Friday, April 4, 2008
Demagoguing "Big Oil Company Profits": Exxon & Capitol Hill
It took me far too long to learn that many people in Congress are not any smarter than I am. They just posture better. One example of it was in the recent grilling of oil company executives on Capitol Hill. Judging by the questions, the only thing Congress seems capable of putting into American gas tanks is political verbiage. However, I was interested in the commentaries by various oil executives and found it informative.
Shell oil company U.S. operations executive John Hofmeister said that current prices of barrel oil are “unsustainable” at current levels. He expects bulk oil prices to go down, but criticized the government for what he called a policy of “rationing” of gasoline. The oil man testified that U.S. environmental regulations did not permit off-shore drilling in U.S. oil preserves. But the oil man also believes that domestic drilling is a short term solution which will bide time for the U.S. economy until nuclear, wind, solar, bio-fuels can take up the slack. The time to do that, said Hofmeister, was yesterday.
Don’t expect Middle Eastern countries to help out, the magnate says. Hofmeister mentioned the evolution of OPEC, pointing out that it is currently far more effective at coordinating and controlling oil prices and production than it was ten years ago when the price was closer to $10 per barrel than to $100.
With record profits, oil companies like Exxon-Mobil, Shell, and BP are an easy target for politicians. Exxon’s profits in 2007 were $40 billion dollars. American politicians are accustomed to hearing the angry charges of “fat oil company profits” from their constituents. The criticism is rejected by oil industry analysts who point out that every profit dollar made since 1992 has been reinvested into exploration and capacity expansion.
Removing 18 billion in oil industry tax incentives and oil industry subsidies will mean that the U.S. has less oil not more, and that prices will rise accordingly, said Red Caveney, CEO for the American Petroleum Institute. Caveney appeared on the Fox Business Network channel with Neil Cavuto after the congressional hearings. The executive also pointed out that the oil industry pays the highest taxes of any industry in American and brings more money into the U.S. treasury than any other American industry.
It’s not a message that the public and its Capitol Hill representatives want to hear. Democrat Rep. Ed Markey of Massachusetts told the oil executives recently that consumers were being “tipped upside down and having money shaken out of their pockets.” (video clip neil cavuto fox business) The April 1 testimony was the fourth time oil company executives have been called up to testify before congress during the past year, with sequels sure to follow. Fox News Managing Editor Neil Cavuto joked of putting the testy congressional hearings on DVD and marketing them to reality TV fans.
Oil company executives point out that, without new exploration, oil companies have no choice but to compete with Europe and Asia to buy oil at bulk oil prices in the commodities market. Price increases have occurred in those markets, to some extent, as the result of commodities speculation. Commodities speculation is the business of predicting the prices of fuel and other commodities far into the future. This is an impossible task when demand is volatile, or subject to wild swings. When panic seized the oil futures markets, the price of a barrel of oil soared to $110.00 per barrel.
Fox Business Channel manager Neil Cavuto posed three good rhetorical questions to legislators on a program which aired on April 2. What is congress doing besides grilling oil execs? What has congress done to get OPEC to turn on the taps and increase production? What have you done to allow more land for drilling and research?