Congressional Democrats Clueless on Oil Issue
- 22 June 2008 by Author 0 Comments
Congressional Democrats Clueless on Oil Issue
By Richard Larsen
Published – Idaho State Journal, 06/22/08
Mark Twain provided many invaluable insights into American life. Time has only validated the veracity of many of his truisms. In his inimitable way, Twain once declared, “Suppose you were an idiot. And suppose you were a member of Congress…But then I repeat myself.”
Many statements coming from the Democratic leadership in Congress this past week proved once again how correct Twain was. Nancy Pelosi, Harry Reid, and Barak Obama all parroted this week, “We can’t drill ourselves out of this problem,” referring to $135 per barrel oil prices. This was in response to President Bush and John McCain calling for expanded drilling on the outer continental shelf. Since when has increased supply not eased demand and pricing issues? We absolutely can drill ourselves out of this mess! Increased supply and reduced consumption are always solutions to market scarcities.
Crude oil production in the United States has declined 40 percent over the past 25 years even though demand has soared. According to the U.S. Energy Information Administration, 75 billion barrels of oil have been precluded from drilling due to Congressional action over that period. That oil would be enough to replace all of our imported oil, excluding Canada and Mexico, for over 22 years. World oil demand is projected to increase by 40% over the next 22 years, and U.S. demand projected to increase by 28%, and yet Congress’ solution is to claim “we can’t drill our way out” and tax the oil companies more!
I find it unbelievable that Venezuela and China can drill 60 miles off the Florida coast but the U.S. cannot because of the power of the environmental lobby. Why is it that the Democratic Congress will not allow U.S. oil companies, empirically the most environmentally sensitive oil companies in the world, access to these areas but will allow Venezuela and China access, when they have the most abysmal records of environmental sensitivity? The argument against expanded drilling is obviously not based on environmental concerns.
Further evidence of the imbecility of Congressional Democrats on the oil issue was provided courtesy of Sen. Charles Schumer a few weeks ago. He said that even if we drilled in Anwar it would only affect the pump price of gas by a penny. Yet when the President went to visit Saudi Arabia Schumer said if the President could convince them to increase output of 1 million barrels a day it should drop the price of gas by $.50. That is the same output potential from Anwar, and yet he, and other obstructionists on Capital Hill continue to get away with such duplicity and idiocy. If we had started drilling there in the ‘90s when it first passed Congress, we would now have more control over our own oil production while working on viable alternative sources of energy.
Instead, what is their solution? Impose a “windfall profit tax” on the oil companies. What is that likely to do? Is that going to decrease oil and gas prices? Of course not! If they’re going to be taxed at a higher level, they have to pass on the cost of those increased taxes to their customers. Do none of these people understand economics?
And while we’re at it, let’s define what a “windfall profit” is. According to any legitimate financial dictionary, a windfall profit is “a sudden unexpected profit uncontrolled by the profiting party.” Oil companies, although they do not control the price of crude oil anymore than ethanol companies control the price of corn, they do have an impact on the pricing at the consumer level. Not only are the oil companies not engaged in “windfall profits,” but their profit margins lag behind most other industries represented by the S&P 500. And with the steady increase in oil demand and the finite availability of crude, current profit margins can hardly be classified as “sudden.”
In a free market system, supply and demand determine prices. However, in a commodity based industry like oil, commodity prices determine costs to the consumer. They are not “fixed” by oil companies, nor are they governed by OPEC. Gas prices we pay are driven by commodities traders who buy and sell contracts on crude oil based at least in part on perceived global supply and demand. These commodity prices determine the oil companies’ replacement cost for the gas currently being distributed.
If Congress authorized increased domestic drilling, even the short-term price of gasoline would likely improve because the futures prices are affected in large part by perceptions of supply and demand. With the anticipated increased domestic production, prices would start to drop.
It would appear that the Democrats in Congress are in a full-court press to make the country as miserable as possible to ensure a victory in November. And even if they win they will not change their position on domestic oil production since they’re so firmly in the back pocket of the environmental lobby. The no drill, no refining, no nuclear energy Democrats obviously want us to pay more for energy, more for government, more in taxes of all types. If they take control, our modest .6% growth rate for the first quarter of 08 will look like a roaring economy!
Richard Larsen is President of Larsen Financial, a brokerage and financial planning firm in Pocatello, and is a graduate of Idaho State University with a BA in Political Science and History and former member of the Idaho State Journal Editorial Board. He can be reached at email@example.com.