Windfall taxing big oil: how to make the gas crisis worse There's something about the oil business that turns even intelligent people into frothmouthed loons: they're raping the planet, shafting Joe Sixpack or, from the other side, insisting that the drill in every back yard is the very definition of America. I realise that in the middle of an election that the small still voice of …
So theory (and that theory has been around a long time, Adam Smith remarked upon it when he published in 1776) tells us that excess profits attract the competition that wipes them out...
Indeed, in a "perfect market" with lots of small suppliers and no barriers to entry. Such as pin production. Is the oil industry like that?
Granted, the percentage profit is low, but you're still talking about an awful lot of money. When 1% is measurable on the $100million scale, normal thinking on margins doesn't really apply. Otherwise, by that measure, you'll probably find that a corner shop is more profitable than the entire oil industry.
So, I think I won't be shedding any tears for the poor old oil tycoons if they have to shave a few $100,000 of their weekly shopping budget.
Exonn Mobile made $11.6bn in Q2. Which is the largest profit ever recorded for a US corporation.
I think they should be taxed more but given more tax-relief for investments into renewable energy.... Although I think their investments should go into public projects were they don't directly run or have any involvement in the project (ensuring they aren't hiding the technology)
If they increase the price of petrol at the pump to make the money back, this money is taxed even more. And the windfall tax increased because they are still making, to the public's point of view, too much profit. After all, that was the reason why the windfall tax was mooted, was it not?
While Windfall taxes may or may not be justified, this article totally fails to address the arguments in a logical and coherent manner. One of the taxes included in the article include license fees for the extraction oil. I'm sure the author isnt suggesting the end of property ownership! In addition, the issue of windfall taxes are to address a market failure problem, Big Oil is an oligarchy with the market power to manage markets. There are also able to use transfer pricing to move profits around the world, to take advantage of local tax rates.
To call people who consider that there has been a market failure and wish to readdress the failure names, simply emphasises the authors dogmatic position.
Better quality please
Paris? 'cos of her energy policy
A clear, lucid article explaining why businesses need to make at least some profit to stay in business and why Governments should accept that. Whatever next, a Government that only takes enough money from the populace to provide the services the community as a whole needs? A Government which acts in the best interests of the country they are honoured to be representatives of?
As if....just like most issues which has a 'green' element, do not allow ugly facts to interfere with beautiful dramatic gestures.
Probably on the money - just a way to shift blame around for the economy.
And it is not as if people really ever the value from taxation it just gets eaten, by people far worse than greedy capitalists.
Though I also suspect whilst your figures are probably accurate as far as the public numbers go, the internal numbers are possibly a lot different. They can afford a lot of creative accounts can't they.
Really taxing companies that make profit, just encourages companies not to show profit, never a great move for any economy.
I agree about the high taxes that the energy companies pay, but when demand causes the price to rise, who actually ends up with the extra money?
Obviously, everyone who takes a percentage cut will take a slice (including the taxman), but has the energy become more expensive to produce as a result of the extra demand? Not if they offset their own fuel costs. Are the wage bills immediatly higher? No. Are the extraction licence fees more expensive? Not immediatly.
I conclude, then, as a result of the high demand, the energy companies do get a windfall, as most of the extra money goes to them. This can only be a benefit to their bottom line. But should they be taxed higher? Probably not, as the taxman already gets a cut of the sale of the energy, and THEN takes a cut of the over-all profits in corporation tax. So the governments win without an extra windfall tax.
It's really just governments trying to fill the gaping holes in their bugets caused by their policies, or trying to score votes.
"Given that the companies (...) are operating in a competitive market these prices aren't being caused by either collusion or gouging:"
Because deregulated energy markets are perfect and don't include:
* collusion of companies on the supply and demand side
* being gamed by speculators
* natural monopolies
* a vast imbalance of power over the end users
Just like when Enron was involved in the deregulation of California's electricity market and played the system till it caused constant brownouts. That would *never* happen in the country where the people who invented this absurd ideological pursuit have had more time to play the market.
More power to the noble freemarketeers who brought us the everlasting prosperity of securitised collateral mortgage debt!
> Yes, I know, politics is all about pandering to the prejudices of the populace, but really, this is going much too far.
Er, either Obama and his team are king-sized fools without two brain cells to rub together, or, by definition, this particular pandering is *not* "going much too far".
So, the story here is "American populace (like every other populace) so dim that they're easily bought by promise of a rebate for stupidly illogical reason"
Except, we all knew that already ...well, except for the general populace, who obviously wouldn't know that...
.. is that energy companies are GLOBAL.
When most people hear "BP made record profits... " or "Centrica's profits were £X per second ...", they immediately associate the company name with their parochial experience. So, BP means the petrol station down the road, Centrica means British gas, which means "the gas board". - Wrong.
The small part of these global energy companies that the man in the street comes across not only represent a tiny part of these businesses, but don't even make that much money. So the popular view (egged on by the shrill headlines in the Red-Tops) is that petrol prices are high - so the garages are making huge profits from british motorists - so they should be punished with "windfall" taxes.
In fact, most of the money is made overseas, in foreign oil-fields and only comes back to the UK because we have a liberal business environment that makes it worth their while to be registered (and therefore pay tax) in the UK.
Even funnier - when listening to the "tax them 'til the pips squeak" brigade" is that they don't realise that their pension funds are MAJOR investors in these companies. Mugging them for a windfall tax therefore has the effect of reducing the energy company's profits - which would otherwise be paid to our pension funds. Net result: more tax for the government to waste, lower pensions for us. Duh!
To summarise:
"Energy" is subject to more tax and duty than virtually anything else, and retail prices are high as a result. Further taxing the companies "producing" that "energy" would lead to even higher retail prices. Pretty simple.
However the tax revenue of governments is falling due to the credit crunch. People are spending less so tax revenue falls. In the UK the loss of revenue from stamp duty alone has been estimated at £3 Billion for 2008. So the government have to find ways of increasing revenue that won't annoy the electorate. Increasing direct taxes on Joe Punter will go down like a lead balloon.
So what do they do? Tax companies who are deeply unpopular and they hope that Joe Public will cheer them. They hope that Joe Public is too stupid to notice that, in the end, it will be he who is paying the tax.
Simplify this and stick it on the front page of the tabloids and the government wouldn't dare implement such a stupid tax.
Mr Obama wants to be elected, natch, and this will be a popular thing with the voters in the USA. It doesn't have to make sense since almost everyone won't undestand the arguments and, best of all, the long-term damage will be delivered in the form of a continuation of the existing state of affairs rather than a new turn of events.
The perfect crime.
This whole concept can be summed up in this one sentiment. Any tax that is leveraged upon a company is ultimately a burden of the individuals. It results in a profit loss which hurts investors (people), a price increase which hurts consumers (people), and maybe downsizing which hurts employees (people). Every corporate tax that the angry citizen wants due to his irrational hatred of large economic entities is ultimately money coming from his own pocket.
what are people suppoosed who are struggling supposed to do while the market sorts itself out?
I'm talking about those on low to moderate incomes, petroleum (or gasoline as Americans will insist on calling it) isn't essential to life but natural gas for heating/hot water/cooking and electricity for lighting and other stuff is.
The arguments you make are economic sense but these things take time, as you say, the price of crude has dropped because people aren't buying so it will keep decreasing until demand starts to climb again (if there is any market as if there is mass unemployment any price will be too much) when it will shoot back up fast.
so what do you suggest for those people that are struggling?
... but he's a politician, and politicians do not inhabit the real world no matter how much they claim otherwise. They inhabit a fantasy world where they believe can change things with a wave of a pen and a snap of their fingers. Nothing illustrates this more than the constant claim that "we can't drill our way out of the problem" of high oil prices. Increasing the supply doesn't solve the problem of a lack of supply?
Right.
And Brown with his disappearing 10 pence tax band claimed he was "helping" the very poorest amongst us, incidentally increasing the tax burden for most of them overnight. Politics, in the end, is all about taking your money and then paying you some of it back to make you stop complaining. Say what you like about the oligarchs and robber barons of old, at least they didn't steal from you with the pretence of virtue and "helping".
The blame is being laid squarely at the door of the big "energy" companies, and yet the real villains appear to be the retail companies.
Wholesale oil prices go up and petrol, electricity and gas retaillers immediately increase their prices. Petrol retaillers tell us there is a direct relationship between the wholesale price of oil and the price of fuel at the pump. The relationship between oil and gas prices is a vague and complex one, but gas retaillers tell us it's a direct one and hope for the best. Only a small amount of our electricity is generated using oil based fuels, but the electrical retaillers blame their gas suppliers for putting up their prices for the increase in the retail price of electricity.
However the wholesale price of oil and indeed petrol falls and do we see a fall in fuel prices at the pump? Do we see a fall in domestic gas and electricity prices? No. Prices at the pump may fall, but not by as much as they rose when the wholesale price went up. The fuel retaillers now tell us that the retail price of fuel is not governed by the wholesale price of oil, but by supply and demand (seriously, if you missed it they tried this on monday). Likewise domestic "energy" stay high, and the retailers likewise inform us that wholesale oil prices have no influence on retail domestic "energy" prices.
So basically it appears that the retaillers of "energy" are leveraging media panic in order to fleece us. Didn't that sort of thing used to be called "profiteering" and wasn't it illegal?
The oil market is NOT a supply/demand market. It used to be, but is now driven by speculators & artificial supply restrictions. Speculators in small numbers are good things, but there is too much speculation in oil currently, artificially driving up the cost. Who are the speculators working for, hmm?
Yes, approx 9% profit isn't a high margin, but as the market increases in size, the profit margin is supposed to shrink. Think AT&T before the breakup.
Economies are driven by consumption. Consumption is driven by cost. Cost is determined by the initial cost of the item/service/etc + profit + transport. For big oil, they get a profit from the transport & from the actual profit. In fact, transportation is a compenent to the creation of everything, so oil is actually making a profit FROM EVERY STAGE OF PRODUCTION FOR EVERY PRODUCT PRODUCED!!! Wankers
Most of big oil's profits aren't from gas or diesel fuel. Most of a barrel of crude goes into other, more profitable divisions (plastics anyone), so losing a little on fuel won't impact big oil much, if at all.
Paris - becuase even she isn't dumb enough to fall for this FUD
As usual these 'initiatives' are the brain farts of 'spin doctors'.
The 'notion' that the government is giving *anything* back is ludicrous.
You are taxed on income, you pay VAT on everything purchased and even pay an extra insurance and fuel subsidy. The government have been raking it in with the hugely infalted oil prices (abating the revelation of this countrys insolvency for a little longer).
Therefore, the government giving families (unfair, as I pay my tax too!) a rebate to be used against 'bills' is an empty gesture.
What the government should be doing and I applaud Russia for this, is re-nationalising energy suppliers and/or price fixing any suppliers to this country.
By placing a necessity (and it is a necessity in this world) in the hands of shareholders, you create an artificial market which only serves to punish the consumer time and time again.
In the next Election - I would rather vote for Anarchy, after a period of instability, I would wager a bet that people would find a decent compromise - the role of the government is soley that of spreading propoganda and misinformation creating a soceity based purely on 'fear'.
If you haven't seen Adam Curtiss's documentaries spanning 25 years, I would urge you to - brings a whole new rationale and perspective to 'governance' by an authority...
</ends...>
IANASB (I am not a stock broker), but aren't all these publicly owned energy companies the only thing keeping our pension funds going at the minute. making the companies pay more tax means they will be giving out smaller dividends, so your pension fund won't be worth as much. And lower profitability means people won't want to own the shares so much, so the price of the shares will go down.
"That big numbers confuse people?"
There is that distinct possibility, yes. We have heard of the Amazonian tribe whose words for numbers amount to "one", "two", and "lots". Very amusing, until you realise how many supposedly educated, civilised people are scarcely more numerate than that. We have people who bet on the lottery; people who think that a terrorist attack is more of a threat than being run over; and (especially) people to whom government spending is just a lot of big numbers, because they never learned the trick of dividing by the number of taxpayers.
And it's not just hoi polloi who are innumerate. Our revered leaders, most of whom these days seem to be lawyers, journalists, or other other-worldly dreamers, can't count much above single digits either. So yes, to understand these discussions better, you have to imagine that all numbers and sums sound like the adults in Peanuts - "wah wah wah..."
...that is, pretty much, these days an 'essential' not a luxury item. Also, it ain't just supply and demand once the city boys get their fingers in the pie is it?
This isn't like grain getting more expensive, so we eat less pasta and more potatoes. If (old) people can't afford gas, they risk death this winter. They can't burn some trees until things 'get back to normal'. If hauliers can't afford diesal they go out of business, they can't suddenly switch over to biofuel (pfft) or 'cut back a bit' until things 'get back to normal'.
The job of the government is not to change the world, no - they can't fix the fact that we are running out of oil/gas/whatever (ignoring the OPEC stranglehold and wideboy speculators for now), but they can perhaps do something to stop people dying and losing their livelihoods while adjustments are made.
One thing that is certain: Oil/Gas/etc. companies will not 'help out' anyone but their shareholders without being leaned upon by governments. They, and the law of supply and demand, do not have any social responsibility.
Maybe a windfall tax or a hand with your bills won't fix things, but nor will saying "oh, it'll sort itself out if we leave it alone (and my Exxon shares are doing fine, so bug off)"
A cogent argument but a Windfall tax is a one-off (or relatively rare anyway) that is designed to cream off excess profit (and that's profit pounds or dollars not percent) to fulfil a specific need, and do it faster than the market will manage (winter's a-comin' and the market doesn't care). Its also why in the Obama example you end up with the slightly absurd situation of taxing with one hand and rebating with the other; you're not trying to alter the underlying tax structure with the political debate that would entail.
I'm not usually a fan of government intervention at all if it can be avoided, and certainly in the UK's case you could argue that all that extra fuel multiplier revenue the government has been earning should be more than enough to rebate families in need, but given their incredible inefficiency, Labour needs all the cash it can get.
Many mentions of caveats, and yet a fundamentally flawed one-sided conclusion because the caveats were not explored.
One of the biggest caveats to the central argument is that the market is NOT free, never has been and never will be. Energy markets in particular are so tightly regulated, politically controlled and militarily underwritten that it is frankly ridiculous to posit free market hypotheses as to their behaviour.
The global oil and gas business is far more like a cabal than a free market, and that is why the windfall tax is a practical idea. It may not be the right idea for this moment, and the author makes some valid points, but it is entirely practical.
Let's hope the pension fund your employer/you subscribe to doesn't have investments in the energy sector then!
Such huge profits might look incredible, but that gets spread around an awfully large number in investors, so it doesn't really matter if a fund invests in 10% of 10 smaller companies or 10% of one huge company, the return for a given amount of outlay is the same.
Apart from all of that, does anyone really belive that a windfall tax will be used to reduce the consumer's tax bill? More likely it will disappear into general government spending.
I'm not really sure about taxing the oil and gas extracting (not 'producing') industry, but taxing the end user is a no-brainer. It is widely accepted that the global supply of oil excluding OPEC countries has just about peaked. Many people think OPEC is on the cusp of peak supply as well. The UK has gone from peak oil exports to oil importer in just SEVEN years. We exported our oil at $10 a barrel. We are importing OPEC oil at $113+ /barrel. We need to cut back, economically, environmentally, permanently. The £ is nose-diving even as I type, we are falling into an energetic and economic black hole.
The only way out of this is to use a LOT LESS ENERGY. Conservation is key. Smaller cars, better insulated houses, shorter commutes, fewer energy sucking household gadgets, colder houses in winter, no air con in summer, less long distance holidays, etc.
If the government had the balls to tax inefficient cars off the road, demand for oil would go down, the price would go down, the government could offset it's tax shortfall, the balance of payments deficit would improve, the pound would rise, further reducing the cost of oil.
It won't happen. The government will cut oil taxes in real terms, the country will go broke. We still won't be able to afford to drive.
You're assuming that this only involves economic issues and you seem to have missed the distinction between a person and a business..
"People are seeing that the prices they pay for energy are going up and that will of course trigger some disgruntlement. But why they should then call for higher taxes on the producers boggles the mind."
They are calling for a windfall tax because those rising energy prices are allowing a small number of people to make extortionate profits at the expense of the most vulnerable in society.
The oil companies are posting profits that in many cases are increasing faster than fuel bills are rising, yet at the same time they are blaming those bill increases on their rising costs. I've come across some farily esoteric maths in my time, but that doesn't add up. The fuel companies have clearly raised their prices by more than was necessary to pass on the rising costs of oil and are simply profiteering. They are a business and exist solely to make money and if they see a chance to gouge out some more profit, they'll take it. Now, if they were making luxury sports cars or or diamond necklaces, that wouldn't be an issue, but unfortunately, heat & food are not optional extras.
It shows a real disgregard for other people to believe free market forces are the best way to deal with essential resources and frankly military grade naivity to claim that the oil industry is anything approaching a free market - it's a government subsidised cartel.
Do you think the likes of BP and Exxon would be around if they had to pay for their own invasions and regime changes? Sure, they might chuck in a bit of token cash here and there but the big bills always land with the taxpayer.
I don't think he meant to imply that the oil industry is part of a theoretical perfect market, where new companies spring up like mushrooms after a rain of high prices, but rather that if the available profits become high enough some capital investors are going to seriously considder creating a new oilcompany to make them money (rather than investing in an existing one where they have to share their cake). True that any such venture might not be a vertical oil major in the first week, but they might actually sell their raw oil (if they start as an EP company) a bit lower than the rest to drum up some interest.
Making a less-than-perfect market even more difficult to operate in isn't likely to encourage new investment, or drive any prices down. The opposite is more likely to happen.
All those in favor of even higher oil and gas prices please raise your hoof's in the air and go 'bhaaaaaa'.
Big profits for Exxon don't mean big reinvestment - extra profits mostly mean extra dividend payments to shareholders.
Also, you can't just look at the end profit of $12 billion. How many extra billions were spent on buying new oil fields etc. to try to expand their market share (for the sake of trying to increase the value of their shares).
Bad article from one of the puppets of America's oil masters....
"Yes, it's true that Exxon's recent quarterly profits were, at near $12 billion, big. It's also worth noting that turnover was $138 billion, giving them a margin on sales of 9 per cent: which isn't really, anything much to write home about. "
Bloody hell chap, do you know what margins most businesses run on? That's a very decent margin right there compared to most.
I stopped reading at this point as it's pretty clear you have little to no understanding of how businesses operate.
Tim has hit a number of nails on the right heads with this. Yes, some of the Exploration and Production (E&P) companies make large profits - but the level of their capital investment and the risks that they run are commensurately large. Finding the oil, getting a drilling rig in to thr right place, making it productive, all without totally contaminating the surrounding area is not cheap. Everyone can wish away that it is, but it simply isn't.
Nor is it risk free. Not withstanding the technical dangers (this is a product designed to burn after all) or the E&P risks (not every well gets you a return on investment) there are commercial issues. Ask Shell how they feel about Sakhalin Island and their investments in gas extraction, or BP and their joint venture in Russia. They will tell you why they need to make profits, having just seen their investments de facto nationalised by the Russian government.
I don't suppose people will be running to invest in the caucuses after the small tiff that Russia and Georgia had this week. Wonder what the risk factor on BPs investment in the BTC pipeline is today?
And these companies make huge payments to the various revenue collectors in the areas they operate in.
If governments are serious about reducing energy prices to householders, how about reducing the tax paid by consumers? Certainly in the UK, the gross tax on petrol is huge - it would be cheaper for me to fill my car with good quality french brandy (bought in France!) than petrol. But this is not going to happen - in the UK our Chancellor has already spent the windfall raised by higher market prices on proping up failing banks.
But then, who was it who said that common sense was not a prerequisite for public office.
"Is it that those politicians, with their groups of extremely expensive and presumably highly intelligent advisors, are not intelligent enough to see that their plans are entirely counter-productive? Or is it that they know they are, but think that we the voters are too stupid to understand it ourselves? ®"
Given the RTTM debate on speed camera effectiveness (an example from El Reg:
http://www.theregister.co.uk/2008/08/08/speed_camera_figures/ )
I tend towards the latter
While I agree that the free market will eventually step in and reduce these excess profits, it doesn't stop companies from amplifying any discrepancies between the cost of materiels at source and the price they are sold for to the public to generate even more excessive profits at the expense of increased poverty of the consumers.
Also note the wording 'eventually'. Adam Smith may have the events correct, but the timing details are crucial - while waiting for the free market to correct this situation consumer poverty will likely be further increased.
Great system for corporation, but not so great for the people suffering in the name of profit. One of the things lacking from the free market is human compassion - hence the need for governmental intervention to curb corporate excesses.
It's redistributing wealth from investors and private pension funds and energy company shareholders (like the author of the article funnily enough and thousands of other people) to elderly poor who are being hit hard at the expense of record oil company profits.
Scaremongers who don't like the tax forget to mention the other option....NATIONALISATION.
So, more tax on your highly profitable shares or nationalisation, which is it to be?
Thought so.
However, if as one poster suggests, any of this tax money goes on quangos, pogo-stick-to-work initiatives, or "environMENTAL" projects, i would be against it. (And i strongly suspect this money will be wasted knowing this gov.)
All the oil company profit was not created by the companies effort (as the author points out 9% profit is not great), rather it was created by gordon brown and chums who have created conflict in oil producing and transporting countries.
Is anyone else getting tired of this authors political ranting, check out "other articles by this author" link at the top.
Ok mate. Your a neo-con. WE KNOW. If i want to read neo-con articles there are dedicated political websites. Why are you even employed on reg.
IT?
"has the energy become more expensive to produce as a result of the extra demand?"
Actually, yes, much more. The day rate for a semi-sub rig now in the North Sea is typically £4-500k per day and still heading North. Before the oil price started to rise you could get such equipment for £125k and the same holds true for all other resources needed to extract oil, including qualified, experienced people. There are huge expenditures and risks involved in the kinds of projects that oil companies take on these days and no guarantee that the oil price will remain at current levels (although given that a barrel of oil cost less than a barrel of mineral water until fairly recently, I contend that we're now paying closer to what we should be, but I digress..)
The other side to this argument that nobody seems to understand, is that there is no correlation between profits made on the international oil markets and what companies like BP charge on the forecourt for petrol. They are two entirely separate businesses and can't be magically connected together to ensure a plentiful supply of cheap fuel, not least because they would end up in court for anti-competitive practices.
If you look at the split on the forecourt, BP and Shell only run these stations (in fact they're franchises) as a marketing exercise. They make very little money out of them.
Go and knock on Big Gord's door if you want cheap fuel.
The key to Obama making those silly promises is to follow the money (big suprise). Suppose the man gets elected and manages to pass his windfall profits tax and gets to spend the money on giving away $1000 to every family (no doubt not any "rich" families), then he gets a down payment on the next election by (1) claiming to do something for "American families" (all hail the American family, family values, apple pie, etc.), (2) solving the energy crisis (a politician doesn't have to actually fix anything before claiming s/he's fixed it), (3) smacking those big bad oil companies that are constantly spraying cute birdies and fishies with oil, (4) skimming off any excess (after the $1000 giveaway) to piss off on socially conscious, enviro-friendly, cause de jour of the whiny political class.
Gerry
This article is a very nice read, especially seeing as how I'm an American who has been banging this drum for far too long to idiotic meatheads who think that the solution is to "start stringing oil men up on trees" or "nationalize the oil industry!" or some such other nonsense.
The Obama crowd annoy the piss out of me, as well. Sigh. Why is our general public, even the so-called "intellectual" left, so easily led and ignorant? They're all a bunch of walking, talking, unthinking cliches. You would think that the portion of our populace which labels itself progressive and diplomatic would have a better solution than "tax them, tax them to hell, that'll teach the dirty buggers!" You know, a good compromise, which benefits everyone involved, doesn't punish a corporation for doing what they do best (make money), and doesn't punish the general public for forsaking public transportation and fuel efficient for more comfortable, beefier status symbols.
Someone's gotta give at some point, but much like the debate over whether p2p is theft, I doubt anyone in power or in the next couple of generations is going to have the guts to stand up to a couple hundred million people, call them a bunch of whiny twats and do what's right.
The first poster is correct to criticise Tim for his analysis. You can't base an argument around a flawed economic analysis.
To AC - its not just a case of being a capital investor wanting to invest in oil/gas production/supply. The barriers to entry are huge and include:
- capital investment requirement
- extraction technologies
- exploration skills/tech
- licensing - governments are very unlikely to license their fields to an unproven extractor - too risky.
- access to distribution networks
All of this is pretty much sewn up by 4/5 huge extraction/supply companies with a number of small exploration companies prospecting. Its not an industry you can just go out and buy an oil field with no experience or track record. Its an oligopoly and we're stuck with it.
The whole issue of windfall taxing was forced (in the UK anyway) by Britsh Gas announcing devastatingly high price rises the day before Centrica announce record profits. The windfall tax isn't supposed to be an economic intervention in a market its supposed to be a disciplinary measure on a powerful player abusing its power in an oligopolistic market.
Please Tim - stop posting such lightweight analysis. How long have you been on the payroll of the energy utilities exactly? Some of you what you say is insightful but its so one sided and limited an analysis as to be almost worthless.
Much as I enjoy Mr. Worstall's assaults on the straw men of the environment I'm struggling to spot the target this time. Who, of any vague consequence, is demanding a windfall tax on the energy industries? Apart from a letter published in a newspaper (always a place to find important public policy isn't it?) and a misrepresentation of an Obama policy (Getting polluters to pay for clean up, not an oil windfall tax) I can't spot the straw man this time.
For the next article we could have a savage attack on some chap called Dave I met in a pub once who thought that people should walk rather than drive and the world ending effect that would have on the economy.
If (as some people seem to think) that some shadowy cartel is artificially keeping oil prices high, just look at history. They didn't do a very good job in the late 90's, when prices fell below $10 / bbl, or even in the late 80s when a similar thing happened. If there is an evil genius at work, it hasn't done a very good job at all up until about 4 years ago (maybe). Even now, there's no certainty that prices will stay this high. My personal opinion (and it's just that, so flame away) is that prices will stabilise and even drop as Iraq begins to export more.
Lessee... Exxon made $12B in a quarter, that's a rate of $48B/year, and their equity is $120B. That's a 40% return on equity. Maybe triple what a typical company would hope for. Nice work if you can get it.
It's not a free market. Exxon's boys Dick'n'Dubya blew a trillion of borrowed money to invade Iraq for the primary purpose of reducing the oil supply, thus raising prices. Warmongering scares about Iran raise prices. Russian hanky-panky raises prices. Even with a windfall profits tax, the rate of return on oil investment would be high enough to attract investment.
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