Friday's Wall Street Journal editorial, "Barack's Windfall Reversal," in barely contained gleeful terms crowed that a transition spokesman "explained this week that that the drop in oil prices to $50 barrel has made the windfall tax a dead letter." The editorial goes on to point out with degree of "I told you so" smugness, "left unexplained was why the oil companies suddenly decided to stop profiteering, or manipulating commodity prices."
Exactly the point. The oil companies were not manipulating commodity prices. Their role was limited to cheering on OPEC and lobbying our government to remain dangerously benign, playing ostrich to OPEC's manipulation of the oil market.
You see, cartels are most effective in rising markets where supply is relatively balanced or there is perceived shortage of supply, thereby causing the cartel's manipulations to be supportive toward ever-increasing prices. Discipline among cartel members is readily maintained in that revenue from lower production is made up from higher prices.
And as the oil hedge fund speculators got blown away this year and as the world's need for oil began to recede in the face of economic crisis, OPEC's control of the market began to fade in classic cartel tradition. As supply moves from shortage to balance and oversupply, control of the market begins to slip away from the cartel. Revenues from reduced production can no longer be made up from higher prices and the discipline of the cartel begins to collapse. The OPEC cartel has no enforcement capability in place to police production quotas of its members, and the propensity for cartel producers in analogous situations has most always been to "cheat" around the edges.
More than anything, the march to $147/bbl this year was in large measure due to the OPEC cartel's success in manipulating the supply of oil on the world market. Its success was tantamount to a cartel imposed tax on consumers here and throughout the world. It had nothing to do with the free functioning of the marketplace. At this very moment OPEC is plotting to curtail production again at its scheduled December meeting in the hope of changing the free market dynamics of the market from current price softness (at the beginning of the Bush presidency the price was closer to $20/bbl so even here "softness" is relative) toward programming tighter supply and higher prices.
Should OPEC be successful in any way in regaining their hegemony over the market the new Obama administration should make it clear that the imposition of the oil windfall profit's tax will be applied forthwith, in that higher oil prices under these circumstances and in turn higher oil company profits have nothing to do with the workings of a free market.
It is past time that the vastly profitable "socialism for the oil companies" came to an end!
The delusion of classifying oil production as income rather than natural capital is at the root of a lot of bad behavior. Sensible businesses set aside the depletion to replace their depreciating capital. Unlike the Europeans who heavily tax a depleting capital resource (oil) so they can provide alternatives like mass transit, the U.S. does no such thing.
If Obama would look into "profiteering" and do some windfall tax on the $147 oil, a little retrospective tax, I don't see harm in that.
A retrospective tax? Would you please show us the legal framework for that?
I just don't think energy independence is going to work. Too many fat cats in the circlejerk of profit making.
I just don't think energy independence is going to work. Too many fat cats in the mutual self pleasuring of profit making. (Better?)
But that aside, let's think about how the wealthiest companies in the world spend their wealth? A great deal of their cash is not just allowed to sit in a drawer somewhere collecting dust!
It is put to work in the very markets that they control! A few energy related hedge funds moving blocs of purchases and sales of oil can have a profound effect on the market price as well as the perceived scarcity or abundance of it. These guys are Very sophisticated financial players--not just oil field roustabouts. In this less than free market, manipulation of price and appearance of availability has been raised to an art form.
In my humble opinion there are two reasons the price of oil has dropped, first Americans and maybe the rest of the world could not afford $150 Bbl oil. I know other places around the world pay much more for Gas but it was too much and we all started using less. It is true that we need oil to function but if we all use a little less the amount we need is greatly reduced.
There is going to be a new Sheriff in town and he is not going to turn a blind eye to profiteering. He may not look back at the gouging (bummer) but I think he is going to stop it if it happens again.
And did I mention that we wouldn't be half as dependent on imports as we are right now?
A heavy gas tax would have been a win-win-win solution for 30 years. Which is probably the reason why we won't have one for another 30, until oil finally becomes irrelevant.