Democrats' Response to Oil Scarcity: Punish those who find and produce oil

I think this current measure is a politician's way of indirectly accusing the industry of some form of price manipulation without outright saying the C word. Big petroleum companies are horizontally integrated and they operate extremely tight supply chains. A brief stoppage in one link would cause significant price distortions upon consumers while they profit from the shocks.

Then again, no congressional inquiry has ever found these companies guilty of collusion nor have they called to break them up. And in fairness to them, publicly traded companies own less than 20% (12% iirc) of the world's oil reserves. So I'm mixed on whether they should be guilty of being exceptional at making money or whether our domestic system needs some tweaking...in the form of breaking up the horizontally integrated chains to reduce incentives of a large company taking a temporary hit in hopes for a significant windfall.

Most energy subsidies are given as incentives to pursue alternatives or traditionally expensive/new ventures, such as deep sea drilling or coal gasification. Without those subsidies, they would likely continue the more profitable and sometimes dirtier initiatives unless the alternatives opened up a profit advantage.

 

Another stunning insight into the financial world and economics by TJ.

Let me be the first to tell you,TJ, that no single company sets the price of gas or coal on the world market.

 

Puh-leeze.

 

Didn't see it.

Have you noticed that the money is betting on the Dems to win the Presidency?

I guess you have conceded since The Market has ruled for the DEMs and you can't fool with Mother Nature's laws -- as you have been taught to view markets

I know that you are ordered to read the WSJ editorial page at the corp. What is the WSJ's line?

 

puh-leeze, to your puh-leeze

 

Poor, poor oil tycoons.

 

Continuing the subsidies at a time of rising profits would be akin to continuously bailing out the airlines.

Removing the subsidies would not be penalizing the oil compaines. It would be a cessation in handing them money at a time when they no longer need it. They are self sufficient at this point and are making money hand over fist. There is nothing wrong with a good profit, but let's not dole out money to companies who are in good financial stead.

I find the notion of a tax on "excess profit" to be silly. In addition to being an economically bad idea, I'm not sure it passes Constitutional muster. I doubt that the Constitution would allow a single industry to be singled out to pay tax based on an "above normal profit."

The problem is that, from an microeconomic perspective, it seems that oil companies (being relatively few in number with large barriers to entry) are enjoying an oligopolistic existence. The Senator is reacting (poorly) to a situation where companies are posting larger than normal profits at a time where the price of their commodity seems to be spinning out of control.

While I agree that profit seeking is a fundamental component of our economy, a lot of leaders rightly are concerned about the strain that this one necessary commodity is having on the families of this country. Due to the nature of this commodity, there is also concern about an inflationary effect which may not be fully realized for quite some time.

You cannot take this industry in a vaccuum. It effects the entire economy.

 

Are you trying to say that theere are hundreds of competitiors and that there are no real barriers to entry?

There are huge barriers to entry. There are only a handful of major players. This is an oligopoly in the calssic sense of the word.

 

Maybe the government can get in on some of this easy money. A government run oil company can make a boat load of cash to pay down the debt. Right?

 

Doesn't influence prices affect what the price is set at?

 

I thought you said OPEC couldn't set the price and now you are implying they can?

 

These companies can still influence the domestic price of refined gas. As mentioned before, they don't have large inventories to weather temporary price shocks, so the effects of a refined fuel shortage can be seen within a month.

They also micromanage local gas prices based on competition of brand name and generic gas stations along with other positional information. The high prices at one area is not the fault of the gas station owner. They don't make that much profit from selling gas because of the tight control from these companies.

 

You write:

It sounds to me like you're saying the majors can't set the price but OPEC can.

Then again you're far from the only one who is imprecise with their langauge.

 

Jorge...stop now. For the benefit of everybody reading this thread.

My first post in this thread stated that am excess profit tax is likely unconstitutional and that proposing one was reacting (poorly) to what appears to be an oligopoly.

You would have noticed that had you taken the time to read my post rather than just being impressed with your own rhetoric.

As for OPEC, be serious. You know as well as I do that the prices the oil companies pay does not fluctuate as quickly as the futures on the market. The prices are set by long term contract. It is no big shock that when oil was at its high and prices at the pump skyrocketed last summer that big oil was posting record profits. Sheesh.

 

There is no need for governement subsidies.

 

Jorge I am registering at least 4 TJ-pwnings in this very thread that you started. Plus some dogpiling, like this post.

Perhaps you should let this one die and then try, try again.