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Harris Sherline: About Oil, Part II
In the never-ending U.S. political circus, the clowns on the Senate Judiciary Committee recently held yet another hearing at which they attempted to showcase their zeal for helping the public by putting oil industry executives on the defensive. Unfortunately, the news coverage and commentaries by political pundits did not emphasize the fact that, at least this time, the politicians failed, and why.
The senators were outgunned by a lineup of high-powered oil company executives representing five major players — BP America, Chevron, Conoco-Phillips, Exxon Mobil and Shell — who came well prepared.
The hearings produced some important information about the oil market that should be receiving widespread distribution.
» Collectively, American oil companies account for a very small percentage of the world oil market. The U.S. oil industry is able to compete for only 7 percent of the world’s known reserves, about 75 percent of which is controlled by national oil companies that are supported by their respective governments.
» In spite of the fact that Exxon Mobil is the largest American oil and gas company, it is a relatively small player on the global stage. The company accounts for only 2 percent of the world’s energy production, just 3 percent of world oil production, 6 percent of the world’s refining capacity, and only 1 percent of the world’s petroleum reserves.
» For American companies to compete successfully in the world’s oil market, they must be financially strong enough to carry out huge, complex energy projects that require enormous long-term investments. Exxon Mobil, for example, spends around $1 billion a day just for day-to-day operations and to make the necessary capital investments required to stay in business.
» “Because foreign oil companies and governments control the overwhelming majority of the world’s oil, most of the price you pay at the pump is the cost paid by the American oil company to acquire crude oil from someone else,” Investor’s Business Daily said in a May 22 editorial.
» “Since 2002 the U.S. oil and natural gas industry has earned about 8.1 cents per dollar of sales — exactly the same as all U.S. manufacturing, excluding autos. Not much of a windfall,” the editorial said.
» “The Interior Department notes that most of the oil and 40 percent of the natural gas under public lands is off-limits to drilling. That’s about 19 billion barrels of oil and trillions of cubic feet of natural gas,” the editorial said.
One wonders what the people who want to prevent us from developing our own energy resources are trying to accomplish. My guess is that, like so many other matters that are critical to the economic well-being of our nation, such decisions are made on the basis of politics, rather than what’s right or is best for all Americans.
Blaming the oil industry for secretly manipulating the price of oil is just another in a long history of conspiracy theories that pop up whenever something happens that people don’t understand. It has been going on for a very long time, hundreds of years. Some interesting examples are discussed in a book that was first published in 1841 by Charles Mackay, titled, Extraordinary Popular Delusions and The Madness of Crowds.”
To me, it stretches credibility to claim that the American oil industry is engaging in some gigantic price-fixing scheme. How on earth could they accomplish that? Do they meet in secret somewhere? Is it done over the phone? Wouldn’t the corporate leaders have to give instructions to certain people within their respective organizations to carry out the actions that would be necessary to adjust the price? Surely, somewhere in the process of producing and marketing their products, “fixing” the price, which fluctuates at the pump from day to day, sometimes from hour to hour, would require the involvement of other people. How does that work? Who else would have to know?
It strikes me that if our government can infiltrate other societies with spies, it should be relatively easy for the FBI to plant investigators inside the oil companies to spy on their operations and executives. Or, how about some enterprising investigative reporter? Surely, if it’s possible to penetrate the inner sanctums of the White House and various government agencies, including even the CIA, by now someone surely would have found a “deep throat” in the oil industry who would reveal how the oil companies are getting around the law.
Finally, if the oil companies can “fix” prices, how is it that there have been periods when they lost money?
Stamping our feet and crying foul may help vent some frustration, but it sure doesn’t prove that the price of oil is fixed and, if it is, how. It’s not enough to make the claim, it should also be necessary to prove it before the executives of major corporations are called before Congress to receive a public tongue-lashing for more political theater.
Harris R. Sherline is a retired CPA and former chairman and CEO of Santa Ynez Valley Hospital who has lived in Santa Barbara County for more than 30 years. He stays active writing opinion columns and his own blog, Opinionfest.com.
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» on 06.21.08 @ 10:06 PM
Also rarely discussed: the worldwide shortage of drilling equipment / teams.
Even if offshore drilling were to be allowed, there aren’t any available rigs or extra experienced people to staff them. So for the current situation it would do basically nothing.
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» on 06.22.08 @ 06:18 AM
Good data, Mr. Sherline, all of it. And I can remember a time when facts actually mattered in debate. But now “everyone” knows it is much more important to protect birds, snails, trees, coastlines, research grants, the ocean, pick your favorite, usually lefty, cause] than it is to have lights, heat, fuel and therefore shelter and food. Actually, I think that “everyone” is a minority, but a very vocal minority who terrify politicians into doing ever more shortsighted and economically stupid things. A reasoned approach combining increased drilling to help ease the current crisis, with program to rapidly build safe clean coal and nuclear power plants for electricity would go a long way toward fixing the energy probem. And killing the thermodynamically and economically moronic ethanol-from-corn program would help on the food price front. Hopefully $5 gasoline will force some people (though clearly not Lois Capps) to rethink their positions.
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» on 06.29.08 @ 06:40 PM
“Since 2002 the U.S. oil and natural gas industry has earned about 8.1 cents per dollar of sales — exactly the same as all U.S. manufacturing, excluding autos. Not much of a windfall,”
Yeah, because the oil and natural gas industry manufactures oil and gas, with the exact same costs per dollar of sales as other manufacturers.
“a retired CPA”
The sort of folks whose creative math was used to steal millions of people’s pension funds.
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