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#19863 - 04/29/06 04:40 AM The Proposed $100 Gas Rebate
Daniel Offline
veteran

Registered: 05/23/01
Posts: 1515
I came across this Slate article with what I thought was a good line about the proposal in Congress to give every family (up to certain income limits) a $100 check to help them cope with high gas prices:

"In other words, taxpayers would borrow money from foreigners like the Saudis in order to send $100 checks to Americans so they can buy more gas from foreigners like the Saudis."

It's amazing to watch the supposedly tough, can-do Americans turn into whiny, sniveling children when gas prices go up. And it's appalling to watch our politicians turn into spineless, overindulgent parents falling over each other to placate their whiney, sniveling children.

I realize that unanticipated increased gas prices are a burden for some families. But few people seem to have the courage to state publicly that it's our own fault. Some have been preaching conservation since, oh, the Carter administration. Those warnings have been willfully ignored in favor of maintaining our gluttonous American lifestyle. And now it seems to me that most of the public wants to be spared the consequences of their own bad choices, and Congress seems only too happy to oblige.

The complete absence of leadership is astounding, if perhaps predictable given the nature of politics these days. Still, I hoped that some official would have the courage to speak the truth: higher gas prices are a good thing in the long run. They're the best incentive to use less of the stuff (far better than increasing fuel economy standards, which take years to make an impact as people slowly replace their cars). They make alternatives more economically viable. As long as gas is cheap, we'll continue to gorge ourselves on it and make ourselves more dependent on those that provide it. The best way to avoid paying a lot at the pump is to drive less if possible and get a car that uses the stuff more efficiently.

What a bunch of cowards our representatives are, refusing to tell us to take responsibility for our shortsighted decisions. If they bail us out, there is no incentive to not make more bad decisions. I'll have respect for the politician who is willing to say that perhaps some mild relief might be provided for the summer season, but after that, we should have to live with the choices we make. Maybe then we'd start making better ones. But talking tough to the public doesn't seem to be on either party's agenda. And staying away from what I suppose they see as political losers will make us all economic and evironmental losers in the long run.

Republicans, the party of personal responsibility, have totally caved on this issue. The Democrats, as usual, have failed to provide real, tough leadership. Is there anything we can do?

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#19864 - 04/29/06 11:20 AM Re: The Proposed $100 Gas Rebate [Re: Daniel]
oenophore Offline
Carpal Tunnel

Registered: 09/24/01
Posts: 5972
Loc: 212 land
I'll agree with the above and offer my unsolicited opinion. For most of us, one of the great priorities in life is keeping one's job. In the case of legislators, it surpasses the need to pass good legislation -- re-election by hook or crook comes first. For many of us, we try to do the best we can employmentwise, and this oft entails long commutes, practical only by auto.
We all know the American way of dealing with a national problem is to largely ignore it until it becomes critical, then launch a costly crash project to deal with it. We await the latter.
_________________________

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#19865 - 04/29/06 02:15 PM Re: The Proposed $100 Gas Rebate [Re: oenophore]
Mike Rawdon Offline

Carpal Tunnel

Registered: 11/29/99
Posts: 4276
Loc: Poughkeepsie
$100 "gas rebate"?

BRILLIANT !!!!

If the gov't pays me back some of what I'm spending, then

a) I'm not as alarmed by high energy prices, because
b) energy is no longer as expensive, really, so
c) I can keep driving my gas guzzler, which only proves
d) that it's all the oil companies' gouging that's behind this.
e) in collusion with the Bush administration, of course.

Wow, talk about bad politics. Which political 'bags are behind this? (Yes I'm too lazy to read the article)

Edit - OK I checked. It's our good friend Bill Frist. Figures...


Edited by Mike Rawdon (04/29/06 02:18 PM)

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#19866 - 05/01/06 12:42 PM Re: The Proposed $100 Gas Rebate [Re: Daniel]
chazman Offline
old hand

Registered: 02/07/02
Posts: 944
I just spent $44.90 to fill a Honda Accord... this $100 payoff/bribe is such a joke. I'm guessing a mid-sized SUV probably tops off at around $65/tank... forget about the land yachts (Excursions, Hummers,...). The originator of this little brainstorm should be immediately kicked in the ass and stamped "idiot" on his/her forehead. Plus... we're in a deficit... where is this money coming from? It's essentially a loan that we will pay back in taxes in the coming years.

And to think… 3 years ago today W was riding so high as he touched down on that aircraft carrier with “Mission Accomplished” hanging behind him in his full flight gear proclaiming:

Quote:

THE PRESIDENT: Thank you all very much. Admiral Kelly, Captain Card, officers and sailors of the USS Abraham Lincoln, my fellow Americans: Major combat operations in Iraq have ended. In the battle of Iraq, the United States and our allies have prevailed. (Applause.) And now our coalition is engaged in securing and reconstructing that country.
In this battle, we have fought for the cause of liberty, and for the peace of the world. Our nation and our coalition are proud of this accomplishment -- yet, it is you, the members of the United States military, who achieved it. Your courage, your willingness to face danger for your country and for each other, made this day possible. Because of you, our nation is more secure. Because of you, the tyrant has fallen, and Iraq is free. (Applause.)



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#19867 - 05/01/06 01:59 PM Re: The Proposed $100 Gas Rebate [Re: chazman]
Smike Offline
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Registered: 05/01/01
Posts: 3143
Loc: in your backyard
It would be good to read some of the various documents that go over the 'facts' as to why gas is so expensive (in contrast to recent prior pricing) to understand what actions should or shouldn’t be taken.

http://www.ethanol.org/documents/WhyThreeDollarGas_000.pdf (Link to a PDF)

From: http://www.ethanol.org/

http://www.consumeraffairs.com/news04/2006/02/exxonmobil.html

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#19868 - 05/01/06 03:37 PM Re: The Proposed $100 Gas Rebate [Re: Daniel]
Kevin Offline
enthusiast

Registered: 11/17/99
Posts: 201
The media has reported that this will possibly go to 100million people... Since this is in response to raising gasoline prices in a direct connection to autos... is the money going to go JUST drivers or everyone under the clip level... What gets me is that it seems that they are going to give this 'rebate/joke' to everyone... Not to be rude, why should someone that does not have a car be allowed to receive this $100?

I only ask this because Bush said that is a 'refund' to help drivers cope with rising gasoline costs... He did not care about giving anyone a rebate when home heating oil went up last fall... No 'refund' then... My rent went up because of rising costs to the landlord... No 'refund' then...

I hope you get my point... And who is really going to pay for this... I love it when they (be it any politician righty or lefty) comes out these ideas and does not really think about who will really benefit... Not the consumer by a long shot.

This is another car trick to make the masses forget the guy behind the curtain... So many damn smoke and mirrors with this crew, makes you wonder if they hired some guy from Times Square to teach them how to play 'Three Card Monty' with the US.

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#19869 - 05/01/06 03:59 PM Re: The Proposed $100 Gas Rebate [Re: Kevin]
Smike Offline
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Registered: 05/01/01
Posts: 3143
Loc: in your backyard
One element that is not in question is that the $100 will not solve the problem of Gas prices being at the rate they are due to the evolution of the oil market to what it is today (Fewer competitors, plus using spot pricing to gouge consumers)

Some will argue the higher prices are a good thing for environment, but right now the only beneficiaries of high prices are windfall record profits.


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#19870 - 05/01/06 04:24 PM Re: The Proposed $100 Gas Rebate [Re: Smike]
Daniel Offline
veteran

Registered: 05/23/01
Posts: 1515
right now the only beneficiaries of high prices are windfall record profits.

Well, I don't want the government determining how much profit constitutes a "windfall." Absent collusion, if prices are high for a commodity, then I don't see why the producers shouldn't get the benefit. Some politicians have talked about instituting an excess profits tax and putting the proceeds into an alternative energy fund. But how much profit is "excess"? Prices aren't determined by what constitutes a reasonable profit (whatever that is). It's determined by what people are willing to pay, supply, demand, and competition. Someone who makes something that people really, really want can charge a high price, even if it's pretty cheap to make.

What we should not do is subsidize that benefit. Instead of using an excess profits tax to fund alternative energy development, I think we should stop the subsidies to the oil and gas industries and put that money into alternative energy development. I just don't see any public policy reason why these companies should be supported with tax dollars. And I think smart politicians should expand that argument to the pharmaceutical industry (how many billions are wasted because Medicare is prohibited by law from bargaining for prescription drug prices?), agribusiness, and other forms of corporate welfare. It's an argument that could be embraced by conservatives and liberals, if only someone had the courage to make it, instead of pretending that low gas prices is a long-term good thing.

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#19871 - 05/01/06 04:53 PM Re: The Proposed $100 Gas Rebate [Re: Daniel]
Smike Offline
Carpal Tunnel

Registered: 05/01/01
Posts: 3143
Loc: in your backyard
Absent collusion, if prices are high for a commodity, then I don't see why the producers shouldn't get the benefit.

I agree 100% in a fair competitive market, but if you take a look at the 1st link I posted, it points out that profit % (or differential between true unit costs of oil vs. unit price of gas excluding taxes and certain regionally mandated fuel additives such as ethanol) per gallon of gas have far exceed the percentage of price increase in the true cost of oil in the last 4 months.

It’s apparent that the data in the report shows that profits jumped 48% over the increase in the price of oil since Jan 06. Slice it any six ways from Sunday and it all amounts to the driving public getting the shaft at the pump.

If this were ice cream at the supermarket then it would be a simple matter of cutting out ice cream from peoples diet, but to most working families driving to work is only way they can make a living, and the privilege to making that living has been IMHO unfairly gouged. If the electric company increase profits 48% via price increase in less then 4 months company execs. would be on trial.

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#19872 - 05/01/06 06:55 PM Re: The Proposed $100 Gas Rebate [Re: Smike]
ScottR Offline
journeyman

Registered: 05/27/05
Posts: 99
True cost of oil ??? What exactly is that ? Do you honestly expect any company to charge you 0% above their cost of exploration, extraction and delivery ? What does the true cost have to do with anything. That is like going to a landlord and saying you aren't going to pay anything above their "true" carrying cost. The only relevant fact is, whoever pays $73 a bbl wants it more than the guy who is willing to pay $72 a bbl and it gonna get it.

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#19873 - 05/01/06 06:59 PM Re: The Proposed $100 Gas Rebate [Re: Kevin]
Mike Rawdon Offline

Carpal Tunnel

Registered: 11/29/99
Posts: 4276
Loc: Poughkeepsie
Quote:

I love it when they (be it any politician righty or lefty) comes out these ideas and does not really think about who will really benefit... Not the consumer by a long shot.




Oh I think Bill Frist and the other members of Congress know exactly who will come out ahead as a result of this...

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#19874 - 05/01/06 07:16 PM Re: The Proposed $100 Gas Rebate [Re: Smike]
Smike Offline
Carpal Tunnel

Registered: 05/01/01
Posts: 3143
Loc: in your backyard
exploration, extraction and delivery

Have these costs increased 48% over the last 3 months?


Fair question.

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#19875 - 05/01/06 07:19 PM Re: The Proposed $100 Gas Rebate [Re: Smike]
ScottR Offline
journeyman

Registered: 05/27/05
Posts: 99
No, they haven't. But you didn't put the capital at risk, so why should you get the reward ?

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#19876 - 05/01/06 07:32 PM Re: The Proposed $100 Gas Rebate [Re: Smike]
crackers Offline
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Registered: 03/21/01
Posts: 3424
Loc: pdx

If this were ice cream at the supermarket then it would be a simple matter of cutting out ice cream from peoples diet, but to most working families driving to work is only way they can make a living, and the privilege to making that living has been IMHO unfairly gouged. If the electric company increase profits 48% via price increase in less then 4 months company execs. would be on trial.


...and invading the country making the ice cream!

No offense mike, but your economic analysis of the costs of rents, the role of OPEC in price fixing and the relative power of the big five or six oil companies in the world is, um, surprisingly naive from somebody otherwise well informed.

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#19877 - 05/01/06 07:57 PM Re: The Proposed $100 Gas Rebate [Re: Daniel]
mworking Offline
old hand

Registered: 05/26/04
Posts: 764
Quote:

What we should not do is subsidize that benefit. Instead of using an excess profits tax to fund alternative energy development, I think we should stop the subsidies to the oil and gas industries and put that money into alternative energy development. I just don't see any public policy reason why these companies should be supported with tax dollars. And I think smart politicians should expand that argument to the pharmaceutical industry (how many billions are wasted because Medicare is prohibited by law from bargaining for prescription drug prices?),




I agree, but there are some things to think about. We pay off the drug companies for two reasons:

1) They are large campaign contributors - if you aren't for them they are against you!
2) If we don't help them out some way in this country, they'll take their jobs and move to a less expensive country just like every one else is doing. Technology is easily moved these days and there are plenty of people in Asia willing to work for less. When they have something to manufacture there are fewer environment restrictions there

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#19878 - 05/01/06 08:08 PM Re: The Proposed $100 Gas Rebate [Re: crackers]
Smike Offline
Carpal Tunnel

Registered: 05/01/01
Posts: 3143
Loc: in your backyard
No offense mike, but your economic analysis of the costs of rents, the role of OPEC in price fixing and the relative power of the big five or six oil companies in the world is, um, surprisingly naive from somebody otherwise well informed.

OPEC is a non factor in my argument. What I’ve posted is about the profit margin increase on the product after the Oil is acquired from OPEC.OPEC also does not ‘price fix’ since they only control the amount of production and currently all or most OPEC Oil nations exceed that production output limit already.

As for the big 5, they are the ones in question.


Edited by Smike (05/01/06 08:16 PM)

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#19879 - 05/01/06 08:50 PM Re: The Proposed $100 Gas Rebate [Re: Smike]
pedestrian Offline
Pooh-Bah

Registered: 08/05/02
Posts: 2244
Loc: a heavily fortified bunker!
Has oil production fallen off in the past 6 months?

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#19880 - 05/01/06 08:53 PM Re: The Proposed $100 Gas Rebate [Re: Smike]
Daniel Offline
veteran

Registered: 05/23/01
Posts: 1515
It's my understanding that American oil companies produce at least some of their own oil. So their extraction costs don't go up even if the price does, and they can pocket the profits.

I can't get that ethanol pdf page to work on my Firefox browser, so I haven't read it. But if there is collusion going on, I think the proper response is not a windfall profits tax but a suit to end the collusion and collect civil penalties; it's certainly not a check to the public from the government. If demand is tight during the summer driving season, then the price will go up and the compaines will get the profits. I see nothing wrong with that. I see a whole lot wrong with continuing to give the companies tax breaks. Seems to me that a windfall profits tax doesn't address the behavioral problems of oil companies or consumers; it allows prices to stay high, and the corporations can still make more money though at a lower profit margin. But ending government subsidies is certainly in the public interest, and possibly investigating collusion if there is good reason to suspect that it's going on.

If we don't help them out some way in this country, they'll take their jobs and move to a less expensive country just like every one else is doing. Technology is easily moved these days and there are plenty of people in Asia willing to work for less. When they have something to manufacture there are fewer environment restrictions there

I don't think this argument applies to the oil industry. You have to pump oil where it is; you can't move your operations to a place where there is no oil but the labor is cheap. Oil continues to be pumped in the US because it is profitable to do so, not because the oil companies manage to get huge favors from Congress. More generally, if the labor is cheap and it makes a difference, then companies will go there anyway. If we subsidize businesses to make them competitive with cheaper foreign competitors, we still wind up losing because we are in essence making the products more expensive by funding them with our tax dollars.

As for campaign donations, I've said it before: public campaign financing. We'll save whatever we allocate for campaigns many times over if it gives Congress the backbone to end corporate welfare.

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#19881 - 05/01/06 08:59 PM Re: The Proposed $100 Gas Rebate [Re: Smike]
crackers Offline
Carpal Tunnel

Registered: 03/21/01
Posts: 3424
Loc: pdx
Ah, but there you're wrong in detail, Mike. The payments made to Saudi Aramco, for example, are based on the spot price. So, yes, OPEC countries have a direct impact on the cost of deliverable crude. The costs born by the big five or six are variable. They are not flat. What do you think controlling production volume is if not price fixing?

Then there is the fact that those pesky chinese are buying crude too.

How about talking about the fact that US gas economy standards haven't changed in twenty years, that US residents won't allow new refineries?

Production is down a bit this year and down for the past two-three years.

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#19882 - 05/01/06 09:03 PM Re: The Proposed $100 Gas Rebate [Re: Daniel]
crackers Offline
Carpal Tunnel

Registered: 03/21/01
Posts: 3424
Loc: pdx

It's my understanding that American oil companies produce at least some of their own oil. So their extraction costs don't go up even if the price does, and they can pocket the profits.


Yeah, but that's producing oil under the control of a government's authority. For example, Chevron develops oil fields in Saudi Arabia, but Saudi Aramco decides how much Chevron can take out and what the rent/tax is for pulling the oil.

Oil continues to be pumped in the US because it is profitable to do so, not because the oil companies manage to get huge favors from Congress

Because we try to buy domestically produced oil for the petroleum reserve and we give them incredibly cheap financing for exploration and development.

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#19883 - 05/01/06 09:11 PM Re: The Proposed $100 Gas Rebate [Re: crackers]
Daniel Offline
veteran

Registered: 05/23/01
Posts: 1515
Yeah, but that's producing oil under the control of a government's authority. For example, Chevron develops oil fields in Saudi Arabia, but Saudi Aramco decides how much Chevron can take out and what the rent/tax is for pulling the oil.

But does Chevron still get to pocket at least some portion of the difference when the price goes up?

we try to buy domestically produced oil for the petroleum reserve and we give them incredibly cheap financing for exploration and development.

Which is why we shouldn't subsidize it, right? If it's profitable to make it, then the companies will do it. If it's not profitable to make it, why should we pay for them to do it?

And what public policy reason would justify buying more expensive domestic oil when cheaper foreign oil is available? And isn't all oil fungible anyway? If we needlessly buy more expensive domestic oil for the reserve, wouldn't that decrease demand for imported oil and cause the price to be even lower?

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#19884 - 05/01/06 09:14 PM Re: The Proposed $100 Gas Rebate [Re: crackers]
ScottR Offline
journeyman

Registered: 05/27/05
Posts: 99
we give them incredibly cheap financing for exploration and development.


Don't forget about the accelerated depreciation schedules and generous tax loss carryover provisions.

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#19885 - 05/01/06 09:18 PM Re: The Proposed $100 Gas Rebate [Re: crackers]
oenophore Offline
Carpal Tunnel

Registered: 09/24/01
Posts: 5972
Loc: 212 land
that US residents won't allow new refineries?

China to the rescue! Chinese refineries can do it cheaper with little concern for environmental consequences. Let Americans have cleaner air and a yet greater deficit of payments.
_________________________

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#19886 - 05/01/06 09:32 PM Re: The Proposed $100 Gas Rebate [Re: crackers]
Smike Offline
Carpal Tunnel

Registered: 05/01/01
Posts: 3143
Loc: in your backyard
Ah, but there you're wrong in detail, Mike. The payments made to Saudi Aramco, for example, are based on the spot price. So, yes, OPEC countries have a direct impact on the cost of deliverable crude. The costs born by the big five or six are variable. They are not flat. What do you think controlling production volume is if not price fixing?

Most Oil is purchase on a contractual bias independent of the day to day (or month to month) volatility of the spot market. OPEC and the Spot Market are not one and of the same. OPEC is an organization, Spot market refers to the open trading market on current oil (whether it be in a tanker ship, truck or storage facility)

http://www.eia.doe.gov/pub/oil_gas/petroleum/analysis_publications/oil_market_basics/Price_transactions.htm

Since demand has risen to close to overall production OPEC has a ‘perceived control’ over pricing through raising and lowering production quotas, which no OPEC country adheres to since demand is currently high. So their effect is mostly of a political nature unless the supply is too great and they flood the market therefore causing a price reduction, which they can not achieve under current supply / demand factors.

But all the above is moot since to use Daniels term ‘collusion’ is what I perceive has developed somewhat giving 2 factors: the merging and consolidation of oil companies compounded by rising world market demand.

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#19887 - 05/01/06 09:38 PM Re: The Proposed $100 Gas Rebate [Re: Daniel]
pedestrian Offline
Pooh-Bah

Registered: 08/05/02
Posts: 2244
Loc: a heavily fortified bunker!
Quote:

[Which is why we shouldn't subsidize it, right? If it's profitable to make it, then the companies will do it. If it's not profitable to make it, why should we pay for them to do it?




This is what the Chimp is really talking about when he says "ending dependence on Middle Eastern oil"

Quote:

And what public policy reason would justify buying more expensive domestic oil when cheaper foreign oil is available?




ending dependence on foreign oil

Quote:

And isn't all oil fungible anyway? If we needlessly buy more expensive domestic oil for the reserve, wouldn't that decrease demand for imported oil and cause the price to be even lower?




if all oil is fungible, wouldn't buying any petroleum for the reserve increase demand (in the global perspective)?

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#19888 - 05/01/06 10:06 PM Re: The Proposed $100 Gas Rebate [Re: pedestrian]
Daniel Offline
veteran

Registered: 05/23/01
Posts: 1515
if all oil is fungible, wouldn't buying any petroleum for the reserve increase demand (in the global perspective)?

Yes. But I was referring to Cracker's assertion that we buy more expensive domestic oil for the reserve and questioning why we did that, not to Bush's directive to stop buying oil for the reserve in order to reduce overall demand.

By the way, Bush the candidate criticized the use of the strategic reserve to bring down high prices. Seems to me that with instability in the Middle East and other oil-producing nations, now is precisely the wrong time to stop adding to our reserves.

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#19889 - 05/01/06 11:53 PM Re: The Proposed $100 Gas Rebate [Re: Daniel]
Mike Rawdon Offline

Carpal Tunnel

Registered: 11/29/99
Posts: 4276
Loc: Poughkeepsie
If anyone is interested in digging further into how Big Oil makes its money, earnings in quarterly statements generally are divided into "upstream" which is how much money the company makes by producing oil from its own fields, and "downstream" also called Refining and Marketing. The upstream is the cash cow for the big companies. R&M is often dissed as merely being a way to move all that product so they can pump more crude. Many refineries are not especially profitable*, but they are something of a necessary evil.

* in the US, that is. Pension and healthcare costs, aging facilities, existing environmental liability and cleanup obligations, high wages...these all drive up the cost of US refining. That's why refineries ARE being built overseas. BIG refineries; Modern, PROFITABLE refineries. Because they aren't encumbered with all the above. In the future, fewer tankers will be carrying crude and more will be carrying refined products. Case in point - the largest source of gasoline to the NY and New England?

Venezuela.

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#19890 - 05/02/06 12:18 AM Re: The Proposed $100 Gas Rebate [Re: Mike Rawdon]
chazman Offline
old hand

Registered: 02/07/02
Posts: 944
I’d also like to know how they “declare” these huge profits. I can only assume that before they published these world record corporate profits they did EVERYTHING legal(?) to bring that number down as much as possible to ease the obvious outrage the public would display. They gave on-the-way-out CEO Lee Raymond one of the most generous retirement packages in history, nearly $400 million, including pension, stock options and other perks, such as a $1 million consulting deal, two years of home security, personal security, a car and driver, and use of a corporate jet for professional purposes. In 2004 his bonus was over $3.6 million. His base pay was $51 million in '05. (about $141,000 a day, nearly $6,000 an hour). It's almost more than five times what the CEO of Chevron made. No person needs this kind of money (yeah I know... who am I to say that) but I guess my point is they were obviously dumping money on this guy (and many other "lower" execs) to bring down the bottom line… no?

I wonder if Mr. Raymond will get a $100 check.

Edited to add... holy crap! He got almost half a BILLION dollars as a parting gift. WOW!

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#19891 - 05/02/06 01:13 AM Re: The Proposed $100 Gas Rebate [Re: chazman]
Mike Rawdon Offline

Carpal Tunnel

Registered: 11/29/99
Posts: 4276
Loc: Poughkeepsie
Yea, but it's only a QUARTER BILLION after taxes...

And check your math. He made $24,000 per hour. My annual salary in 2 hours.

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#19892 - 05/02/06 01:23 AM Re: The Proposed $100 Gas Rebate [Re: Mike Rawdon]
chazman Offline
old hand

Registered: 02/07/02
Posts: 944
Quote:

Yea, but it's only a QUARTER BILLION after taxes...

And check your math. He made $24,000 per hour. My annual salary in 2 hours.



I assumed he was paid for every waking moment... hey, he's that important

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#19893 - 05/02/06 01:23 AM Re: The Proposed $100 Gas Rebate [Re: Mike Rawdon]
intrepid02 Offline
Snarky Bastard

Registered: 06/24/02
Posts: 1421
Loc: Boulder
If I was making $24k/hr I think I'd have a LOT of trouble finding the motivation to work more than 8 hours... a year!

Think about it. Who makes $192k in a day and then goes back to work the next day? I think most of us would be a on a killer road trip.

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#19894 - 05/02/06 03:19 AM Re: The Proposed $100 Gas Rebate [Re: Daniel]
ScottR Offline
journeyman

Registered: 05/27/05
Posts: 99
Thus while most oil flows under contract, its price varies with spot markets.

Hey Smike, doesn't it just suck when you hand someone the bat to beat your side of an argument into the ground ?

BTW most independent producers I know get a monthly average + or - a quality spread, and every single one of them is fracing their stripper wells.

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#19895 - 05/02/06 11:44 AM Re: The Proposed $100 Gas Rebate [Re: ScottR]
crackers Offline
Carpal Tunnel

Registered: 03/21/01
Posts: 3424
Loc: pdx
Actually, almost all production companies are in contracts that are either a monthly running average of WTI cushing spot, or a ten day lookback of implied spot off of the nymex crude curve, with adjustments for the sulpher content et al.

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#19896 - 05/02/06 12:13 PM Re: The Proposed $100 Gas Rebate [Re: Daniel]
crackers Offline
Carpal Tunnel

Registered: 03/21/01
Posts: 3424
Loc: pdx

Which is why we shouldn't subsidize it, right? If it's profitable to make it, then the companies will do it. If it's not profitable to make it, why should we pay for them to do it?

And what public policy reason would justify buying more expensive domestic oil when cheaper foreign oil is available? And isn't all oil fungible anyway? If we needlessly buy more expensive domestic oil for the reserve, wouldn't that decrease demand for imported oil and cause the price to be even lower?


In no particular order.

Oil is fungible when it's a openly traded commodity. When you're at war and the straits of Hormuz are closed and the Saudi fields are on fire, well, then, who gives a rats ass about that scheduled delivery from Qatar? This is the main reason why we have the strategic reserve and why the US government will subsidize oil production in the USA until our jets and tanks and everything else uses power sources other than crude oil in its disparate refined forms. We should pay them to make oil as long as our military needs oil to operate. We shouldn't necessarily allow new drilling, but we should be producing oil.

I might be off, but according to last weeks economist, the daily purchases for the strategic reserve are in the neighborhood of 30,000 barrels...which of course is really big in comparison to the 10+ million barrels used daily in the USA.


But does Chevron still get to pocket at least some portion of the difference when the price goes up?


Absolutely, it's just not as much as one might think; and they pay taxes twice on it. The people making out like bandits are the oil producers. They get paid once for the right to take the oil out of the ground and second for the export duties. You can expect to see a lot more arab oil money. A reasonable estimate is something like this: it cost $0.35 to get the oil out of the ground, of which $0.20 was recovered from the US gov't in the form of MACRS (see scott's comment above). It's light sweet crude and the current OPEC basket is about $52 in the lookback period so the payment to the local dictator is $0.45 per gallon, and the export duty is $0.20, and then they pay the US govt $0.0525 to $0.21 per barrel (btw, the import tariff for motor oil aka gasoline is %0.52 to $1.02; wonder why we don't import more gasoline?)...Everything in the chain except the import tariff fluctuates with the market price of oil. So yes, they make a killing, but it's not exactly the bloody murder killing you'd think it was: it's only half or so...

One interesting thing is that the only major oil company in the world--btw, when i say big five or six, i'm talking about world players not american--to have concentrated on production and refineries for the past ten years has been Exxon. Everybody else is playing acquisition or get out of gas. That's primarily why Exxon has had such strong numbers, and why the board decided to reward the retired CEO: he made the right bet. In terms of the company, you can even see why they thought $400 mm was fair. His bonus represents less than $0.001 per share outstanding. Since 1990, the company has appreciated from $20 per share to about $60. In my eyes, that return is certainly worth $0.50 of my money: although I must say its vulgar and I don't really believe in compensation packages so large that they corrupt.

I think that the really interesting thing about this is not the $3 gasoline or the disgusting bonus paid to Raymond, but whether or not this effective transfer payment will result in a lull in hostilities between the arab world and the west or not. Will your $3 gas fund more terror or less? Will the massive wealth being transferred out of China and the USA result in further societal unrest in the middle east? Or will the Saudi's and others import Chinese techniques for quelling domestic discontent? That's the interesting part to me.

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#19897 - 05/02/06 01:12 PM Re: The Proposed $100 Gas Rebate [Re: crackers]
Smike Offline
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Worries over supply faded. It became apparent that the old constant price called for in most contracts was too high -- higher than the purchaser would pay in the abundantly-supplied open market. Purchasers rebelled, with many abandoning contracts and relying instead on the spot market. To coax them back, suppliers granted pricing terms tied to a market indicator -- the spot market, for instance, or the futures market. Thus while most oil flows under contract, its price varies with spot markets. Contract arrangements for different products are discussed below.

Most of the crude oil that flows in international trade is priced by formula: a base price, usually based on a market indicator, plus or minus a quality adjustment. A common pricing term sets a base of a spot price published by a particular source or publication. For crude oil sold into the U.S. Gulf Coast, for instance, the base would commonly be the price of West Texas Intermediate crude oil. This high quality crude oil indigenous to the U.S. Southwest is an informal benchmark for the region. Analogously, crude oil sold into Northwest Europe is often tied to the spot price for the North Sea's Brent Blend, and crude sold into Singapore or other South East Asian locations is often tied to Dubai. The base price is then adjusted for quality. (As explained in the section on Oil Refining, the value of a crude oil is based on the ease with which it can be refined into high value products. Thus, denser crude oils with higher sulfur content are worth less than lighter, low sulfur ones.) Finally, the credit terms affect the realized price.



I think its best to post the whole section and not pick and chose what statements fit best. Contractual oil purchases are not a simple one to one relationship with the spot market, if so then why have a contract. Somehow I think you know this.

Again moot point in my argument since I’m debating not how the price of oil is formulated but rather the change in the price last 3 months and the change in the profit margin in the same time period.

From the pdf report posted earlier:

“According to the EIA, the spot market price of crude was $63.38 per barrel or $1.51 per gallon on January 6, 2006. The spot price increased by 12 cents per gallon by gradually climbing to $68.62 or $1.63 cents per gallon on April 12, 2006.
If the pump price of gasoline in California climbed in direct correlation with the increase in crude costs, the differential between crude costs and pump prices would remain relatively unchanged. In 2006, the differential rose from 70 cents per gallon in the first week of January to $1.18 cents per gallon on April 12th (Figure 1). Pump prices climbed 48 cents per gallon more than the most generous estimate of the increased price of crude oil for refiners. “


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#19898 - 05/02/06 01:23 PM Re: The Proposed $100 Gas Rebate [Re: crackers]
Daniel Offline
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Registered: 05/23/01
Posts: 1515
If the Straits of Hormuz are closed, oil is still fungible; there's just less of it on the market, but it's all still openly traded and would be somewhat more expensive. That shipment from Qatar isn't going to anybody, and every other barrel of oil is still the same. So we could pay for a barrel of oil from our own producers, or from Russia, or Venesuela, or Nigeria. Why not buy it from Nigeria to add to the reserve if it's cheaper?

Seems to me that the only reason we'd want to subsidize our own oil production for security purposes would be to guard against the possibility of a boycott by so many suppliers that it would leave us short of oil for vital national needs. But it would be very hard for enough suppliers to maintain a boycott because as more players joined, the price we'd be willing to pay would go up, which provides an ever increasing incentive for others not to join it and for existing boycotters to bolt.

Also, it seems to me (admittedly without much background in this area) that the subsidies to oil companies far exceeds what would be justified to ensure production for vital national needs. If there ever were a concerted boycott, we simply don't have the domestic capacity to provide our own supply indefinitely. And that's why we have the stragetic reserve, in case we need to buy ourselves some time. But I don't see why that would justify paying an artificially higher price from domestic producers to add to it.

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#19899 - 05/02/06 01:57 PM Re: The Proposed $100 Gas Rebate [Re: Daniel]
crackers Offline
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Also, it seems to me (admittedly without much background in this area) that the subsidies to oil companies far exceeds what would be justified to ensure production for vital national needs. If there ever were a concerted boycott, we simply don't have the domestic capacity to provide our own supply indefinitely. And that's why we have the stragetic reserve, in case we need to buy ourselves some time. But I don't see why that would justify paying an artificially higher price from domestic producers to add to it.


two different things:

1) the ability to fight a war is the reason to have the strategic reserve. It's not (supposed to be) for anything else. We buy US oil to subsidize production to try to keep production going to fight said war...It's not a boycott we're worried about, it's a general war on the sea disrupting non military shipments.*

2) the size of the subsidies generally given to big oil are ludicrous and evil. but that's just my opinion


*obviously anybody thinking this is even remotely possible has no idea how strong the US Navy is in comparision to the rest of the planet's combined naval forces. For point of comparison, a USN destroyer is about the same size as an Indian or Chinese light cruiser and as for firepower, well, ...

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#19900 - 05/02/06 02:15 PM Oil Subsidies [Re: crackers]
Daniel Offline
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Registered: 05/23/01
Posts: 1515
the ability to fight a war is the reason to have the strategic reserve. It's not (supposed to be) for anything else. We buy US oil to subsidize production to try to keep production going to fight said war

There seems to be two different statements here. The first is that we have the strategic reserve in order to be able to fight a war. The second is that we subsidize US production to be able to fight a war. Which is it? Both?

Again, I see no reason to buy US oil to put into the reserve if other sources are cheaper. If we want to have US production ready to go in case of an emergency, then spending money on that purpose might make a cost-effective backup. But that doesn't justify subsidies for US production when there isn't a war going on, or spending more money for more expensive oil to put into the reserve. (Yes, I know one can't turn on oil production at the flip of a switch, but the reserve is supposed to buy us that time, no?)

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#19901 - 05/02/06 04:19 PM Re: Oil Subsidies [Re: Daniel]
ScottR Offline
journeyman

Registered: 05/27/05
Posts: 99
The point you are missing Smike is that while there is correlation between crude prices and gasoline, that doesn't equate causality. Oil could flow down the Hudson tomorrow and w/o the ability to refine it, it is worthless. If you actually knew anything about the oil markets, you would notice how much the spreads have widened between light sweets and heavys. What this is conveying is the limited refining capacity, specifically heavy crude refining capacity and the scramble to secure supplies of light blends.

If you take a look at a Valero 5 yr chart against Exxon, you will see what I am talking about. Valero is mainly in the downstream business, ie. refining. You might even notice in driving around that Valero is generally 3 to 5 cents cheaper per gallon than most other stations (those evil oil companies).

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#19902 - 05/02/06 04:50 PM Re: Oil Subsidies [Re: ScottR]
Smike Offline
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Good point, the Quality factor does play a roll. I still see point A (Price of spot market oil over the last months ((assuming it’s the highest number -/+ for Quality)) vs. Point B. price of gas over the last 3 months and I can not find any substantial facts or figures that support current price at the pump other then ‘speculation’ of shortage. Unless the supply of more easily refinable oil has fallen dramatically in the last 3 months while the overall supply is more or less unchanged. I know there is no smoking gun, but one has to wonder that overall mergers and consolidation on the downstream and upstream end, has put more control on pricing in the corporations hands and less on actual market influences. (Or at the very least can increase the effect on the price upswing end)

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#19903 - 05/02/06 04:56 PM Re: Oil Subsidies [Re: Smike]
oenophore Offline
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Perhaps you tell me why this is the case. I've notice that when prices spike as they do nowadays, the unheard-of brand gasolines sell for the same price as the major brands. When prices level out, the big brands are undersold by the former.
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#19904 - 05/02/06 05:00 PM Re: Oil Subsidies [Re: Daniel]
crackers Offline
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The first is that we have the strategic reserve in order to be able to fight a war. The second is that we subsidize US production to be able to fight a war. Which is it? Both?

um, yes, both.

How many days of real warfighting would the strategic petroleum reserve supply? What do you do when the reserve runs out?

It takes about 350,000 barrels to drive a carrier group to the persian gulf. The carrier group will then consume upwards 35,000 barrels a day in peace time. In the first gulf war, each carrier went through about 5,000 barrels a day for the planes, plus more than 35,000 for the support group. In a war against Iran, you can expect to see 8 or 9 carriers in the gulf.

On the other hand, the nonmilitary economy uses almost 20 million barrels a day. The total size of the reserve is 1 billion barrels if its full (which its not). In other words, the reserve represents 50 days of non military use.

You can't assume that you'll be able to get fuel delivered reliably from other sources in times of war, so you try to subsidize US producers to make sure at least a little is available in your worst case scenario nightmares. From my personal experience, I can promise you that it takes at least a month to take an out of production wellhead back into production. You can't assume that you'll have more than four times current average production out of nowhere in less than 50 days.


Edited by crackers (05/02/06 05:06 PM)

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#19905 - 05/02/06 05:04 PM Re: Oil Subsidies [Re: Smike]
crackers Offline
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Registered: 03/21/01
Posts: 3424
Loc: pdx
Mike, btw, do you know what FIFO vs LIFO accounting is? Most integrated oil companies do LIFO with their downstream partners. i.e., the price charged is the price of the most recently bought petroleum.

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#19906 - 05/02/06 05:34 PM Re: Oil Subsidies [Re: crackers]
Smike Offline
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Mike, btw, do you know what FIFO vs LIFO accounting is? Most integrated oil companies do LIFO with their downstream partners. i.e., the price charged is the price of the most recently bought petroleum.


Thanks for the tid bit, so are you saying to me thats the reason the price of gas is what it is today vs 4 months ago? If so then what your saying is that the numbers paid for and reported in Jan mean very little in comparing to the same figures in April from the same companies?

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#19907 - 05/02/06 07:05 PM Re: Oil Subsidies [Re: crackers]
Daniel Offline
veteran

Registered: 05/23/01
Posts: 1515
Crackers, I'm confused by your posts. On the one hand, you say that we need to subsidize US oil production so that we have some supply in case of an emergency. On the other hand, you call the subsidies "ludicrous and evil."

It seems to me that if we want to make sure we have an emergency domestic supply--which is a legitimate public policy goal--then we should have a fund specifically for that purpose, not a diffuse set of tax breaks and other financial finageling that reward oil companies regardless of their financial situation or how much money they're already making. If present subsidies far exceed what is necessary to achieve that goal of providing an emergency supply, which I would guess is the case, then the excess is nothing more than a giveaway to profitable corporations, and we're in agreement that those subsidies should be eliminated.

As an aside, we wouldn't need four times present production. If outside supplies were cut off, we'd certainly have rationing to reduce use, so our non-military consumption would be considerably below what it is now.

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#19908 - 05/03/06 12:34 PM Re: Oil Subsidies [Re: ScottR]
alicex4 Offline
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Registered: 07/05/00
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Doesn't the fact that Valero refines in this area ( I can think of two within the Phila vicinity) cause a naturally lower price due to reduced shipping/transit costs?

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#19909 - 05/03/06 02:20 PM Re: Oil Subsidies [Re: alicex4]
ScottR Offline
journeyman

Registered: 05/27/05
Posts: 99
Yes it does mean lower cost of distribution, but not necessarily the end product cost to consumer. For whatever reason, desire to grab retail market share, excesss inventory, need to get rid of un-ethanol fuel before the switch over they price it a few cents cheaper than the competition. Not to mention the fact that the competition is probably selling Valero product which naturally gives them a price advantage.

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#19910 - 05/08/06 02:12 PM Re: Gas prices going down? [Re: ScottR]
Smike Offline
Carpal Tunnel

Registered: 05/01/01
Posts: 3143
Loc: in your backyard
http://money.cnn.com/2006/05/08/markets/oil.reut/index.htm?cnn=yes

Well now currently at $69 on the spot market, prices should go back to pre-Jan06 prices if prices stay the same....right? Watch how slow the gas price market is to drop, in contrast to price increases.

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#19911 - 05/08/06 02:45 PM Re: Gas prices going down? [Re: Smike]
strat Offline
Carpal Tunnel

Registered: 04/30/01
Posts: 4242
Quote:

http://money.cnn.com/2006/05/08/markets/oil.reut/index.htm?cnn=yes

Well now currently at $69 on the spot market, prices should go back to pre-Jan06 prices if prices stay the same....right? Watch how slow the gas price market is to drop, in contrast to price increases.





Nine waa waa anyone?

You should have bought that corner property across from the mountain deli and sunk in a nice hess "on the run" store, then you could be raking in the dough....

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#19912 - 05/08/06 02:55 PM Re: Gas prices going down? [Re: strat]
Smike Offline
Carpal Tunnel

Registered: 05/01/01
Posts: 3143
Loc: in your backyard
I think at this point setting up a fruit stand and selling beer in that empty lot would rake in the dough given the current non-existent beer status of the mt. deli. But strat, as you know, Hess can not even come close to the “Make your own Sunday” at Stewarts.


Edited by Smike (05/08/06 02:57 PM)

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#19913 - 05/08/06 07:34 PM Re: Gas prices going down? [Re: Smike]
intrepid02 Offline
Snarky Bastard

Registered: 06/24/02
Posts: 1421
Loc: Boulder
umm... The deli no longer sells beer!?!?! WTF?

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#47566 - 08/21/09 01:52 PM Re: The Proposed $100 Gas Rebate (funny picture) [Re: Mike Rawdon]
oenophore Offline
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Registered: 09/24/01
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#47569 - 08/21/09 02:59 PM Re: The Proposed $100 Gas Rebate (funny picture) [Re: oenophore]
MarcC Offline
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Registered: 07/10/00
Posts: 3532
Holy dead thread resurrection, Batman!
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- Marc

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