Oil producers, the EPA, government energy polcies, speculators and the price of gas

There's been much discussion among my brothers, friends and myself concerning the dramatic rise of the cost of gasoline in America. Th oil companies have very little to do with the consumer cost of gas at the pump. What is the profit margin of the major oil companies on a gallon of gas? 8%? I'm not sure, I'm sure I will know this shortly. But for this exercise let's use 8%. 8% of $4.15 per gallon is more than 8% of $3.00 per gallon.Oil companies are reportedly making record profits. OF COURSE!

My brothers blame speculators. What role do specualtors play? I say it's a minor role. If you are a speculator and you see policies and conditions that plainly indicate oil prices will be dramatically higher in the future, you buy up oil contracts, of course.

I firmly believe that the current administration because of their destructive anti-capitalist socialist government expansion beliefs know that oil is the lifeblood of the American economy and are deliberatey attempting to destroy the oil industry. How do you do this while the oil companies are earning record profits. You demonize them and their product to such an extent that the oil companies must be nationaized for the public good.

I contend the high gas prices are because of government policies. We have so much oil here in America, Canada and Mexico that anything and everything could happen in the Middle East and it should not effect Americans concerning the price or availabilty of oil.

Currently, there are areas offshore that are not producing oil because of a government moratorium. Why? Their reason is; Some oil might be spilt.

Could America ever have been builtif people throughout our history were worried that we might spill something!?

America's destructors are nowin control of much of the government and are setting government policies.

Here is a rather detailed condensation of an article I saw yesterday. A critical issue is that in recent years a means of easily buying very large ETFs for commodities has skewed the market so that NON end users now hold these futures at a ratio of 4 to 1. Unless some action is taken to restrict non users from hogging the futures, we will all pay through the nose for oil, wheat, rice, and the animals that eat these things.

Your Pain, Their Gain: How High Gas Prices Impoverish The Many While Enriching The Few, by Dan Froomkin

“The last of the Big Five oil companies announced first-quarter earnings Friday, so the totals are in. Between the five of them, ExxonMobil, BP, Shell, Chevron, and ConocoPhillips made $34 billion in profits in the first three months of 2011 — up 42 percent from a year ago. That’s about $110 for every man, woman, and child in the United States — in just three months. Exxon alone cleared a cool $10.7 billion profit from January through March, up 69 percent from 2010. That’s $82,175 a minute.

Why the staggering increase in earnings? Precisely because you’re paying $4 a gallon for gas.Gas prices shoot up when oil prices shoot up, and when oil prices shoot up for reasons that have nothing to do with how much it costs to bring it out of the ground, it’s a windfall for the folks who produce it.The average cost to produce a barrel of oil, including exploration, development, extraction and taxes, is about $30, according to a U.S. Energy Information Administration survey. The going rate to buy one is about $113.

Why is the price so high? Part of it is increased demand and geopolitical worries. But no less an authority on the matter than Goldman Sachs acknowledged earlier this month that speculation is at least partially responsible, driving oil prices up faster and higher than supply and demand could possibly explain. That means the people who are betting on oil prices are actually making the price of oil go up. And while the pain is widely felt — consider all the Wal-Mart shoppers who are agonizing over how to make it to the end of the month — the benefits are not being widely shared. By and large, the oil companies’ profits are not finding their way back into the communities from which they came; are not being used to create more jobs; and are not being invested in new equipment and exploration.

Some of that money is going back out the door in the form of larger dividends to stockholders. But in the case of two of the big five in particular — Exxon and ConocoPhillips — more than half of their total profits are being used to buy back their own stock.

Companies that buy back their stock can either retire it or simply keep it themselves, under the control of the board of directors, to reissue later or award as bonuses.

Dividends, by contrast, are not nearly as good a deal for company executives. For one thing, they are taxed as income. An increase in the stock price is not taxed as income; it’s not taxed at all until the stock is sold — and only then at the capital gains tax rate, which is limited to 15 percent. (Fifteen percent would be a lot for the median American family, which pays less than 5 percent of its income in federal taxes. But it’s a huge break to those paying income tax at the highest marginal rate of 35 percent.) “Buying back shares benefits existing shareholders, no one else. And more than anyone else, it benefits existing management,” says Henry Banta, an energy industry analyst and partner in the Washington D.C. law firm of Lobel, Novins & Lamont. “They’re basically enriching themselves,” says Daniel J. Weiss, a senior fellow at the Center for American Progress. “With this windfall, they enrich the board of directors, senior managers, and shareholders.”

“ As of 2007, the percentage of households that owned $5,000 or more of stock was 35 percent; only 22 percent owned $25,000 or more. Who’s got the rest? The wealthiest 1 percent of households has 38 percent, Wolff found; the wealthiest 5 percent has 69 percent; the wealthiest 10 percent has 81 percent. The bottom 60 percent of households owns 2.5 percent of the total stock. Not so very much.

There’s another thing the big oil companies are doing with their profits: they’re hoarding them. If precedent holds, as soon as oil prices started shooting up again, a lot of that money started going into the bank for safekeeping — and adding yet more to the $1 trillion or so in corporate cash lying fallow and slowing the recovery. And as it happens, a not insubstantial chunk of last quarter’s profits were a direct gift — from the taxpayers. Somewhere between $4 billion and $9 billion of the industry’s annual profits comes from federal subsidies.

President Barack Obama has proposed repealing $4 billion a year in subsidies; the American Petroleum Institute says the proposal would actually cost the industry about $90 billion over the next decade. Response to Obama’s proposal was lackluster at first, from both sides of the aisle. But Democrats, afraid of being thrown out of the White House by an angry, gas-impoverished voting public, are suddenly seeing the fight to repeal those subsidies as a winning political issue.

Although the repeal would neither increase nor decrease the price of gas, it would take a bite out of Big Oil. And pushing for the repeal will almost inevitably highlight the modern Republican Party’s nearly lockstep allegiance to the thriving oil and gas interests — something that, in a period of high gas prices and even higher profits, couldn’t be good for them. But yet another thing the industry does with all its cash is buy influence in Washington. (For instance, Exxon, during the same quarter it made nearly $11 billion, spent just a tiny fraction of that on lobbying. But that was still a whopping $3 million.”

“I contend the high gas prices are because of government policies.”

High prices are because the government is printing money. If you price gas in the world’s most stable currency, Swiss Francs, instead of dollars, the price has hardly budged. The Fed has increased the supply of dollars 300% since 2008 and there’s no end in sight. Oil is priced in dollars. Therefore, we see inflation directly at the pump.

A speculator tells the producer, “I’ll buy all 2 million gallons of your October output of unleaded regular at $5.00 per gallon.” The speculator and producer execute a contract. If the true market price in October is $4.50 a gallon, the speculator, who has no tanks, must sell his 2 million gallons at a loss of .50 per gallon. If the price has gone up to $5.25 per gallon, the speculator sells at market 2 million gallons and makes .25 per gallon. (The speculator never takes delivery, so cannot hold the product to run up the price.)

The reason we have speculators is that they provide a guarantee of $x dollar in October, thus removing the market risk from the producer. If the speculator wasn’t there then the producer would have to carry a line of credit to cover his exposure and his business would be much more risky (expensive.)
That’s my understanding in 3 paragraphs. Anybody else want to throw in their $4.50/gallon?

However, on the other hand:

BOREN: PRESIDENT OBAMA UNINFORMED ABOUT OIL AND GAS INDUSTRY
Tuesday, April 26, 2011

WASHINGTON, D.C. – U.S. Congressman Dan Boren issued the following statement regarding President Obama’s letter today requesting Congressional leaders eliminate tax provisions that are absolutely critical for domestic oil and gas production for thousands of independent producers across the nation.

“President Obama is completely uninformed about the oil and gas industry. The industry is not made up of just major companies. It is made up of small independent firms like those in Oklahoma that produce a vast majority of our domestic production. For every CEO of a major company, there are literally thousands of blue collar jobs that are affected by his administration’s energy policy. It is a policy that is very inadequate and has left so many on the gulf coast unemployed. Americans are tired of empty rhetoric on both sides and want a real plan. If the President doesn’t want to stand up and be a leader, then his silence would be appreciated from people who are trying to find solutions.”

Specifically, the Administration is seeking to repeal the “percentage depletion” and “intangible drilling costs (IDCs)” tax incentives. The removal of these provisions would negatively affect domestic independents who utilize them to attract the capital necessary to drill new oil and gas wells inside the United States. It is estimated that eliminating percentage depletion and IDCs for domestic independents would reduce U.S. drilling by 30-40 percent, thereby increasing the nation’s dependence energy from foreign sources. Furthermore, the major oil companies are barred by law from receiving percentage depletion altogether, as it only is given to domestic independent producers. The IDC preference is only available for domestic drilling activity, and as the major oil companies drill primarily outside the U.S., the domestic independent sector of the industry will yet again bear the brunt of losing this critical provision.

“I’m actually surprised that there are any independent gasoline retail operations left.”

I studied this in my MBA classes. The Mini-marts only use gasoline as a means to attract traffic. They make only about .10 per gallon on the gas and it’s highly regulated and has many potential expensive downsides like leaking tanks and fire, etc. The reason they have it is they sell $16 worth of beer and cigarettes for every gallon of gas.
Gas sales are highly regulated and, in Florida at least, the sellers not allowed to change the price of gas to meet a rapidly rising market unless they have purchased some gas at the new, higher price. To protect their real business, beer and cigarettes, they must purchase 100 gallons of gas at the new price in order to raise their price. If they don’t raise their price and their competitors have raised their price, then then the seller quickly sells out of gas and the traffic that feeds their true business, beer and cigarettes, falls to zero. Therefore, there are small companies that operate tiny tankers resembling the airfield tankers from the 1940’s. These tiny tankers go from Mini-Mart to 7-Elleven all night long when the price is going up. The tanker driver has his own keys. He opens the tank locks, pumps 100 gallons at the new price and leaves an invoice so the store can raise its price the next morning.

A few years ago my late husband and I were in southern Illinois trying to decide whether to keep or sell 20 acres he had inherited. We had already sold the underground coal rights and wanted to learn whether there was likely to be oil. We saw a number of “grasshopper” rigs in the surrounding area. When we talked to local drillers they said there had been no finds in our immediate area, but that others were found at the 4 to 5,000 foot level, and there were farmers getting 12% royalties on anywhere from 1 to 22 barrels a day.

If the government does end up changing the regulations, then it is really important that they differentiate between the majors and small/independent producers who will be forced out of business, yet are producing a modest but steady addition to our oil supply. We need all the production of energy we can get from as many different kinds of sources as possible.

In Germany, not the sunniest place in the world, I think they are getting something like 30% of their electricity from solar. They had been offering a payment of 2 or more times the value of solar fed into their grids to homeowners, farmers, building owners etc. who install solar. I have two large south facing roofs in the mid-Atlantic area. I would be happy to install solar if I only got 70% of the value of my energy, and leave 30% to the utility. Unfortunately, even in places where utilities will take a “feed in” of citizen produced energy, they will often only apply it to your bill. If you produce more, too bad in many areas. This is really stupid. I use very little electricity, so what is the value to me of putting solar on my roof if I cannot get a fair payment from the big utilities. The local electric utility is getting solar from as far away as Michigan, Pennsylvania, and New Jersey, rather than pay local homeowners who are producing solar as they are supposed to by law.

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