The Frontal Cortex

Record Oil Profits (Again)

Another fiscal quarter, another record profit: Exxon-Mobil reported earnings of $10.49 billion today. These earnings are eclipsed only by the $10.71 billion profit posted by Exxon in last year’s fourth quarter, which saw oil prices spike because of hurricanes Katrina and Rita.

Now I like corporate profits just as much as the next capitalist, but these oil companies infuriate me. Michael Kinsley said it best:

About a third of the oil consumed in the United States comes from wells in the United States. That’s about 150 million barrels a month. The oil industry refers to this as “production,” but a more accurate term would be “extraction.” Nature produced the oil and charges nothing for it.

Oil is oil, no matter where it comes from, so the price of those 150 million barrels will go up and down with the price of the 300 million or so barrels we import every month. A year ago, that price was about $46 a barrel. Now it’s more than $60 a barrel.

Let’s round off a bit and say that American oil extractors are getting an extra $15 a barrel. For 150 million barrels a month, that’s $27 billion a year. And that’s just for the oil that’s extracted. The oil that remains in the ground is also about $15 a barrel more valuable. And other energy resources–used and unused–are more valuable by a similar amount.

To get this windfall, the oil companies didn’t have to conspire with the Bush administration to start a war in Iraq. They didn’t have to conspire among themselves to raise prices at the pump. If you own oil anywhere in the world, you didn’t have to do a damned thing. Just close your eyes, make a wish, open them, and–surprise–you’re getting an extra $15 a barrel.

In other words, the same war and natural disasters that continue to cost taxpayers hundreds of billions of dollars, generate record profits for these oil companies. It only seems fair that we try to recoup these profits through a windfall tax.

Another policy alternative is to increase the gas tax. These two economists have calculated that the optimal gas tax for America is $1.01, which would be an increase of 71 cents. That’s an even more effective way to put a damper in oil industry profits, since it would also serve to decrease consumption in the long term.

PS. If you really want to get depressed, contemplate this bit of news, courtesy of Thoughts from Kansas:

The Energy Department is doing a major policy analysis of energy policy and future directions. Obviously, the major issue has to be finding ways to reduce our reliance on petroleum, especially from foreign sources, and replacing it with renewable domestic sources.

Who, then, do you expect was picked to head up the panel writing this report? The question is not who you would choose, but who you expect was chosen by the administration that put a Safari Club member in charge of our wild lands.

If you guessed Lee Raymond, former CEO of ExxonMobil, then congratulations, you understand the craven attitude to public policy that drives the Bush White House. The study will be undertaken by the National Petroleum Council, which Mr. Raymond chairs.