It is the little things that make life enjoyable. My husband and I have a routine in the mornings. We wake up with our natural bio-clock, not the annoying alarm clock, at 6am. We try not to disturb the cat on the bed with us as she has her own routine and likes to sleep in. I grind the coffee beans and my husband trundles out to get the local paper. We turn on the television news and listen with half an ear while settling in with our first of three cups of coffee. We read the paper, swapping sections back and forth until we have read everything of interest, especially the comics. If there is time my husband will break out the laptop computer and I will migrate to the office which is just a few feet away and peruse the internet. Having learned all there is to know about the local, national and business news and finished the pot of coffee. It is time for a quick breakfast, shower and off to our separate work lives. On the weekend we may have a more substantial breakfast and linger longer over the weekend paper. Some people may consider this routine boring, I consider it comforting.
Well, our world as we know it is about to come to a screeching halt. Oh the horror!! the drama!! the pain!!.....oh ok I'll come back to reality.....the inconvenience. Our paper delivery lady of the last 6 years is retiring and we will be getting a new delivery person. Delivering the paper is a thankless job. She has to get up in the middle of the night 2:30, drive 30 miles to get the papers that have been delivered from the "big" city 75 miles away. Fold, wrap and bundle hundreds of pounds of newspapers, and then drive many miles in our rural area to make sure we have our dose of the daily news. Rain, snow or icy roads, our paper lady always had our paper to us so our snug little routine was assured. We had a special arrangement with her to drop our paper near our house instead of at the end of our long long driveway out by the road. Our paper lady took pride in her job, was always on time, and we were suitably $$ grateful when it came time to pay our bill and when Christmas came around.
With her retirement, we are getting a new delivery person. Will he/she make the special trip down our driveway? Will we get our paper on time? Will our routine be disturbed? Will we have to wake the cat up earlier?
Stand by for breaking news.
Saturday, February 11, 2006
Thursday, February 02, 2006
Obscene Oil Profits and Who Really Profits
It seems that the recent profits posted by Exxon have the anti-business left, ill informed consumer groups and some of the media in a tizzy (Bill O'Reilly). Claims of price gouging and suggestions that we should have a windfall tax to punish the big bad oil companies for making a profit have been raised. These ideas are proposed by people who have no idea how the oil industry works (or any other industry for that matter). These ideas are also proposed and accepted by people who haven't the slightest idea of how economies work or how supply and demand affects prices. Unfortunately these people are our Senators and Representatives, who make the decisions that will affect our lives. Scary isn't it? Just to think that Ted Kennedy and his ilk are in control of our economic health is enough to make me want to go back to bed and stay there.
Here is a very, very simplified example. The market and market traders set the price of oil....not the oil company. The cost of producing oil is controlled by the company, to some extent, but the market price is set by futures and options traders who base their prices on expectations of supply and demand. When supply is expected to be ample and demand is down compared to the amount of supply, the price is down and the companies make less or even lose money. If the supply is expected to be short, as it was directly after Katrina, the demand for oil is high and so market prices are higher and the oil company makes a profit. The oil companies hope for a stable supply and demand in order to be able to predict their profits and be able to know how much to reinvest into exploration and processing.
A windfall profit tax would be a huge mistake. A windfall profit tax is actually an excise tax on the difference between the market price of a commodity and an arbitrary figure determined by the government. The prices were obviously different in 1980 the last time we did this, but the effect of the tax would be the same, a decrease in domestic production and a increasing dependence on foreign sources Here is why. In 1980, the excise or "windfall" tax was 70% For example if the market price of oil is $60 a barrel and the government determines that the price should be $30 a barrel the difference of $30 is taxed $21 which leaves the oil company $39 (60-21=39). If the real cost of producing oil is $40 the oil company has just lost $1 per barrel of oil. What's a company to do? Increase the demand by reducing supply, of course. Dairy farmers have used similar tactics to raise the price of milk, why should oil producers be any different.
So the oil companies are making huge profits right now. Who is really profiting? Oil companies pay huge taxes to State and Federal Governments. Taxes in the billions of dollars that benefit schools, road projects and other expenditures that our politicians spend on our (supposed) behalf. Do all the profits go back into the oil company executives pockets? No, of course not. Exxon has spent an average of 10 billion (that is with a B) dollars annually in development and exploration. If development of our existing and potential oil sources and expansion of our refining capabilities were to be allowed, instead of being blocked by environmentalist, it would benefit us all.
Anyone remember the 1970's oil shortage? The 1973 oil crisis began in earnest on October 17, 1973, when Arab members of the Organization of Petroleum Exporting Countries (OPEC), during the Yom Kippur War, announced that they would no longer ship petroleum to nations that had supported Israel in its conflict with Syria and Egypt -- that is, to the United States and its allies in Western Europe. At around the same time, OPEC members agreed to use their leverage over the world price-setting mechanism for oil in order to quadruple world oil prices. The complete dependence of the industrialized world on oil, much of which was produced by Middle Eastern countries, became painfully clear to the U.S., Western Europe, and Japan Hmmmm. Does this have a vaguely familiar ring to it????
Ben Stein has an excellent article that explains this much better than I ever could. I bow to the master. Read the whole thing.
"Meanwhile, why is it so bad for oil companies to make a profit, even a big profit? That profit doesn't go into the pockets of Dr. Evil. It doesn't go to Saddam Hussein (not anymore). It goes to tens of millions of stockholders who use the dividends and the increase in share price to pay for their RV's and retirements and their (ungrateful) kids' college education. John D. Rockefeller is long gone. Anyone in America with a few twenties in his pocket can become a shareholder of a big oil company and share in those profits. Those profits go to teachers' unions and policemen's unions and to any person on this earth who cares to speculate that the big profits will continue. Or, as my father once said to me, and I have said before, "If you think oil company profits are obscene, buy stock in the oil companies."
I love this last remark!! If you have a mutual fund, a profit sharing plan, a company or State funded pension plan.....YOU are the beneficiary of the profits. Your share prices are up and you are receiving a dividend on your investment.
Here is a very, very simplified example. The market and market traders set the price of oil....not the oil company. The cost of producing oil is controlled by the company, to some extent, but the market price is set by futures and options traders who base their prices on expectations of supply and demand. When supply is expected to be ample and demand is down compared to the amount of supply, the price is down and the companies make less or even lose money. If the supply is expected to be short, as it was directly after Katrina, the demand for oil is high and so market prices are higher and the oil company makes a profit. The oil companies hope for a stable supply and demand in order to be able to predict their profits and be able to know how much to reinvest into exploration and processing.
A windfall profit tax would be a huge mistake. A windfall profit tax is actually an excise tax on the difference between the market price of a commodity and an arbitrary figure determined by the government. The prices were obviously different in 1980 the last time we did this, but the effect of the tax would be the same, a decrease in domestic production and a increasing dependence on foreign sources Here is why. In 1980, the excise or "windfall" tax was 70% For example if the market price of oil is $60 a barrel and the government determines that the price should be $30 a barrel the difference of $30 is taxed $21 which leaves the oil company $39 (60-21=39). If the real cost of producing oil is $40 the oil company has just lost $1 per barrel of oil. What's a company to do? Increase the demand by reducing supply, of course. Dairy farmers have used similar tactics to raise the price of milk, why should oil producers be any different.
So the oil companies are making huge profits right now. Who is really profiting? Oil companies pay huge taxes to State and Federal Governments. Taxes in the billions of dollars that benefit schools, road projects and other expenditures that our politicians spend on our (supposed) behalf. Do all the profits go back into the oil company executives pockets? No, of course not. Exxon has spent an average of 10 billion (that is with a B) dollars annually in development and exploration. If development of our existing and potential oil sources and expansion of our refining capabilities were to be allowed, instead of being blocked by environmentalist, it would benefit us all.
Anyone remember the 1970's oil shortage? The 1973 oil crisis began in earnest on October 17, 1973, when Arab members of the Organization of Petroleum Exporting Countries (OPEC), during the Yom Kippur War, announced that they would no longer ship petroleum to nations that had supported Israel in its conflict with Syria and Egypt -- that is, to the United States and its allies in Western Europe. At around the same time, OPEC members agreed to use their leverage over the world price-setting mechanism for oil in order to quadruple world oil prices. The complete dependence of the industrialized world on oil, much of which was produced by Middle Eastern countries, became painfully clear to the U.S., Western Europe, and Japan Hmmmm. Does this have a vaguely familiar ring to it????
Ben Stein has an excellent article that explains this much better than I ever could. I bow to the master. Read the whole thing.
"Meanwhile, why is it so bad for oil companies to make a profit, even a big profit? That profit doesn't go into the pockets of Dr. Evil. It doesn't go to Saddam Hussein (not anymore). It goes to tens of millions of stockholders who use the dividends and the increase in share price to pay for their RV's and retirements and their (ungrateful) kids' college education. John D. Rockefeller is long gone. Anyone in America with a few twenties in his pocket can become a shareholder of a big oil company and share in those profits. Those profits go to teachers' unions and policemen's unions and to any person on this earth who cares to speculate that the big profits will continue. Or, as my father once said to me, and I have said before, "If you think oil company profits are obscene, buy stock in the oil companies."
I love this last remark!! If you have a mutual fund, a profit sharing plan, a company or State funded pension plan.....YOU are the beneficiary of the profits. Your share prices are up and you are receiving a dividend on your investment.
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