Oil Execs Educate Senators on How Markets Work

John Hinderaker at PowerLine records some interesting details from the testimony this week of the oil executives before a Senate committee investigating the high price of oil. If you want to understand why you’re paying almost four bucks a gallon for gas, Hinderaker’s article would be a good place to start.

First, the “big oil” companies are not nearly as big as their competitors, the nationalized oil companies of other countries. American companies represent only a small fraction of the market, and are at a distinct disadvantage trying to compete for scarce supplies against these behemoth operations. According to Exxon’s Stephen Simon:

For an American company to succeed in this competitive landscape and go head to head with huge government-backed national oil companies, it needs financial strength and scale to execute massive complex energy projects requiring enormous long-term investments.

If our government adopts a policy of punishing our own oil companies with a windfall profits tax, further crippling the companies’ ability to compete for supplies, imagine what that will do to the price of gasoline at the pump.

Second, you can hardly blame the oil companies for high prices, when relatively cheap sources of new petroleum right here at home have been placed off limits by politicians. Shell’s John Hofmeister explained,

According to the Department of the Interior, 62 percent of all on-shore federal lands are off limits to oil and gas developments, with restrictions applying to 92 percent of all federal lands. We have an outer continental shelf moratorium on the Atlantic Ocean, an outer continental shelf moratorium on the Pacific Ocean, an outer continental shelf moratorium on the eastern Gulf of Mexico, congressional bans on on-shore oil and gas activities in specific areas of the Rockies and Alaska, and even a congressional ban on doing an analysis of the resource potential for oil and gas in the Atlantic, Pacific and eastern Gulf of Mexico.

Finally, there’s this curious piece of information: On average, 15% percent of the cost of gasoline at the pump goes for taxes, while only 4% represents oil company profits. If 4% profit represents “gouging the consumer,” what does the 15% tax represent?

Seems to me that American consumers should be hauling some representatives of Big Government before a committee to demand answers.


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