... apparently they go straight to your neck.
Seriously, should we be concerned now that virtually all of the major US oil producers have reported hefty third quarter profits?
There has been an interest in Washington, DC with regard to charges of "price gouging" and other nefarious behavior by "big oil." There are already calls for investigations, and the type of legislation that results from those kinds of investigations is usually not good. Just think about the "windfall profits" taxes enacted during the Carter years.
Healthy oil company profits are beneficial to all of us for a variety of reasons.
First of all, when big legacy companies like ExxonMobil and ChevronTexaco make money, they can afford to offer their employees premium wages and benefits. And benefits, particularly health coverages, are very expensive. These companies also have legacy commitments to fulfill -- pensions and benefits for thousands of retirees and their survivors. Healthy profits mean retention of benefits for retirees, and that is a good thing. Also, healthy profits mean that the stock of these companies will perform well, and that the companies can pay out healthy dividends to shareholders. This also greatly affects retirees, who oftentimes have a substantial portion of their retirement assets in company stock.
Another benefit of strong profits is that they allow companies to accumulate financial resources as a hedge against unforeseen future problems. Consider the worst-case scenarios from Katrina and Rita -- most of Louisiana's offshore oil and gas rigs knocked out, and the refining capacity of the Louisiana and Texas Gulf coast crippled for months. If that would have happened, gasoline would now probably be over $3 a gallon and climbing, with no relief in sight until well into next year. Fortunately for all of us that did not happen; still, gas production and oil refining was negatively affected, and this winter could be difficult if heating oil, diesel fuel, and natural gas remain in short supply.
When these things happen, oil companies need cash reserves to make up for lost revenue in sales, and to finance the reconstruction of their production facilities. Insurance probably helps, but it can't offset a poor financial position if a company doesn't have enough cash reserves to operate normally.
High crude oil prices are probably also responsible for increased oil company profits, but only to the extent that they encourage domestic drilling and production. These activities don't occur unless they are profitable. So higher oil and gas prices can be beneficial if they help increase supply, which in turn will stabilize prices at the pump and from your local natural gas company.
There was a surge in gasoline prices during the hurricane scare because of the fear that gasoline refining would be seriously affected. When supplies are short, the easiest way to reduce demand is to increase prices. This worked well immediately following the hurricanes as people stayed away from the pump by driving less and carpooling. But now that production is approaching peak levels again, and the summer fuel demand is lessening, prices are falling, and will probably stabilize around $2 a gallon for regular unleaded. This fact alone should ease people's fears about price gouging and artificially inflated prices.
If any legislation is sorely needed at this time, it is not windfall profits taxes or price controls. What we need are incentives for companies to drill more oil and gas wells, and to build more refining facilities nationwide. That way, we reduce our dependence on foreign oil and create a refining infrastructure that is not confined to one highly storm-prone region of the country. It is also worth noting that during the last twenty years, the amount of dollars made in profits by big oil companies was dwarfed by the tax dollars collected by Federal and state governments at the pump.
Here is a good article that explains why diesel fuel is still over $3 a gallon, and why natural gas prices are expected to hit record highs this winter. And here is a good primer on gasoline prices from the Department of Energy. Conservative Free Thinker also has thoughts on high gasoline taxes.
Many say we will see $3.50/gal this summer. If you factor in Iran, who knows how high it could go. Everyone knows America MUST get off the oil. After September 11, 2001 I expected our President to call on Americans to GET OFF THE OIL. I was expecting a speech like the one JFK gave that motivated us to reach for the moon. As you know, this never happened. Eventually I realized that the only way this is going to happen is for us to do it ourselves. To that end I created this idea and have been trying to make it a reality..
The EPA is offering a research grant opportunity that I believe is a perfect fit for this idea. I have sent an e-mail to a hand picked list of university professors who have experience with government research projects. I’m looking to form a research team to apply for the EPA grant, conduct a social-economic experiment and surveys to determine to what extent the American public will support it, project the economic potential of WPH, and identify logistical, social and political obstacles as well as opportunities.
All government grants are awarded based on merit of the proposed research. I believe WPH has merit but your help is needed to verify it. You can help by posting your feedback. Let the professors and the EPA know what you think about WPH. Do you think this idea is worth pursuing? We need to know if Americans will support a plan like this.
Do you have any ideas to improve the plan?
Share any and all of your thoughts.
Tell your friends and family about this Blog post and ask them to post their thoughts on WPH
http://wepayhalf.org
Thank you
Craig
Posted by: Craig | May 18, 2006 at 06:11 PM