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It is a common misunderstanding on the left that higher oil prices benefit Bush Co. and Big Oil. Not true. What they really want is "cheap" oil! The more they can pump out of the ground, the cheaper the price gets -- the cheaper the price the more Americans consume, the more they consume the more Big Oil profits. Stratospheric prices cause demand destruction. Americans dumping their SUV's and taking the bus is not what Big Oil wants, not by a long shot. The U.S. went to war so that Big Oil could gain ACCESS to foreign oil drilling in a country that has the largest untapped reserves in the world. They did it to bring the prices down. $10 a barrel would suit them just fine. Of course, cheaper oil hurts the economies of the oil producing nation. Hence the conflict with Saddam Hussein.

It has to be understood that higher oil prices are the unintended consequences of a war for "cheap" oil. Bush and Co. are shaking in their boots as they watch the price go up and up and there is nothing they can do to reverse the upward trend, outside of change their whole modus operandi.

Blame the utter folly of our foreign policy. They thought they could lie, kill, invade and destroy a whole country for cheap oil and get away with it, but there is a price to pay, and it is far more costly than they are prepared to deal with. The fallout in the U.S. economy is just the tip of the iceberg. What happens when the American citizen finally figures out the depth of the criminality of our government's actions, and the complicity of congress in those policies that put Israel's interests above our own? Heads will roll.

Blaming Big Oil is a red-herring that leads us in the opposite direction of the truth.

IT'S OUR FOREIGN POLICY, STUPID!

To find the truth we need to understand the oil market. Like money, oil talks. We need to learn how to listen and decipher its coded messages. We may not like what it has to say about our "way of life" and how far down the primrose path our government is willing to take us to preserve it, but in the end, "the truth shall set us free."

The more they can pump out of the ground, the cheaper the price gets -- the cheaper the price the more Americans consume, the more they consume the more Big Oil profits.

Diana, Diana. We could have an interesting discussion about this but unfortunately there's an easy way to resolve it:

Look at the sentence above. And then look at oil company profits for the last few years, especially the last year or so as speculation kicked in to spike the price.

See? They don't want "cheap oil", they want "HUGE profits" however they can get them. Rumors of "peak oil", assertions that the Chinese are buying up all they can get, taking the second largest oil fields on the planet off the market until and unless there's comes a time when we control them (as just happened last week) - all deliberate moves to cause the speculation that caused the spike that caused the profits to pour in.

Remember Cheney and the oil company execs months before the invasion sittingn in secret meetings, maps of Iraq's oil fields laid out on the table, divvying them up like kids fighting over a packet of M&M's? You think they did this so they could have cheap oil when the profits are so much greater when they aexcuses to gouge?

This is an oil war and has been from the beginning, and it's the result of a foreign policy created by oil men who see oil (naturally) as our only true national interest. When we were being run by farmers, wheat was the only national interest and out foreign policy was about wheat tariffs.

You've sort of got the cart the horse here, I think.

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Actually, I think you are both right.

Any business has to try to triangulate where it's own position should be in the market. Naturally, they're going to try to charge as much as they can in any situation, as much as the market and the law allow. That's raw capitalism, unregulated, and without scruples, not Ben & Jerry's. The sky is the limit, at least up to the point where the rise in prices starts causing a fall in demand. But if profits are actually higher at a lower sales volume, that's perfect, because it means lower costs, also. With a limited resource, it allows you to stretch out your supply and keep the dollars rolling in for more years.

Lower prices, on the other hand, would normally mean lower profits and slower cash-flow, so they'll always try to hike them. With limited supplies, you don't want to run through your inventory too quickly: You want to milk it for as long as you can. With oil, more product becomes available as prices rise to the level of the harder-to-get, costlier oil, in the Arctic, beneath the deep ocean floor, or on other planets, even. It all comes down to costs being justified by prices and profits; and the desire to stay in business.

Profit at different price levels will be an issue. It may cost more in marketing, advertising, packaging & promotion to justify and support a higher price. Profits might be higher at a lower price, without all that, or less of it. Producing more product might cost more also, in labor and infrastructure, perhaps more than the increase in sales justifies. But most of the time, economies of scale produce higher profits at higher volumes of production and sales. That's just basic economics.

The recent oil price hikes, I think, involve no extra expenses, just higher profits. The oil companies don't even give out free drinking glasses or antenna-balls at the gas station any more. If anything, there has been negative investment in infrastructure, with no refineries being brought on line in years, and some even being mothballed. Oil leases are sitting unused also, despite the call for more drilling. The only expenditure tied to the price hikes now is the cost of pinning the blame on somebody else, with ads and "independent expert" commentary in the media, and "contributions" to politicians. But that's always going on. So the current run-up in prices is all gravy, as evidenced by the Oilco's balance sheets: They're reporting record profits, year in and year out, under Dubya.

As Dubya & Co are in fact oil men and women themselves, first, last and always, everything they do has to be examined for the effect it has on oil supplies, and prices. As there is no shortage of supply, and demand is going down, what justifies or explains today's rising prices and record profits for the Oilco's? Historically, as you have said, Diana, it has been our foreign policy, and the resultant tensions in the Middle East, coupled with our domestic policy of encouraging profligacy and waste in energy use and production. Big Oil runs America, the economy and the government. Dubya has pushed this to an unbelievable degree. I don't believe it's a coincidence that, just as oil prices begin to slow their roll, saber-rattling between Israel, Iran and the U.S. has crescendoed. It may be all bluff, but it is having an effect on the market which cannot be unintentional. Dubya's dumb moves in the Middle East somehow always benefit Israel, and Big Oil.

We've seen this all before, in the 1970's. Back then, the pre-planned "oil shocks" enabled the oil companies and their tame corporatist politicians to effect major changes in the market and in U.S. foreign & domestic policy. Our policies in the Middle East shifted focus toward our oil buddies, the unpopular Alaskan oil pipeline was shoved through, and people blamed it all on the Arabs, not Israel, the U.S. or the oil companies. Sound familiar? In the last seven years, Dubya has shifted foreign policy focus again, this time in precise alignment with right-wing elements in Israel. Off-shore oil drilling is about to recommence, and this time it will be royalty-free, due to a "mistake" by the Republican Congress. Once again, a phony, carefully engineered "energy crisis" is being used as leverage to get Big Oil exactly what they want: Higher prices, higher profits, more drilling, and support from the taxpayer.

If this all ultimately leads to lower demand in the U.S., which remains to be seen, China and India, Brazil and Nigeria, Indonesia and Eastern Europe can more than make up for it. If there ever is a major shift in our domestic energy paradigm, it will take decades to complete. In the meantime, Big Oil is getting into solar and other energy sources. Their lock on the world's largest energy market, and on our political system, is not likely to be broken any time soon. We tried reform in the 70's, but then the go-go 80's and crazy Ronnie came along, so reform went out the window. Let's hope the good guys win, this time; and that they really are good guys.

PRO PUBLICA
"Government Could Lose Billions to Oil Industry on Royalties"
http://www.propublica.org/article/government-could-lose-billions-to-oil-industry-on-royalties/
The Republican's Going-Away Present To Their Masters In Big Awl
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Hey there Mick, long time no see.

Here is the problem, as I see it. Your premise is based on several assumptions about how the oil market operates.

First, you assume that Big Oil is the producer of the raw material, when they are the buyer. Oil is a cost premium for them, not a profit. (Maybe there would be less confusion if instead of "Big Oil" they were called "Big Gas" because essentially their product isn't oil, it's gas).

Based on the assumption that big oil is the producer of the raw material, you argue that because oil company profits and higher oil prices occurred simultaneously that there must be a correlation between the two. You overlook the fact that Big Oil does not profit from crude oil, they profit from the consumption of gas at the pump, i.e. from the consumer. Oil companies must buy from the oil from the producers, i.e. Venezuela, Iran, Saudi Arabia, Kuwait, Nigeria, etc. Since oil companies have to buy crude oil at the spot price set by the Commodities Exchange, then pay the cost of transporting it, refine it into gas, and deliver it to the market, these are the costs they transfer to the consumer. The costs involved in this mega-operation are simply enormous, especially given the rising price of oil. When you factor in all these costs their profits amount to about 10 cents per gallon. How, you may ask, could this possibly amount to $40 billion in profits? One word: scale. They sell millions of gallons every day. Anyone can do the math, it's no secret. Thus, I think it's reasonable to conclude that Big Oil's record profits are the result of increased demand at the pump (think of the millions of gas guzzlers on the road).

Despite rising gas prices, Americans continued driving their SUVs and more were buying them, because they could absorb the price of $3 a gallon. It is only when the price hit $4 a gallon a few months ago that they started to feel the pinch. Consequently, they are trading in their SUV's for Priuses and compact cars, or taking the bus or riding bicycles to work. And thus demand at the pump is slipping. If the price of crude oil continues to climb, oil company profits will take a nose dive. It's a case of diminishing returns. Obviously, that's not what oil companies want. Losing customers is not how companies stay in business, and staying in business over the long term is Big Oil's primary concern.

It all comes down to the fundamentals: supply and demand. To ensure that consumers will continue to buy gas at a price they can afford, oil companies have to find a way to reduce the cost of oil. Their solution is bringing more supply to the market by drilling for more oil. Since drilling for Iraqi oil is still problematic, and the rest of the oil fields in the world are largely nationalized, they want access to domestic drilling, e.g. offshore and in Anwar. More supply means cheaper oil, cheaper oil means cheaper gas. And finally, growth in consumption translates into more profits for "Big Oil" and their stock holders.

That's it, that's the whole story in a nutshell, my friend, as best as I can explain it.

Lastly, you are right, the war was for oil. I agree completely with you on that. But it was for "cheap" oil, to feed the beast that is our military-industrial complex. Cheap oil keeps big oil in business and fuels the financial markets. Can you see that higher prices do just the opposite? The evidence is all around us.

You guys have it all backwards, I swear. ;)

Cosa, I'm trying to sort through what I see as conflicting ideas in your post. It seems to me you're operating under the same assumptions Mick is. Correct me if I'm wrong, but I see from what you're saying that you believe "Big Oil" is the producer of oil. From this you deduce that they're the ones profiting from higher oil prices. Am I wrong?

But this is simply not the case at all!

When you say: "The recent oil price hikes, I think, involve no extra expenses, just higher profits," I'm wondering who you're referring to.
Who profits from higher oil prices? Is it Exxon selling gas to the American consumer at $4 a gallon? Or is it Saudi Arabia, et al, that produces the oil and sells it to the oil company for $147.00 per barrel? Clearly, it's the latter. Oil companies do not profit from the price of oil, they profit from demand at the pump. The percentage of their profits are basically the same when oil is at $10 a barrel or at $200. Their profits rise and fall with demand. How do you figure they'll continue to rake in those big profits, or even stay in business, if demand plummets? Sell less at higher prices? Who is going to pay $10 a gallon? Ferrari, Humvee, and race car drivers? How many of them are there? They can't operate a business of scale on such a limited basis. They need the "mass consumer" to be able to turn a profit. $10 a gallon, heck even $5 a gallon, is prohibitive for the average consumer.

Also take into account that our financial systems can't thrive on high oil prices. We are witnessing the greatest transfer of wealth from U.S. financial markets to the oil producing nations in history.

Do you really think this is what BushCo & Big Oil had in mind? Do they want to enrich their enemies? Do they want to be lynched for destroying the American economy?

I hardly think so.

"Their profits rise and fall with demand."

Right.

A few points to remember:

1. You are not entitled to anything... cheap gasoline included.
2. The point of setting up a for-profit business is TO MAKE PROFITS.
3. Exxon does not set the price of oil.
4. Exxon's profit margins are 11%, not unreasonable when you compare it to Pfizer, which manages to make 17% on the backs of the sick and dying (who may not have an analogous option to number 4 below).
4. If you are dissatisfied with the price of gasoline, you may, at any time, take a train, ride a bike, walk, or ride the bus. All of these options will reduce your energy costs.

The Exxon Corporation pays its federal corporate taxes - 41% on its gross profits. It netted about 5 cents per gallon of gasoline sold. If its revenues went up dramatically it's because it sold a lot more gas.

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"Big Oil," which now includes foreign companies & governments in addition to the dominant Seven Sisters (now five), produces all the oil in the world; in their own fields and in fields owned by others. The Sisters both buy and sell oil on the commodities markets. The Sisters control most of the distribution of oil products within the U.S., through their own outlets, through lessees, and through supplies to outlets not owned, operated or leased by them. As producers and distributors, they always make good money on sales of oil & oil products, not just the "pennies per gallon" claimed by the end-retailers.

Rising oil prices have led to rising profits. Where else would their windfall profits have come from in the last year or so? And if they wanted "cheap oil" or "cheap gas," why haven't they been been drilling & refining more oil, esp. domestically? They have plenty, yet, even at today's high prices, they choose not to produce more.

As multi-nationals which are more tied in to countries like Saudi Arabia today, the American economy is no longer the Oilco's sole priority. Nor is "cheap gas" or "higher consumption." As in the 1970's, the oilers are taking a longer view, and creating a phony crisis in order to achieve long-term goals. Offshore drilling and royalty-free drilling are now within reach. Their little chess match at the pumps is working exactly as it did in the 70's, when the Alaskan oil pipeline and a new Middle-East outlook were imposed via the phony "oil shocks."

If they lose a little in sales volume in the short run, the higher prices allow them to make it up in the long run. The last thing they want, as producers and distributors, is cheap oil and gas.

If you're going to do PR for the oil companies, get your facts straight.
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I feel as though I'm about to repeat myself by reasserting that "Big Oil" does not profit from $120-$150 barrels of oil, since they don't own that oil, the foreign oil companies do. They profit from the mass consumption of the refined product, which is gas.

I've been trying to figure out why an intelligent person like you isn't taking that in, no matter how many ways I try to explain it, or how often I repeat it. Now that you've mention the "Seven Sisters" I think I'm getting a clearer understanding of your vantage point. And I think it goes back to what I said earlier -- your premise is based on erroneous assumptions, or at least old facts, and this is what is skewing the larger picture.

It's true that "Big Oil" used to be the "Seven Sisters." Standard Oil (which became ExxonMobil), Royal Dutch Shell, BP, Chevron, and ConocoPhillips, and Texaco, controlled the oil & gas industry after World War II. But things have changed in the last few decades, my friend, as the "old" seven sisters became marginalized by the "new" seven sisters -- they are, Saudi Aramco, Russia's Gazprom, CNPC of China, NIOC of Iran, Venezuela's PDVSA, Brazil's Petrobras and Petronas of Malaysia.

The New Seven Sisters control about one-third of the world's oil production and reserves. By contrast, descendants of the Seven Sisters -- ExxonMobil and Chevron of the U.S. and Europe's BP and Royal Dutch Shell -- produce only about 10% of the world's oil and hold just 3% of its reserves.

This new group of oil producers, all nationalized, have become today's Titans of energy. Their production dwarfs "Big Oil" many times over. The only area where "Big Oil" still corners the market is in the production, distribution, and sale of gas, hence their big profits in that sector of the energy market.

The root of the oil fix we're currently in is that these government-owned oil companies are not willing to allow foreign investment and technology to modernize and increase production, since increased production lowers their revenues, which they use to improve the living standards of their own people. Their oil revenues are helping them transition from Third World to Second World Status, and are ever more quickly threatening the West's First World status. To offset what the U.S. government sees as an imbalance that can in the very near future seriously impinge on our economic and political world dominance, the goal of the Iraq war was to denationalize their oil after Saddam (who was trying to protect Iraq's vast oil resources from foreign exploitation), in order to gain access to oil drilling, so that more supply would lower the price of oil and bolster the U.S. economy.

Since the game has changed, the pejorative term of "Big Oil" is no longer relevant to an understanding of the current energy market. Moreover, a fixation with the "evils" of BIG BAD OIL distracts, or even blinds, us from our ability to see the big picture.

Obama, in one of his speeches, said "I don't want to just end the war in Iraq, I want to change the mindset that got us into it."

Big oil is part of that old mindset. Let it die in the funeral pyre of old-century ideas.

The U.S. has to look at the new and broadly changing world realities with clear eyes and learn how to grapple with them in a more even-handed, and cooperative way. We are going to have to deal with these new "Seven Sisters" as equals and as partners as we transition to a new energy paradigm. The old mindset is standing in the way, to our peril. Constantly harping about "Big Oil" is like wearing blinders. It keeps our minds stuck in the old century. We have to start looking at the future in a new way to keep our place in the 21st century. Not as an empire that bullies its way to the top, stomping and clubbing anyone that gets in our way, but as a partner in a world community.

I know you'll agree with that :) That's the high note that can bring the world together.

Looks like your favorite bogeyman, "Big Awl" isn't so big after all.

Energy Shares Drop

Energy stocks had the steepest decline among 10 industries in the S&P 500, dropping 2.5 percent, after a surprise increase in oil inventories signaled the slowing U.S. economy diminished energy demand.

Exxon Mobil Corp., the world's largest oil company, fell 1.7 percent to $80.81.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aiZ4C0cWe7.g

From an equity fundraiser, someone who should have known better:

'At the start of the year, we figured oil stocks would be a no-brainer. Somebody had to benefit from the record price of crude oil. We couldn't have been more wrong. Our shares in Exxon Mobil Corp. have fallen 5.9 percent.

It seems oil-rich countries such as Venezuela and Russia are taking a greater share of the production pie from companies like Exxon Mobil, Royal Dutch Shell Plc and BP Plc. And profit margins for refining oil are narrowing.'

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a1tD.fryqNBQ

Excuse me, I meant to write "equity fund manager."