Why are gas prices so high - Oil

While there are certainly political situations such as Nigeria's oil conflict troubles and the Middle East that affect oil prices the underlying answer is greed. Greed of the oil companies and greed of the producing countries. There's not much we can do about the countries that have the oil but there is something we can do about the price of gas in this country. Make the oil industry a public utility. Global Peak Oil is coming and it would be better to make oil a public utility now rather than later. It will probably have to happen at some point in the future. Please read the two articles below and see if you think it is a good idea.

Exxon profit soars, but misses forecasts

No. 1 U.S. oil company's profit and revenue miss estimates, even as it posts second-largest earnings total on record.

NEW YORK (CNNMoney.com) -- Record oil prices netted Exxon Mobil a $10.89 billion profit in the first three months of the year, sharply higher than a year earlier but short of Wall Street estimates and below what was needed to set a new all-time profit record.

The profit was still enough to be the second-highest U.S. corporate profit on record, falling just short of the record $11.66 billion Exxon Mobil (XOM, Fortune 500) earned in the prior quarter. The profit in that quarter came to $1,385 a second, enough to buy nearly 382 gallons of gas at current prices.

The sheer size of the Exxon profit reported Thursday will still likely attract attention from consumer groups and lawmakers, who have been arguing for higher taxes on oil companies amid soaring gas and oil prices.

"There is something seriously wrong with our economy when Exxon's record $11 billion in quarterly profits are seen as a disappointment by Wall Street," Hillary Clinton said in a statement, referring to the fact that Exxon's shares fell more than 3% Thursday. "I believe we should impose a windfall profits tax on big oil companies and use that money to suspend the gas tax and give families relief at the pump."

John McCain, the presumptive Republican nominee, also has called for suspending the gas tax, although he has not detailed how he would make up the lost revenue.

Clinton also has a plan to use a tax on oil companies to fund renewable energy, as does her rival Barack Obama, although Obama does not support eliminating the gas tax, saying the idea would do little good.

Several lawmakers in Congress, mostly Democrats, have tried to eliminate oil company tax breaks and use the money to fund renewables.

So far, those efforts have gone nowhere, blocked by lawmakers and the Bush administration, who say higher taxes will result in less domestic drilling and a greater reliance on imported oil.

But with gasoline prices setting a new record every day, the political pressure is mounting on lawmakers to do something.

Gasoline prices actually helped Exxon miss estimates Thursday. While nationwide gas prices are at record highs, they have not risen as fast as oil prices.

Gasoline, with a nationwide average of $3.62 a gallon, costs about 20% more than it did a year ago, according to the motorist organization AAA.

Exxon - which makes more gas than it produces oil - saw less profit than expected partly because it has to pay more to buy crude oil.

"Higher crude oil and natural gas realizations, driven by record worldwide crude oil prices, were partly offset by lower refining and chemical margins, lower production volumes and higher operating costs," Rex Tillerson, the company's chief executive, said in a statement.

Another reason Exxon missed estimates is that its overall production fell. The company said "liquids production," which includes oil, fell 6% in the quarter, even excluding things such as OPEC production quotas or seizures in Venezuela.

One analyst said Exxon could be easing production as certain fields, giving them a chance to rest and rebuild pressure - and avoiding posting even higher profits.

"I think Exxon has decided to mask some of their profitability because they don't want the political risk", said Robbert Van Batenburg, Head of Global Research at Louis Capital Markets, a brokerage. "Above and beyond this, their results were outstanding."

Exxon posted first-quarter net income of $10.89 billion, or $2.03 a share. That's up 17% from the $9.28 billion, or $1.62 a share it earned a year earlier, but it missed the earnings per share consensus forecast of $2.14 from analysts surveyed by earnings tracker First Call.

Revenue hit $116.85 billion, up 34% from a year earlier when sales hit $87.2 billion. The revenue was short of forecasts of $124.4 billion.

Exxon spent $8 billion buying back shares in the first quarter. Companies buy back shares to increase the value of the remaining shares outstanding.

Including dividends, the company returned $9.9 billion to shareholders this quarter.

Exxon said it spent $5.5 billion on finding and developing new sources of oil and gas, up 30% from a year ago.

Exxon has been criticized for not spending enough money of finding new oil and - especially - not investing enough in renewable resources.

Exxon has long maintained that it is an oil company, and renewable technologies should be left to renewable energy companies.

Despite Exxon's investments in finding new oil, the company production declined. In addition to oil production falling, overall production including natural gas fell by 3 percent.

That drop will likely be noticed by proponents of the "peak oil" theory, who contend world oil production has peaked and will run out in fairly short order.

Many analysts - and Exxon executives - say the oil is there, it's just held in countries not particularly friendly to U.S. oil firms.

The company also paid $9.3 billion in income taxes, $8.4 billion in sales taxes, and $11.6 billion in royalties.

The furious moans and groans about gasoline and heating oil prices have been met with a public-be-damned attitude from the oil industry — and nothing is being done to rectify the problem. Prices continue to sky-rocket.

Why not designate oil companies as public utilities?

A public utility has been defined as “a business that provides an everyday necessity to the public at large” — such as water, electricity, natural gas, telephone service, transportation, cable TV and other essentials.

Because of the need for and dependence on these commodities and products, the business of supplying them is readily subject to abuse. Without regulation, price gouging can become rampant in a time of great demand and economic turmoil, such as this.

A public utility regulated by the state or federal government, or the two working together, is entitled to charge reasonable rates for its products and services. It also is entitled to earn a reasonable profit. But that’s far less than what Big Oil is making. Public utilities are corporations that distribute dividends to their shareholders amounting to perhaps 5 percent a year of the stock’s value.

Oil energy fits squarely into the criteria for a public utility. How can it be distinguished from electricity and natural gas? It can’t be. But right now, it’s a political “untouchable.”

The oil industry recently posted record earnings for 2007, as it had for the previous two years. Exxon Mobil, known as the industry gold standard, had a net income of $40.6 billion, attributed to surging oil prices. For every blink of a second in 2007, that amounted to $1,287.

Exxon Mobil’s sales exceeded $404 billion, which was more than the gross domestic revenue of 120 countries. Chevron and other big oil companies also announced the largest profits in history.

“Congratulations to Exxon Mobil and Chevron — for reminding Americans why they cringe every time they pull into a gas station,” said New York Sen. Charles Schumer.

Some members of Congress have supported an excess profits tax. Others have said the tax breaks accorded two years ago to encourage domestic production should be rescinded. Advocacy groups say the profit margins are unjustifiable.

The oil industry’s defense relies on the economics of the market place and the mounting difficulties of competing with subsidized foreign oil companies — PetroChina, Petrobras in Brazil, Gazprom in Russia.

The lack of domestic refinery capacity also has been cited as a reason for escalating prices.

What is left out of these various assessments and ripostes is, most importantly, the consumer. The consumer’s only recourse is to reduce consumption. But consumption most often is an economic necessity — the most harmful effects falling on those who may be the neediest and who can least afford the price increases. What is a less-than-wealthy person who must drive to work or pay for home heating oil to do?

None of the proposals, such as an excess profits tax or a retraction of tax incentives, will directly benefit the public or make up for the overrides paid for oil products in the last several years.

On 9/11, the price of a gallon of regular gasoline was about $1.25. It has climbed almost vertically since then. In the past year, it has more than doubled and is now close to $3.50.

Part of the problem is that the United States has no comprehensive energy policy or oversight. For example, the war in Iraq for the last five years has placed a great demand on the availability of oil products — both because of their use for military purposes and the lack of the predicted production of Iraqi oil.

Neither of these down sides have been quantified or publicized. Both are important contributors to the high cost of oil energy.

And while our government wrings its hands, what is it really doing, geopolitically, to bring down prices?

Given the political implications and the strength of the oil industry’s influence, the chances of regulating it are presently nonexistent. However, the inordinate profits in the past several years, regardless of the explanations, cry out for demanding that oil be treated as a public utility. It is an indispensable commodity, and the opportunity for abuse at the public’s expense is undeniable.

The industry has demonstrated that it will not regiment or control itself. If the industry were confronted with even the mere possibility of becoming a government-regulated utility, gasoline and heating oil prices would come tumbling down in a hurry.

Ed Ludwig is a U.S. District Court judge in Philadelphia.

From: http://www.commondreams.org/archive/2008/03/24/7863/

Why are gas prices so high?

Exxon profit soars, but misses forecasts

No. 1 U.S. oil company's profit and revenue miss estimates, even as it posts second-largest earnings total on record.

Make Oil a Public Utility