Tuesday, April 25, 2006

Looking at Oil

Let's take a look at these pieces of information on oil/gasprices. (The bold stuff is my frustration shining through in largefonts)

First, from ABC on April 14th:
Last year, Exxon made the biggest profit of any company ever, $36 billion, and its retiring chairman appears to be reaping the benefits.
Exxon is giving Lee Raymond one of the most generous retirement packages in history, nearly $400 million, including pension, stock options and other perks, such as a $1 million consulting deal, two years of home security, personal security, a car and driver, and use of a corporate jet for professional purposes.
"In 2004, Mr. Raymond, your bonus was over $3.6 million," Sen. Barbara Boxer said.
That was before new corporate documents filed with the Securities andExchange Commission that revealed Raymond's retirement deal and his$51.1 million paycheck in 2005. That's equivalent to $141,000 a day,nearly $6,000 an hour. It's almost more than five times what the CEO ofChevron made.
Uh-Huh.Next, there's this gem from the Toronto Sun:
We understand this: When the world's Big Three oil giants are caught with secret memos alluding to a conspiracy to restrict refinery capacity to boost prices, then rake in a record $63 billion US last year, making them richer than half the world's nations -- something's rotten.
Well, I don't know about any secret memos. But I wouldn't be surprised.

Today, though, we hear that george is going to do something! Don't worry, America - he's saddling up the white horse:
President Bush on Tuesday ordered a tempory halt to deposits to the nation's strategic petroleum reserve to make more oil available for consumer needs and relieve pressure on pump prices.
Easing the environment rules will allow refiners greater flexibility in providing oil supplies since they will not have to use certain additives such as ethanol to meet clean air standards.The suspension of oil purchases for the federal emergency oil reserveis likely to have only modest impact since relative little extra oilwill be involved.
The president...called for increased conservation, an expansion of domestic production and increased use of alternative fuels like ethanol.
So, he's going to stop making companies use ethanol, because gas is cheaper if it's worse for the environment. But he's also sayingthat finding alternative fuels like ethanol will make fuel cheaper. Gotit.

Instead of asking oil companies why they're charging so much (their"supply and demand" answer doesn't cut it anymore, when we know howmuch money their CEO's are making), or taking responsibility for themarket being unstable because of his machinations in the middle east,Bush decided to take steps that will hurt the environment and makegrandstand promises that things will be looked into. He'll probablystart an investigation of some kind. Gas prices will go down a fewcents, and the noise will calm down. And in two months, we'll all bepaying $3.50 a gallon, because the investigation will report that"supply and demand" have caused the price of gas to sky rocket. Right?
...one of the things that supply and demand tells us is that substantial profits arise only from monopoly power, which is when a firm has a distinct advantage over other firms that inhibits competition. Monopoly power can come from a number of sources including: selling a unique product for which there are no substitutes, government regulations, high start-up costs to enter the industry and anti-competitive practices such as collusion and price-gouging. Any of this sound familiar when discussing the oil industry?
It should.
Firms that have monopoly power can maximize their profits by raising their prices above the market efficient price (which restricts output to levels below the market efficient level). The resulting deadweight loss of market efficiency is a burden borne totally by the consumers who are paying more and receiving less.
What it all boils down to is that we have to find a way to reduce our oil consumption. Maybe Europe has it better - they've always had high oil prices, so they've always had cars that burn cleaner and use less fuel. We've been spoiled, and now we don't want to give up our Hummers and our SUV's. We want someone to pay our gas prices for us so that we can keep them. Don't get me wrong - gas prices are taking a significant chunch of change out of my pocket, and I drive a Camry.

But george has a few more cards up his sleeve:
PresidentBush, under pressure to do something about gasoline prices that areexpected to stay high through the summer, ordered an investigation intopossible cheating in the markets.
Well, I'll certainly sleep better tonight.

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