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The oil conundrum
Posted by: McQ on Wednesday, April 26, 2006

In a thread about oil pricing I gave the following reaction to a couple of comments:
Here, people are seeing oil companies that are making incredibly large profits, paying a +$300 million dollar retirement to an executive and wondering what is going on?
It’s all relative, isn’t it? The man was responsible for earning 38 billion for Exxon during his tenure. Let me ask, if he had earned say 3.8 million for a company, would $40,000 have been too much compensation for his performance?
If public money is used then there should be a quantifiable result for the money spent. When we build an energy policy that gives tax breaks/incentives/relief/etc. to companies in the $billions of dollars, we want to see a benefit.
Interesting that the only "quantifiable result for money spent" being demanded happens to concern oil. Social Security, Medicare and Medicaid? No biggie. The War on Poverty? 3 trillion, with a ’t’, down the rat hole since the ’60s and we haven’t moved the percentage of those living in supposed poverty down even a half of a percentage point.

But let an industry who makes 8% profit in the good times and is reacting to rising demand for a commodity in the neighborhood of 20% a year make a little more than it has in past years, and the sky is falling.

It seems interesting to me that we hear all the rhetoric saying "we must make a concerted effort to discover and use alternative energy" but when market forces finally begin to provide the incentives to do so, we want to turn back the clock and decrease the price of the very commodity which we claim to want to replace.

Make sense to you?
Look, we can't have it both ways. We're either dedicated to breaking the hold oil has on our economy or we're not. Rhetoric aside, there is no incentive to vigorously explore alternatives as long as fuel prices stay relatively low.

So we need to make a decision here. We're either for providing the incentives necessary for a real and concerted effort to find fuel alternatives (which means we pay more for fuel) or we're not. Higher oil prices provide the incentive. For a good round up of what Ayn Rand called "the virtue of selfishness", read John Stossel's column today.
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Previous Comments to this Post 

When you are right you are right.

How come neither party is for higher gas prices?
Written By: cindy b
URL: http://
Why be "for" higher gas prices or lower gas prices, CindyB? Let the market set the rate for gas prices. It’s like being For or AGAINST the sun rising. It happens, irrespective of my opinion on it.
Written By: Joe
URL: http://
Cindyb, you are on the wrong blog asking for an answer to a statement like that.

Joe knows where he is. ;)
Written By: capt joe
URL: http://
Cox and Forkum put their boots to this issue today.

Soccer Moms maximize their returns (wages) in high-rise offices all over our nation, and that’s OK. But when the local Shell station manager maximizes her returns, it’s "Price-gouging." Tel horreur!

The thing I dislike most about the "Price-Gouging Brouhaha," is that it pits intranational factions against eachother, worsening partisan and class relations inside America,
while ignoring the international causes for elevated energy costs: global unrest, insecure transportation networks, intense global competition - to name a few.

If our schools would only teach Macro and Micro-economics to our 15 year-olds (iinstead of feeding them french-fires and hip-hop culture), we’d nip most of this nonsense in the bud.
Written By: Steve
URL: http://
Posted this on another blog...

Trying to pin this on the current administration is disengenous, at best. This is yet another problem we’ve been avoiding for the past 4 decades. Just like terrorism, just like the Israeli-Palestine issue, just like health care, just like Social Security.

As long as the pain to ourselves is bearable, we ignore the issue.

That is what every administration and Congress has done, especially since 1980. And because George Bush has caught the hot potatoe, he’s the one everyone wants to blame.

But, the buck has been passed so much that we don’t want to admit that we are all collectively responsible for some part of the problem.

We certainly need a National Energy Policy. Why is that stuck in Congress? Because liberals want to know who was in the private meetings. Who cares? What is important is that a document was produced, and that can be added to and subtracted from. But that would take real work, and a committment to compromise.

We need a multi-part plan that deals with SUPPLY, DEMAND, and ALTERNATIVES.

1 - SUPPLY - We must first increase our supply, so that energy is cheap, otherwise the economy suffers. Especially we must increase our domestic supply, so that we can stop relying so much on foreign oil. That means encouraging oil exploration, oil production, and oil refining. That means exploring in ANWR, the Gulf and off California. If we don’t do all these things, oil and gas prices are going to increase. Global demand is going up, whether we do anything or not.

2 - DEMAND - We must lower our demand, so that we do not need as much supply. Conservation is one way. Increasing the CAFE standards will help. Giving tax breaks to companies for flex-scheduling their workers (ie 4-10 hour days,) or tele-commuting. Giving a 1/2 hour work credit to car-pollers. Putting speed limiters on non-emergency government vehicles (I’m getting tired of gov plated vehicles passing me when I’m doing the speed limit.) There are a number of smart things goverments and companies can do to encourage conservation.

3 - ALTERNATIVES - Ethanol is one answer. Mass produced Bio-Diesel is another. Electric vehicles. More nuclear power. Mass transit. Smarter mass transit. for instance.

But trying to play the BLAME GAME, is not solving the problem. Solving the problem takes real work, and needs more than 10 second sound bites to get yourself elected.


Heh… just found this over on

thought it would add to the discussion.
In the lab, many gasoline alternatives look good. Out on the road, automotive engineers have a lot of work to do, and energy companies have new infrastructure to build, before very many people can drive off into a petroleum-free future. And, there’s the issue of money. Too often, discussions of alternative energy take place in an alternative universe where prices do not matter.

For this special report, PM crunched the numbers on the actual costs and performance of each major alternative fuel. Before we can debate national energy policy–or even decide which petroleum substitutes might make sense for our personal vehicles–we need to know how these things stack up in the real world.

say what you want about it, but the President does have a plan.
1. Ensuring That American Consumers Are Treated Fairly At The Gas Pump.
2. Promoting Greater Fuel Efficiency.
3. Boosting Our Supplies Of Crude Oil And Gasoline.
4. Investing In Alternatives To Oil, So That We Can Dramatically Reduce Our Demand For Gasoline.
Written By: Keith, Indy
URL: http://
global unrest, insecure transportation networks, intense global competition


And here we have part of the problem.

What to do about it?

Do we trade cutting oil prices, for stability through Middle Eastern strong-men? As has been the policy of most of the world for the last 50 years.

What is the ultimate cost of going back to that policy?
Written By: Keith, Indy
URL: http://
Here, people are seeing oil companies that are making incredibly large profits

And I hope all those yelling about it don’t have any dirty Oil company stocks in their portfolios, like oh so many of us do.

Written By: shark
URL: http://
We’re either for providing the incentives necessary for a real and concerted effort to find fuel alternatives (which means we pay more for fuel) or we’re not. Higher oil prices provide the incentive.
Even more importantly than an incentive, higher prices provide the means. When government screws this up, they don’t just eliminate the incentive for pursuing future returns, they eliminate the means by which these firms can pursue them. And that is what all of these tax-the-p*ss-out-of-gasoline morons (and there are unfortunately plenty of conservatives among them) and the "windfall" profits larcenists simply don’t get.

Written By: Peter Jackson
A few months back, I decided to look at the combined revenues and profits of the oil companies. I then compared it to other companies that people have heard of, like Intel and Microsoft.

Both Intel and Microsoft make a larger (percentage) profit than the oil companies at that time (when $2.10/gal). The gap was big enough to still be true.
Each of these companies had larger revenues than all US oil companies combined.

I’m not advocating that we impose a "windfall profits" tax on Intel or Microsoft, but I so say there is a lot of demagoguing going on. The oil companies know that trying to defend themselves over their profits is as fruitless that defending oneself of "wife beating."
Written By: Neo
URL: http://
Hear hear Neo. I’d like to see just one of these gas-price b*tch*rs complain about how much they get gouged buying Microsoft Office and Windows (or an Apple computer for that matter). If there is a case for gouging at all, there it is. But the fact that they don’t stop running their mouth’s for a millisecond to contemplate the larger picture is clear proof that thinking is not on their agenda. And how many of these same people have no qualms buying a 50 or $60,000 car? The lack of perspective and grounding in reality is sickening.
Written By: Unknown
URL: http://
Funny how the left does’nt have a problem with paying pro athletes 400 million for playing GAMES.

Somehow they don’t see CEOs in the same light. A CEO is a superstar of the buisness world.

Nuff Said
Written By: McQ2
Oh and by the way doesn’t anybody factor in the enormous emerging markets of India & China their consumption of oil has grown exponentially in the last 10 years. Prices are bound to go up with this enormous demand added to the market.
Written By: McQ2

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