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Home Front Economy
Political spins blurring energy realities
2008-07-07
When it comes to the raging national debate over energy policy, reality is often in the eye of the beholder.

President Bush declares that drilling in the Arctic National Wildlife Reserve will reduce the price we pay at the pump without threatening endangered Alaskan wildlife. Democrats say drilling under the Arctic tundra will have no impact on gasoline prices for at least a decade -- if ever -- and risks environmental catastrophe for what would be nothing more than a few drops in the proverbial bucket of world oil supplies.

House Speaker Nancy Pelosi, D-Calif., declares that an excess-profits tax on American oil companies would recoup some of the unconscionable profits obtained through gouging consumers at the pump. Republicans respond that a replay of the ill-conceived 1980 windfall profits tax would cost Americans jobs and shift even more energy production overseas.

The late Sen. Daniel Patrick Moynihan, D-N.Y., a one-time Harvard professor, famously remarked that everyone is entitled to his own opinion but not his own facts. However, political debate in America has become so polarized that it is often difficult to cut through the rhetorical clutter to separate fact from fiction, spin from reality.

'We may accent different facts and statistics,' said Sen. John Cornyn, 'but it's undeniable that unless we increase our oil supply, we are stuck with high gas prices indefinitely.'

To which Sen. Chuck Shumer, D-N.Y., has his own set of facts. 'Even as someone who supported targeted oil drilling in the East Gulf (of Mexico),' he said, 'I know you can't drill your way out of the problem.'
Try this one: Unless my math is off again, which has happened in the past, oil at $140 a barrel = $3.50 a gallon before the product is refined and distributed. (There are 40 gallons of oil in a barrel). All those profits Shell and Exxon and BP and Hess are making come from extracting the oil, not from delivering gasoline. If oil goes to $160 a barrel then the pre-refining/distribution price is a flat $4 per gallon. If the cost drops to $100/bbl then it's $2.50.
Posted by:Fred

#7  I think the actual figure was 43 gallons of product out of 40 gallons of oil.


Fact remains, "windfall profits" tax is on production, not on refined product. I can't recall ever hearing of a situation where taxing production caused it to increase. But then, I'm not a liberal economist, either.
Posted by: Fred   2008-07-07 21:24  

#6  Lets not fergit to tax the VERMOUTH, etc. added on by many restaurants and other companies to their OTC water sales + systems.
Posted by: JosephMendiola   2008-07-07 19:51  

#5  Fred, your math is approximately right (you actually get a few more than 40 gallons of refined product from a barrel of oil due to the 'cracking' of the heavy hydrocarbon molecules during the refining process.)
As far as the profits go, most oil production is owned by the host government, who lisences production to the oil companies under a variety of production sharing or even 'cost-plus' bases, such that if oil goes from $140 to $150 most of the increase goes to the governments and not the oil companies (the notable exception is the US). Also, costs are not even close to flat - high prices drive demand for more wells, and the supply of rigs, pipe, and skilled personnel seriously lags demand, so costs have been going up as fast or faster than oil prices in many markets.
Posted by: Menhaden S   2008-07-07 13:15  

#4  Coka Cola and Pepsi are not big names?
Posted by: bman   2008-07-07 11:22  

#3  FOTSGreg is right. Tax Big Water. Only problem, it is not a name that rolls off the tongue, like Big Oil does....... Let's keep looking for Big names to tax. It's the Dem way!
Posted by: Alaska Paul   2008-07-07 11:14  

#2  Don't forget how to 'manage' the books. It's in the overhead. When a corporation figures costs it adds overhead to every step in the process. That overhead is the operating and administration costs of the upper levels. So the deal to for the oil carries overhead. The transportation of the resource carries overhead. The refining of the resource carries overhead. The retrans to and bulk storage of carries overhead. The distribution to franchises or independent dealers carry overhead. The operation of franchises carries overhead. It's like the music business, the artist may make money on the deal but the dudes up in the hierarchy are making the big bucks by levying a percent of every part of the process. However, on the books, its just 'overhead' not 'profit'. The shareholders don't reap the overhead, just the profit side of the books, as does the taxman. Meanwhile, its good to be king CEO, the board and senior management in the overhead. Heh.
Posted by: Procopius2k   2008-07-07 10:02  

#1  After-market profit for the oil companies is, according to many reports I've seen and read here on Rantburg, about 10%. Comparatively, bottled water companies are rolling in profits. Why not tax them on their windfall profits? Their product is practically free for Gawd's sake and their profit margins are obscene when compared to those of oil companies.

Contrary to popular opinion, bottled water companies resource is also not unlimited or infinitely replinashable (without signifcant costs such as desalinization).

If you stick it to one, you have to stick it to everyone. That's the Democrat way. It's also the socialist and communist way.

Posted by: FOTSGreg   2008-07-07 03:01  

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