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Friday, April 28, 2006

Krauthammer on Oil

Today's column by Charles Krauthammer on oil, and a brief history of Congressional investigations into the cost of it is a reminder of how spoiled we became in the 1980's and 1990's with cheap gas prices, and cheap oil.

It comes down to three major issues, supply, demand, and fear. Supply and demand are easy, we produce less oil in the US, and Congress continually agrees to keep it so. We want more oil for our huge SUV's, but China and India want more for their industrial expansions also. So Demand is up. Supply is also limited by problems in Iraq, and Nigeria. The fear comes from Mullah's in Iran rattling sabres, and whacko's like Hugo Chavez constantly threatening to cut supplies. Those factors add up to a cost of $70 per barrel of oil, or $1.70/gallon of gas just on the raw end.

Now add in transportation to the US, refining and blending, more transporation to get the product to the pump, and you get an industry with under a 10% profit margin. On top of what they paid for their "product pipeline", you get to add state and federal taxes, and then as in the case of Wisconsin and many other states, required profit margins. Check with your state and see what the "minimum markup law" says the gas station is required to charge you over their cost.

While on the subject of 'Big Oil', since everyone was shocked that Exxon Mobile made an $8 billion profit last quarter, they should get the companies tax bills. Here's a link to their 2004 4th quarter report, (last one I could find online). Go down to page 9 and read the total tax line, $86,779,000,000. That's right, ~$86.8 BILLION in taxes for the company's FY 2004, or about 30% of gross revenue.

Granted, not all of that was paid in the US, but it shouldn't be, since they made over 75% of their money outside the US.

That's the reason I find congress looking at tax records laughable. Yes, they should cut some of the loopholes that are out there, but at the same time, while oil companies are making large profits, congress is getting fat tax checks from them already based on those profits.

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Blogger Tim said...

I own stock in Conoco Phillips, BP, Haliburtin, and Sunoco. Oilmen are running the counrty, so do the math. They are taking care of their friends, like they always do. There are no "crash diets" to fix this problem.Getting out of Iraq and less sabre rattling about Iran would go a long way in lowering prices in my opinion.

10:10 AM  
Blogger Crazy Politico said...

Leaving Iraq wouldn't help prices any, if at all. You'd just end up with an unstable country exporting next to nothing instead of very little.

As for Iran, maybe if their Prez would STFU others in the world wouldn't worry about them so much.

As for the oil companies, until we ween ourselves from their product, they won't change much. They'd be fools to. However, if someone came upu with a cost efficient fuel cell, they'd jump all over the hydrogen bandwagon.

There is a guy in California with a fuel cell Honda, the only privately driven one in the country. According to Honda the car cost about $1,000,000 to build. That needs to come down by a factor of 40 before folks will even think about buying them.

1:03 PM  
Blogger Toni said...

OMG if I have to listen to Shumer dramatize about "oil company's" gouging I think I just might develop the power to reach through my tv screen and strangle him. He is beyond obnoxious and dishonest. Talk about pandering....sheesh.

6:37 PM  
Blogger James B. said...

While I agree with your point as to unnecessary vilification of oil companies (I have posted on that a couple of time myself), that is not what the company actually ends up paying in taxes. Companies get to acrue a tax liability, for accelerated depreciation and such, which they count on their income statement, but is money that is not actaully paid, although theoretically someday it is supposed to be. You have to go through all the statements to calculate how much they actually end up paying, but I am sure it is somewhere north of $50 billion, regardless. Hey, the things you learn in grad school.

9:59 PM  
Blogger Crazy Politico said...

James, if they were paying all of their taxes in the US, I'd even peg the number lower. But since it's mostly Europe and Canada whacking them, they probably have less dodges.

Toni, they are all doing it, it's the rage :) Suddenly they give a crap.

4:50 AM  

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