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Melonie
06-15-2008, 05:53 PM
(snip)"Political Stupidity
By David Galland,
Managing Director
Casey Research – Casey Energy Speculator
June 14th, 2008


A few weeks ago we witnessed a political act of such unimaginable stupidity, it is hard to not choke at the mention of it.

A cursory review of the details is worth a minute of your time. This compliments of The Oil & Gas Journal...

WASHINGTON, DC, May 20 -- The US House passed, by a vote of 324 to 84, a bill that would create a new oil antitrust task force within the Department of Justice. Supporters of HR 6074, which also would give DOJ authority to sue foreign oil cartels for violating US antitrust laws, included 103 Republicans, according to its sponsor Rep. Steve Kagen (D-Wis.).

"Until we finally have an energy policy other than drill-and-burn, this bill will begin to set things right for the American people. We cannot drill or grow our way out of this energy crisis. We must begin to think differently in America. That includes loosening the stranglehold other nations have on our economy and exploring new forms of energy," he said following the vote.

The new "Petroleum Industry Antitrust Task Force" would be charged with determining the existence and extent of gasoline price gouging, anticompetitive price discrimination by refiners, actions to inflate prices by constraining supplies, and possible oil price manipulation in futures markets, Kagen said.

The bill, which would amend the Sherman Antitrust Act, also requests a Government Accountability Office study on the effects on competition of prior oil industry mergers and divestitures, he indicated.

"This legislation will address the loopholes and exemptions that oil companies exploit at the great expense of our citizens," Kagen said. "By passing the Gas Price Relief for Consumers Act, the House agrees that it is time to give US authorities the ability to prosecute the anticompetitive conduct committed by international cartels that restricts supply and drives up prices."

Now, unless you were informed upon entering your sixth year of grammar school at the age of 21 that you'd have to stay back another year, you'll recognize this latest bit of pandering as stupidity so profound as to bring a sane man to his knees.

For one, oil is a global market and the members of OPEC include the world's largest suppliers to that market. In a world of increasing demand bumping up against flattening global production, these are not the people one wants to alienate – that is, if we want to drive our cars and tractors and heat our houses with something other than broken bits of heirloom furniture.

Threatening to sue them, or worse, actually suing them, is unlikely to bring a warm response. Can you imagine the oil sheiks being made to present themselves in the docket in a U.S. Court? (If Homeland Security would let them through the airports, that is). Oh, what a fine media circus that would be! Frankly, if subpoenaed, I think they'll just refuse to show. And what then?

Secondly, it also reinforces the fiction that the members of OPEC can actually do something to increase their production, as opposed to just talk about it. It reminds me of Saddam's pledge to unleash the “Mother of All Wars” against the U.S. Forces... which turned out to be more like the “Mother of All Foot Races to the Rear”.

The way the OPEC quotas are assigned, the bigger the reserves a member state reports, the more production the member is allowed to sell. Which is why, since the upward reserve adjustments of the late 1980s - made in anticipation of the revision to the OPEC quota system - there have been virtually no reserve declines reported by OPEC members. It’s as if a magic oil genie resides under the ground, providing oil in unlimited quantities with a twitch of the nose or a nod of the head over crossed arms.

Put more directly, the current reserves are a fantasy, and the ability of OPEC to actually raise production is greatly constrained.

But there is more in this legislation to dislike. Much more. For one, it contains the implicit assumption that all levels of the energy business are corrupt, and the executives of all these firms spend long hours in cigar smoke-filled rooms plotting and scheming to take every advantage of hard-working Americans.

In other words, it declares legal open season on every layer of the energy distribution network. That, of course, means millions of dollars of legal fees, wasted time and, worst of all, more hand-tying regulation... the net result of which will be fewer, not more, energy resources being made available to North American markets.

Do I have a problem with the large energy companies making “obscene” profits?

Not at all. They are going to need all the money they can muster to replace their declining reserves and to fight off fierce competitors from the rest of the world. Competitors, it must be pointed out, unhindered by the perfect-worlders and political panderers that are now playing so effectively to democracy's weak suit.

Twenty [Editor's note, I think he means thirty] years ago, which was seven years after the link between the U.S. dollar and gold was severed in 1971, oil was selling, on average, for $13.38 per barrel. Adjusting for inflation -- using the Shadow Stats and not the government's laughable CPI -- in today's dollars that same barrel of oil would cost $124.

That it is trading for slightly over that amount, at $133 per bbl, is entirely explainable based on supply/demand constraints, war in the Middle East and the fear of a widening conflict.

In other words, blaming evil-eyed Middle Eastern potentates or bloodless speculators is attributing blame in the wrong direction. If you want to hit the right target, start with the fiat currency system which has systematically reduced the purchasing power of the U.S. dollar and all of its similarly unbacked peers to the level of Monopoly money.

Unfortunately, I don't see any new legislation on the horizon calling the Fed and the Treasury to account for their role in the higher prices now getting so much attention."(snip)

from

LadyLuck
06-15-2008, 06:41 PM
Before I comment I want be sure I am 100% understanding your purpose for creating this topic.

Are you posting this in disagreement with the existence of this anti-trust taskforce?

Melonie
06-16-2008, 03:40 AM
yes ... and attempting to point out the possible unintended consequences.

LadyLuck
06-16-2008, 10:30 AM
I thought so & I continue to be baffled by your opposition to absolutely ANYTHING that could have a negative effect on oil company profits. The only thing that makes sense of that attitude is that you must have some heavy investments in fossil fuels. But I digress.

Back to antitrust laws.

Why on earth would you oppose the following:

Prohibiting agreements or practices that restrict free trading and competition between business entities. This includes in particular the repression of cartels.

Banning abusive behavior by a firm dominating a market, or anti-competitive practices that tend to lead to such a dominant position. Practices controlled in this way may include predatory pricing, tying, price gouging, refusal to deal and many others.



Above quoted from-


By opposing the repression of cartels, banning of predatory pricing and other abusive behaviors you are in fact SUPPORTING the availability of and use of such practices.

Care to explain why you support or at the very least do not oppose cartels and the use of predatory pricing?

Melonie
06-16-2008, 12:52 PM
A. profit margins for 'big oil companies' average 8%. This is opposed to profit margins for Microsoft which average more than 25%.

B. there are six major 'big oil companies' as well as a number of smaller oil companies for customers to choose from. There is only one Microsoft.

C. the rest of the world market would gladly buy every barrel of oil that the USA chooses not to buy first. The rest of the world wishes that it could buy Microsoft compatible software from competitors, but is not allowed (despite a huge EU lawsuit)

In other words, I fully support the repression of cartels and banning of predatory pricing by the US gov't if it is implemented in a uniform manner ( a.k.a. equal treatment under the law). But that is clearly NOT the case when the US gov't actively support's Microsoft's monopoly and predatory pricing (and 25%+ profit margin) while at the same time attempting to paint foreign oil producing countries and multinational oil companies (and their 8% profit margin) as boogeymen extortionists. And I won't even get started on the gov't CREATED cartel of US ethanol producers who benefit from a gov't sheltered market (via quotas and tariffs inposed against much less expensive sugar cane ethanol from south America) as well as benefitting from a gov't imposed 'stealth' ethanol pump tax kickback.

LadyLuck
06-16-2008, 01:24 PM
I agree with you about Microsoft and lowering the tarriffs on cane ethanol (at least until we have an equally useful bio-fuel) but I stil don't get why you would oppose antitrust laws on oil companies.

Wait, I take that back. I do have an idea about why, as I mentioned before I feel you're personal invested in it and loss of oil compnay profits means lowering your own potential investments returns.

Don't worry though, I don't expect you to admit or deny those investments. If you denied it I wouldn't believe you anyway, lol!

But I do thank you for taking the time to reply to last posting anyway :)

Melonie
06-16-2008, 03:57 PM
^^^ in this case I'll gladly reply. I have not owned any oil stocks (or natural gas stocks either for that matter) in the past couple of years. IMHO the share prices of all of these stocks is a multiple of the 'price bubble' in oil / natural gas /, and thus risks a rapid drop if and when the 'fear factor' price premium in these commodities falls back to traditional levels. Even if that doesn't happen, the meager 8% profit margin at your average big oil company still makes for disappointing returns for stockholders (i.e. just over a 4% return for Exxon Mobil stockholders over the past year - they could do better with a CD with zero risk, and probably will if a windfall profits tax is enacted that lowers their return from Exxon Mobil even further).

At the moment I am again heavily invested in precious metals and precious metals mining stocks, as I have been expecting a rebound in prices once true inflation figures can no longer be kept under wraps.

If I were certain that Obama was going to win the election, I would seriously have to look at investing in ethanol / solar / wind company stocks ... to take advantage of the increased gov't subsidy money Obama plans to spend in these areas.

LadyLuck
06-16-2008, 04:54 PM
^ Well then I do hope you will feel he is going to get the job at some point because I fully support socially responcible investing such as what you are considering.


Again just like your potential Obama vote, you would be doing it for other reasons than social responcibility but something like investing in solar, wind etc. would likely be a win/win situation for both you and the planet.

But gosh we have gone way off topic now, haven't we... Maybe it would be best to pull it back around to your starting OP point.

Melonie
06-17-2008, 02:29 PM
^ Well then I do hope you will feel he is going to get the job at some point because I fully support socially responcible investing such as what you are considering.

In my mind there's nothing socially responsible about it. Being motivated to invest in tax favored gov't subsidized industries like solar and wind would purely be a 'selfish' play to make large guaranteed after-tax profits at the expense of my taxpaying and gasoline buying neighbors who are actually bearing the cost of the gov't subsidies (and my guaranteed after-tax profits).

Arguably doing this would also be BAD for the planet instead of good. The reason of course is that the additional taxes on gasoline and additional income taxes would serve to drive yet more private sector US production to Asia because the cost savings differential will increase. Once producing in Asia, far more pollutants, CO2 etc. will be emitted by the new Asian production facilities and the unscrubbed coal fired power plants that serve them than was previously being emitted by the American production facilities that will close down.

Jay Zeno
06-17-2008, 02:49 PM
I don't know why we're comparing software, an intellectual property, to oil, a consumable.

Only 8%? I'd take an 8% profit in my business. I wouldn't even have to pay my CEO in nine figures to the left of the decimal.

Let's keep in mind that 8% in 2007, revenue of $1.9 trilliion resulted in profits of $155 billion. You gotta feel for those oil companies, working on that kind of razor-thin margin.

LadyLuck
06-17-2008, 04:44 PM
Thanks for pointing that out, Jay. The compression of Microsoft was obviously a diversion but I refrained from saying so and played along because I was concerned I was coming across as too combative lately.

Melonie
06-17-2008, 05:14 PM
I don't know why we're comparing software, an intellectual property, to oil, a consumable.

actually the reference to Microsoft was meant to emphasize the point that the US government has no problem allowing (and even supporting) certain 'monopoly' businesses to reap huge profit percentages at the expense of icing out would-be lower cost competitors. The E.U. is obviously of the opinion that Microsoft operates a 'monopoly', and has sued that company over this very issue. Yet no US politicians are calling for a 'windfall profits tax' to be leveed on Microsoft, despite the fact that much of their software is ridiculously overpriced thanks to the US gov't sanctioned exclusion of competition, and despite the fact that their profit margin borders on 'usury'.

Jay Zeno
06-17-2008, 06:27 PM
Antitrust.
Monopoly.
High profits.
Usury.

These are all separate issues.

Antitrust is collusion by competitors*** to control the market.
Monopoly is an attempt by one concern to dominate the market.
High profit is what every company and individual wants to have.
Usury is lending money at an extremely high interest rate. Usury levels vary among states. (If you're a lender, try Nevada. No usury laws.)

If Microsoft is a monopoly, that snotty young man in those commercials is wasting his time (although Mac is outselling Microsoft on campuses, I hear).

I don't have to buy from Microsoft, and I often don't, because the pricing elsewhere is better. But I have to buy gas, and there doesn't seem to be a lot of competitive pricing out there among competitors.

The $155 billion of oil profits, most of it realized by the five biggest oil companies, exceeds Microsoft's total revenue.

I don't see how alleged bad acts by producers of a commodity is excused because of the nature of dealings in another economic world with a provider of intellectual property.



***(Actually, antitrust is action against that collusion, but you get the drift.)

LadyLuck
06-17-2008, 09:03 PM
In my mind there's nothing socially responsible about it. Being motivated to invest in tax favored gov't subsidized industries like solar and wind would purely be a 'selfish' play to make large guaranteed after-tax profits at the expense of my taxpaying and gasoline buying neighbors who are actually bearing the cost of the gov't subsidies (and my guaranteed after-tax profits).

Arguably doing this would also be BAD for the planet instead of good. The reason of course is that the additional taxes on gasoline and additional income taxes would serve to drive yet more private sector US production to Asia because the cost savings differential will increase. Once producing in Asia, far more pollutants, CO2 etc. will be emitted by the new Asian production facilities and the unscrubbed coal fired power plants that serve them than was previously being emitted by the American production facilities that will close down.

I think it's rather far fetched for you to claim that any investments made in solar and wind are bad for the planet.

And though it my not be acceptable top say this to a Mod, I am going to risk it because I feel extremely strong about this - it's morally reprehensible for someone to knowingly and intentionally invest in something you truly believe would be harmful, especially when there are so many other options out there for investing.

Melonie
06-18-2008, 02:51 PM
^^^ re my opinion that investing in solar / wind / ethanol is ultimately harmful to the environment on a global basis, see my response in your alleged torture thread !

BTW the fact that I am a mod in Dollar Den means absolutely nothing in this or any other forum !



I don't see how alleged bad acts by producers of a commodity is excused because of the nature of dealings in another economic world with a provider of intellectual property.

again you're trying to put words in my mouth. While I question the logic that any business with an 8% profit margin is actually guilty of perpetrating bad acts in regard to the pricing of a world commodity (as opposed to businesses such as Microsoft and Apple which are allowed to reap 25% plus profit margins thanks to the 'protection' the US gov't grants them against would-be lower cost domestic and foreign competitors), with the single exception of Enron (which was arguably more of a broker than a producer) repeated hearings and investigations into the big oil / energy companies ALWAYS show that they are absent of deliberate wrongdoing or price gouging.

lildreamer316
06-18-2008, 03:01 PM
http://resourcescommittee.house.gov/images/Documents/hr6251.pdf

-Currently,oil and gas companies hold leases on nearly 68 million acres of federal land (both onshore and under OCS waters) that they are not developing.

*skip 2*

-While coal companies are required to diligently develop their leases, oil and gas companies are not required to do so.

-Because there are no diligent development requirements, oil and gas companies can stockpile leases in a non producing status.

-This has encouraged oil and gas companies to hold nearly 68 million areas of federal land (both onshore and under OCS waters) without producing oil or gas.

-The 68 million acres of leased but currently inactive federal land (both onshore and under OCS waters) could produce and additional 4.8 million barrels of oil and 44.7 billion cubic feet of natural gas each day.

-That would nearly double total U.S. oil production, and increase gas production by 75%.

-It would also cut U.S. oil imports by nearly a THIRD, and be more that SIX TIMES THE ESTIMATED PEAK PRODUCTION FROM THE ARCTIC NATIONAL WILDLIFE REFUGE.

(emphasis mine)




According to another source, that I cannot find a link for at the moment (will continue looking) - The Naval Petroleum Reserve in Alaska additionally has 13 billion barrels of proven, untapped reserves and there is no ban on drilling there.



Ah..but we are supposed to believe there is a shortage and that peak oil is a reality. And that the oil companies MUST have our best interests at heart!! ::)

Now, I am still all for alternative energy development,because I think we need to lessen our dependence on foreign oil, and therefore foreign control, but ANYONE who is trying to sell you on the idea that we have any kind of oil shortage (and the ensuing profits and politics that go with it) is pushing the boundaries. Of course, no one in this administration is 'reality based' anyway...LOL.

Jay Zeno
06-18-2008, 03:20 PM
While I question the logic that any business with an 8% profit margin is actually guilty of perpetrating bad acts ....
I would question the logic of that, too. But antitrust does not rely on a percentage profit. It relies on collusion of competitors to control the market, whether the net profit is 1%, 100%, or a loss.

Regarding the side reference to "obscene profits," I believe that would refer to the dollar amount ($155 billion), not the percentage. $155 billion would be considered to be a large profit for most concerns.

Melonie
06-18-2008, 04:06 PM
I would question the logic of that, too. But antitrust does not rely on a percentage profit. It relies on collusion of competitors to control the market, whether the net profit is 1%, 100%, or a loss.

not to be hyperbolic, but wouldn't environmental activists qualify as a 'trust' ... since they have successfully colluded to keep virtually all new potential US oil production from bringing additional oil to the market ? Arguably environmental activists are 'competitors' since they are trying to market ethanol / biodiesel / hydrogen etc. in direct competition with oil (with US government financial help).


I believe that would refer to the dollar amount ($155 billion), not the percentage. $155 billion would be considered to be a large profit for most concerns.

from a pure arithmetic standpoint, sure $155 billion is a lot of bucks. However, on an Earnings Per Share basis re stockholders, $155 billion sucks compared to the Earnings Per Share which Microsoft and Apple rake in.


-Currently,oil and gas companies hold leases on nearly 68 million acres of federal land (both onshore and under OCS waters) that they are not developing.

A - this amounts to just 3% of potential federal offshore drilling areas and 6% of federal on-shore drilling areas - the other 94-97% is 'off limits'

B - some development attempts on leased federal properties have been stymied by environmental regulations / lawsuits. Put another way you can't blame an oil company for failure to develop a leased property that they can't obtain the necessary permits from the gov't to begin development !

C - the term of some federal leases is too short to justify the huge investments necessary to begin pumping oil under difficult conditions (deep wells, geological issues etc. which raise costs and delay eventual completion) - such that just about the time the oil company would start getting a payback on their investment the lease would expire.

~

Jay Zeno
06-18-2008, 07:52 PM
not to be hyperbolic, but wouldn't environmental activists qualify as a 'trust' ... since they have successfully colluded to keep virtually all new potential US oil production from bringing additional oil to the market ?
Political activism = antitrust? You can pursue that, but be careful what you wish for. Really, now. I don't want to take the time to type all the obvious holes in that one.
Republicans and Democrats = trust.
Second Amendment activists = trust.
Environmentalists = trust.
Industrialists = trust.
Right to life activists = trust.
Abortion rights activists = trust.
Gay rights activists = trust.


Arguably environmental activists are 'competitors' since they are trying to market ethanol / biodiesel / hydrogen etc. in direct competition with oil (with US government financial help).Arguably. Very weak arguably. Just show that the environmental groups are in controlling positions over those companies and are working in collusion to advance those companies. "Hey, Honda! Did the Sierra Club force that hydrogen car, or are you looking at markets?"

Oil companies have US government financial help, too.


from a pure arithmetic standpoint, sure $155 billion is a lot of bucks.I must be ignorant, because to me, it looks like a lot of bucks from any realistic standpoint. I mean, it's 10 times the entire State of Colorado budget. And that's just the profits.


However, on an Earnings Per Share basis re stockholders, $155 billion sucks compared to the Earnings Per Share which Microsoft and Apple rake in.I'm sorry, but so what? We've already established the difference between collusion between competitors and attempted dominance by one company.

Everyone wants high profits. A startup company's profit skyrockets its first year, paying $100/share to 200 investors, and it's comparable to $155 billion of profits, out of $1.9 trillion, allegedly coerced out of consumers?

Stockholders aren't the only ones looking to feed off profits. Perhaps Exxon could increase the dividend (annual average return - 14+% since 1997) if they cut such things as a $400 million ($.4 billion) retirement package to its CEO.



A
B
CThe current Administration is conducting a big fire sale of BLM land for oil and gas exploration. Over 30,000 leases so far. Saying "some" are tied up with restrictions and/or short terms doesn't quite explain away the "rest."

I simply do not see where oil companies are looking to significantly ramp up production. I don't "blame" them for not indulging in higher production any more than I "blame" Microsoft or Adobe for overpriced software or Neiman Marcus or Macy's for overpriced clothes. They all have their niche, and they're maximizing their revenues as they see fit within their niche.

However, their market strategy is not supposed to involve collusion. If I went to buy running shoes and suddenly found out that Nike, Converse, Adidas, and Puma, and every other manufacturer all sold shoes at the exact same price, within just a few pennies of each other, and those prices were climbing out of sight, I might suspect something funny was going on in the boardrooms of those supposed "competitors." And so it goes with the oil companies. And their $155 billion of profits in such an "unfriendly" environment.

FBR
06-18-2008, 08:50 PM
I am trying to get my arms around the sales volume. My desktop calculator gave me an error. $155,000,000,000 divided by .08 equals how many trillion? I thought once you hit the trillions you were talking something close to GNP.

FBR

Melonie
06-19-2008, 03:01 PM
^^^ well that's one of the potential problems with the proposed 'windfall profits tax' on US oil companies ... that the majority of their profits are derived from overseas operations. If Obama attempts a California-like tax with worldwide reach, just like California based corporations moving out of state to avoid California's tax on worldwide receipts the US based oil companies will move their headquarters outside of the country to avoid having their non US profits taxed. This of course will also involve moving a lot of high paying jobs, and thus moving a bunch of very well paid and highly taxed oil company executives, outside of the country and the jurisdiction of the IRS as well.