not have in place a revenue sharing law" to divide the proceeds between the Sunnis, Shiites and Kurds.

According to the three Senate Democrats, allowing the Iraqi government to enlist foreign help to maximize its oil production "would simply add more fuel to Iraq's civil war."

Of course, there is no civil war in Iraq today because President Bush refused to listen to the likes of Schumer, Kerry and McCaskill, who wanted the U.S. to resign itself to what some called "defeat with dignity."

The three also complained of it being uncertain that oil revenue-funded "reconstruction efforts would be targeted equitably to all the major ethnic groups in Iraq." What do these liberal Democrats want, an Iraqi version of their own failed affirmative action laws?

How wondrous to behold: High-ranking Democratic senators, who on so many occasions have condemned the president for interfering in Iraq, now insisting that Washington dictate to a freely elected government what its policy will be regarding its people's most valuable domestic resource. Apparently, Democrats aren't satisfied trying to wreck the U.S. energy industry; they want to wreck Iraq's, too.

Most senators and representatives are spending this Independence Day week in their home states and districts, meeting constituents, attending parades, etc. If you get the chance to meet your Congresscritter, ask him or her to support increased oil production in both the U.S. and Iraq (signing Rep. Lynn Westmoreland's pledge would be a good start). Or call their local office and convey the "Drill Here, Drill Now" message to the staff there. 

And speaking of "Drill Here, Drill Now," over 1.2 million people have signed the petition. Have you? Sign up at AmericanSolutions.com, and contribute $10 or more to get this cool bumper sticker: 

 Drill Here. Drill Now. Pay Less.

Resolve to do something this holiday weekend to push for a more rational energy policy that will allow additional supplies to be brought to market. To help you get motivated, here's Newt Gingrich's 3½-minute YouTube video, "3 Ways to Lower Gas Prices," which over 1.4 million people have already watched:

 

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McCain rethinks offshore drilling

Posted by Richard on June 18, 2008

Sen. John McCain has kinda, sorta, maybe decided that drilling in the outer continental shelf (OCS) just might be OK:

Sen. John McCain called yesterday for an end to the federal ban on offshore oil drilling, offering an aggressive response to high gasoline prices and immediately drawing the ire of environmental groups that the presumptive Republican presidential nominee has courted for months.

The move is aimed at easing voter anger over rising energy prices by freeing states to open vast stretches of the country's coastline to oil exploration. In a new Washington Post-ABC News poll, nearly 80 percent said soaring prices at the pump are causing them financial hardship, the highest in surveys this decade.

"We must embark on a national mission to eliminate our dependence on foreign oil," McCain told reporters yesterday. In a speech today, he plans to add that "we have untapped oil reserves of at least 21 billion barrels in the United States. But a broad federal moratorium stands in the way of energy exploration and production. . . . It is time for the federal government to lift these restrictions."

Let's be clear about what we're talking about. The "vast stretches" of "coastline" in question are the OCS areas 50 to 200 miles off the Atlantic, Pacific, and Florida Gulf coasts — well beyond the horizon, so no one on a beach anywhere will have the slightest inkling that there are drilling rigs out there.

Oil spills? There were exactly none among the many platforms off Louisiana and Texas that were destroyed during the devastating 2005 hurricane season. The risk of spills from tankers bringing foreign oil to our ports is far higher than the risk from offshore drilling.

And the untapped reserves in the OCS are probably more than five times what McCain stated.

Nonetheless, McCain wants to leave it up to the states. I thought he was really fond of international law. The states have no jurisdiction beyond the 12-mile territorial limit. Under the international law of the sea, the federal government can control this kind of development out to the 200 mile "economic zone" limit. The only reason the states are involved in the OCS issue at all is because Congress chose to give them this power.  

Oh, well, at least McCain's taken a step in the right direction. What could have precipitated his change of heart? Maybe it was polls like this one (emphasis added):

A new Rasmussen Reports telephone survey-conducted before McCain announced his intentions on the issue–finds that 67% of voters believe that drilling should be allowed off the coasts of California, Florida and other states. Only 18% disagree and 15% are undecided. Conservative and moderate voters strongly support this approach, while liberals are more evenly divided (46% of liberals favor drilling, 37% oppose). [46-37 is evenly divided? – Ed.]

Sixty-four percent (64%) of voters believe it is at least somewhat likely that gas prices will go down if offshore oil drilling is allowed, although 27% don't believe it. Seventy-eight percent (78%) of conservatives say offshore drilling is at least somewhat likely to drive prices down. That view is shared by 57% of moderates and 50% of liberal voters.

According to the new survey, 85% of Republicans are in favor of offshore drilling as opposed to 57% of Democrats and 60% of unaffiliated voters. Those who call themselves conservatives favor such drilling 84% to 46% of liberals and 59% of self-designated moderates.

African-American voters are less supportive of such drilling than whites – 58% to 71%.

Let's see — two-thirds of all voters favor off-shore drilling (and I suspect that's without the pollsters explaining how far off-shore such drilling would actually be), and fewer than one in five are opposed. Republicans, conservatives, and moderates all strongly support drilling. A clear majority of Democrats and African-Americans are in favor. Even a plurality of self-described liberals support the idea!

McCain isn't exactly taking a big risk by changing his stance. In fact, I have to wonder what Obama and the leading Democrats are thinking when they continue toeing the enviro-whacko line on this issue. 

Clearly, most Americans agree with the nearly 900,000 who've signed Newt Gingrich's petition to drill here, drill now, pay less. Have you signed? Have you contributed $10 or more so that you'll get a bumper sticker?

What about your Congresscritter? Has he or she signed Rep. Lynn Westmoreland's pledge to support more land-based drilling, more offshore drilling, and more refineries? The list of signers is here. If your representative isn't on it, call or email their office and ask them to sign. If your representative is on the list, extend your thanks.

 Drill here. Drill now. Pay less.

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Drill here. Drill now. Pay less.

Posted by Richard on June 11, 2008

Democrats claim to be concerned about the high price of gasoline. And it looks like they realize there's a supply problem — after all, they stopped the diversion of crude oil to the Strategic Petroleum Reserve, and they tried to pressure Saudi Arabia into increasing its output.

But those measures were mere posturing. In reality, the Democrats like high prices and short supplies. They want to force us to abandon our cars and shiver in the dark in order to "save the planet."

Since 1994, they've blocked access to at least 10 billion barrels of oil in the Arctic National Wildlife Refuge on environmental grounds. The ANWR contains almost 20,000,000 acres — bigger than Massachusetts, New Jersey, Rhode Island, Connecticut, and Delaware combined. The "footprint" of the proposed drilling operation would be 2,000 acres — one-sixth the size of Washington's Dulles airport. And this 0.1% of ANWR that would be impacted is on the barren coastal plain, not in the scenic mountains and wilderness area they're always showing you pictures of.

Last month, Senate Democrats killed a bill to suspend Sen. Ken Salazar's (D-CO) moratorium blocking oil shale development on federal lands. According to Sen. Orrin Hatch, the oil shale deposits in just Colorado, Utah, and Wyoming contain as much oil as the rest of the world combined.

Last week, Senate Democrats tried to pass the Warner-Lieberman-Boxer "cap and trade" bill, AKA "ration and tax and spend" — which would raise prices of all energy supplies significantly. And then they tried to enact a "windfall profits tax" on oil companies — which we know from the bitter experience of the Carter years will lead to both shortages and higher prices. Thank goodness (and Mitch McConnell) they failed in both those attempts.

Today, House Democrats rejected a proposal by Rep. John Peterson (R-PA) to permit drilling in deep off-shore waters:

A House subcommittee has rejected a Republican-led effort to open up more U.S. coastal waters to oil exploration.

Rep. John Peterson, R-Pa., spearheaded the effort. His proposal would open up U.S. waters between 50 and 200 miles off shore for drilling. The first 50 miles off shore would be left alone.

But the plan failed Wednesday on a 9-6, party-line vote in a House appropriations subcommittee, which was considering the proposal as part of an Interior Department spending package.

With record oil prices and gas prices projected to hover around the $4 mark for the rest of the summer, Republicans have ratcheted up their efforts to open up oil exploration along U.S. coastline. But the long-sought change has so far been unsuccessful.

Most offshore oil production and exploration has been banned since a federal law passed in 1981.

The U.S. imports about 10 million barrels of oil a day. The outer continental shelf, according to the U.S. Minerals Management Service, has at least 86 billion barrels. That, plus the 10+ billion barrels in ANWR, would replace half our current annual oil imports for more than 50 years.

And that's not even considering the 20 billion or so barrels of conventional on-shore oil that are off-limits, the increasingly promising Bakken Formation, which may contain more oil than Saudi Arabia, and the vast quantities of shale oil.

The opponents to "drilling our way out of the problem" argue that (a) it would be years before new supplies were available, and (b) they wouldn't "solve" the problem for good. That's like arguing against going grocery shopping because (a) it won't immediately satisfy your hunger, and (b) eventually you'll get hungry again anyway. 

We should have started developing these oil resources years ago, but the same people who say now is too late prevented it then. Starting now is better than starting later — or never. And you think it won't impact today's price? Let shale oil development restart, and watch how soon OPEC pushes the price of oil down low enough to make shale oil uneconomical again.

If you're sick of the skyrocketing gas price, if you're sick of the sanctimonious demands that we suck it up and make do with less, if you're sick of human needs being subordinated to every insect, rodent, and fish on the planet, it's time to let Washington know.

Newt Gingrich's American Solutions movement has already gathered well over half a million signatures on a petition to Congress to authorize access to domestic energy reserves. They hope to deliver 3 million signatures to both major parties at their national conventions. Sign the petition, donate a few bucks, and get the bumper sticker:

Drill here. Drill now. Pay less.

Then tell your friends to do the same. Before we all end up freezing in the dark. 

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Court curbs gas discount

Posted by Richard on November 9, 2006

A U.S. District Court ruled that Colorado grocer King Soopers (a division of Kroger) broke the law by selling gas too cheaply. The court ordered King Soopers to stop offering a ten-cent per gallon discount on gasoline because it’s not fair to other retailers:

The ruling is the result of a lawsuit filed by two independent gasoline dealers in Montrose, Parish Oil Co. and Ray Moore Tire & Petroleum Service Inc., who said the grocers had been illegally selling gas below cost, a violation of Colorado’s Unfair Practices Act.

King Soopers, in a press release, said they felt their program complied with the law but added that they will immediately change their program to abide by the court’s decision. The program was pulled at midnight.

However, King Soopers plans to appeal the ruling.

"We disagree with the ruling. That promotion was to increase grocery sales, not to increase fuel sales," said Trail Daugherty, spokesperson for King Soopers.

To get the discount, you had to reach $100 in grocery purchases on your King Soopers card. When you subsequently swiped your card at the pump, the price rolled back ten cents. That’s how I bought gas for just two bucks the other day.

The King Soopers card is good for a 3-cent discount without the qualifying grocery purchases, and that discount isn’t affected by the ruling. That tells us something interesting: King Sooper’s retail markup on a gallon of gas is between 3 and 10 cents.
 

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Gas getting cheap again

Posted by Richard on November 3, 2006

I filled up my irresponsible, planet-destroying SUV for $2.009 per gallon. Woo-hoooo!

Thank you, Karl Rove!

(That’s a joke, moonbats.)

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Investigate falling gas prices!

Posted by Richard on September 2, 2006

The price of unleaded regular at a gas station near me has dropped 20 cents from when I filled up last week. I’m down to a quarter tank, so I could have filled up this morning. But I’m going to wait until I’m on empty in case the price drops further in the next couple of days. I heard an industry analyst last night predict the price would fall to $2 or less in the next few months.

If prices keep dropping into the fall, I’m sure some demagogue in Congress will schedule hearings to look into it, right? Probably before the election recess. I can’t wait to see oil industry executives being grilled by hostile and suspicious senators or representatives:

"Mr. Big Oil Executive, the American people have been watching these gas prices drop day after day, week after week, and they want to know what’s going on! There’s no cause that I can see, no logical explanation. It seems to me that you and the other big oil companies have just arbitrarily decided to ratchet down prices and slash your profits, and the shareholders be damned! How do you justify what you’re doing?

"I’m especially disturbed by the revelation that you’re cutting prices on existing inventory. The gasoline that’s already in the storage tanks of your distribution centers and service stations was bought some time ago at a much higher price. But your selling price reflects today’s market, not the market in which the gas was bought. Is that fair? Why, in some cases you’re selling the gas for less than it cost! Why shouldn’t this Congress put a stop to that?"

The news media, of course, will do human interest stories to illustrate the impact of the price drops on average Americans:

"I’m at a Shell station in suburban Maryland, Bob, and here’s a woman filling up her Prius. Hi, there! How have these falling gas prices affected you?"

"I just don’t understand it. They change from one week to the next for no reason, and you never know what they’re going to be. How am I supposed to budget under these circumstances? And when I think of how much more I paid to get a hybrid — don’t get me started!"

"I’m sure many of our viewers can relate, thank you. Here’s a man filling up a big pickup truck. Sir, what effect have the lower prices had on your family?"

"Well, it’s been an adjustment, that’s for sure. I’m paying almost ten bucks less a tankful than I used to, and I drive a lot, so it adds up. My wife drives a lot, too, what with running the kids around and everything."

"What kinds of adjustments have you made? Are you buying more prescription drugs than you used to?"

"Well, no… we don’t need any more of those. But we’re buying better cuts of meat and trying to go out more often. And I’m puttin a little extra into my 401K at work, ’cause I expect my energy fund isn’t going to do as well as it’s been doing the last few years… But we’re OK. It’s people like my mom that I worry about. She doesn’t drive anymore, but she counts on that Exxon dividend… I can help her out if I have to, I guess…"

"Thank you, sir. I’m sure we’re all hoping your mom — like the rest of us — gets through these trying times OK. So that’s the story out here on the street, Bob — people are confused and concerned, but coping as best they can. Back to you in the studio."

Yeah, I can’t wait until politicians and the media start looking into these falling gas prices. That’ll make for some must-see TV.
 

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Granholm’s grandstanding

Posted by Richard on April 29, 2006

Michigan Gov. Jennifer Granholm, who’s apparently facing a tough reelection battle, came up with her own twist on the current fervor for gas price demagoguery. Her particular bit of grandstanding consists of an online petition at the governor’s official website calling for a cap on oil company profits.

Who would that hurt? Well, according to the Detroit News, Michigan’s teachers and civil servants, for starters:

ExxonMobil Corp. is the largest stock held by the Michigan State Employees’ Retirement System and the Michigan Public School Employees’ Retirement System. At the end of 2005, the state pension funds owned more than 13 million shares of the oil company’s stock with a market value of more than $846 million.

Since January, the value of Michigan’s ExxonMobil portfolio has increased more than $79 million. In dividend income alone, Michigan earned more than $15 million last year from its Exxon stock, which has helped fund the benefits the state’s public school teachers, other state employees and their beneficiaries enjoy.

But that’s of little concern to Granholm, who would apparently rather grab headlines in an election year than protect the pensions of state employees. There are more than 570,000 people (retirees, beneficiaries and active and inactive vested members) who are affected by the two state funds, according to the state’s annual financial reports of the systems.

Of course, Michigan public sector employees aren’t the only ones. The odds are that if you’re participating in any pension or retirement plan, you too are a beneficiary of those "record profits" in the oil industry (it would be hard to find a pension fund or broadbased equity mutual fund that had no direct or indirect investment in the oil and gas industry). If you’re not, why not?

You know, for the price of that flat-screen TV you’ve been eyeing, you can buy 50 or more shares of ExxonMobil. Then, when they pay their next quarterly dividend, you can smile. Or maybe complain about how high ExxonMobil’s taxes are and worry about their shrinking profit margin (see my Thursday post).

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Gas prices, demagoguery, and economic illiteracy

Posted by Richard on April 27, 2006

It’s bad enough having to listen to the Democrats’ demagoguery on the issue of gasoline prices. Jeez, these are the same people who for decades have demanded higher taxes on energy in order to raise prices and punish our profligate lifestyles. Anybody remember Sen. John Effin’ Kerry’s call for a 50-cent increase in the federal gasoline tax? They should all be celebrating $3/gallon gas — they’ve demanded it for years!

But what’s even worse — in fact, just pitiful — is watching a bunch of spineless Republicans wet their fingers, hold them up to the wind, and begin spouting populist poppycock about "price gouging" and "excess profits." Even W., who’s an oil man, for cryin’ out loud, and ought to know better!

Econ 101, folks: Prices serve purposes other than giving you something to do with your wages. They convey critical information and affect behavior, and they do so in a way that’s far more effective than any news story, preacher’s sermon, or exhortation by a politician. An increase in the price of gasoline tells you that gasoline supplies are relatively tight, and that you need to adjust your behavior accordingly. It also tells refiners, producers, explorers, and assorted autocrats sitting on huge pools of petroleum that demand is relatively high, and that they might want to take advantage of that fact.

No amount of pleading with people to conserve will reduce demand as effectively as an increase in price. No amount of schmoozing with the Sa’ud family or cajoling of Chavez will ease supply shortages as effectively as an increase in price. Price, left to find its own level, will resolve short-term shortages, stimulate long-term supply increases, and provide for gradual very-long-term development of alternatives. Price must be left alone to fulfill its essential role.

This isn’t purely theoretical crap out of some econ text. All this was demonstrated in the real world within the lifetime of most people reading this. The worst president of my lifetime, Jimmy Carter, following the economically illiterate example of another sorry president, Richard Nixon, kept price controls on oil throughout most of his abysmal single term, and when finally pressured to ease them, substituted a "windfall profits" tax. The consequences were long lines at gas stations and massive shortages, distortions, and economic disruptions. Double-digit inflation. Double-digit interest rates. Double-digit unemployment. No growth.

The best president of my lifetime, Ronald Reagan, deregulated oil prices on his first day in office. The price of gasoline rose to what is still a record level (about $4/gallon in today’s dollars), but the shortages and lines disappeared overnight. And within five years, the price of oil had plummeted to less than $10/barrel, and the oil industry was awash in red ink. Funny, I don’t remember anyone fretting about their capped oil wells, laid-off workers, and lack of profits.

Speaking of oil industry profits, which many people are in outraged tones: ExxonMobile announced its Q1 results yesterday, and it underperformed analysts’ expectations (emphasis added):

Exxon Mobil Corp., the world’s biggest oil company, said first-quarter profit climbed 6.9 percent because of record prices and the first production increase in a year and a half.

Net income rose to $8.4 billion, or $1.37 a share, from $7.86 billion, or $1.22, a year earlier, Irving, Texas-based Exxon Mobil said today in a statement. Per-share profit was 10 cents lower than the average estimate from 20 analysts surveyed by Thomson Financial. Sales climbed 8.4 percent to $89 billion.

Oil and natural-gas output rose 5.1 percent as new wells began producing in Africa.

So, let’s see: Output was up 5.1%, sales were up 8.4%, but profit was up only 6.9%. The share price has dropped on the news, and I can see why. If I were a stockholder, I’d be a bit disappointed. With oil having risen so much, this is a pretty modest rise in profits. In fact, since sales were up by 8.4% and profits were up only 6.9%, their margin — the profit per dollar of sales — actually declined.

I wonder why ExxonMobile underperformed. Oh, wait — here’s one reason (emphasis added):

Profit fell short of expectations because Exxon Mobil’s effective income-tax rate jumped to 46 percent from 39 percent, shaving $1.03 billion in net income, said Kenneth Carroll, an analyst at Johnson Rice & Co. in New Orleans.

The federal excise tax on gasoline already adds twice as much two-thirds as much (18 cents) to each gallon as the average oil company’s profit (9 cents 9%, or about 27 cents per gallon), and most state excise taxes are far higher than that. Now, it turns out that almost half of ExxonMobile’s profit went to the tax man, too!

You want to offer working Americans some relief at the gas pump, Sens. Reid, Durbin, et al? Cut taxes!

UPDATE: Note the corrections above regarding the profit per gallon vs. per dollar. I guess I was living in the past, when the two were closer to being the same. :-}

In any case, my point remains valid, although the difference is smaller than I originally stated: in virtually all states (Alaska excepted), more of your gas purchase goes to taxes than to the oil company. Here’s a page showing 2002 taxes by state (I’m sure they haven’t decreased). The average combined state and federal tax per gallon is 42 cents.
 

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