Rex Tillerson, the boss of ExxonMobil, admitted last week that the price of oil-based purely on supply and demand- should be in the $60 to $70 a barrel range. The reason it's above $100 a barrel, Tillerson explained, is due to the oil majors using futures contracts to lock in current high prices, and speculation that is engineered by the high-frequency trading of quantitative hedge funds.
That was just one of the stunning revelations made during the Senate hearing on tax subsidies to the oil industry -- which featured the 6 most powerful CEOs -- BP, Shell, Chevron, Conoco-Phillips and Exxon-Mobil -- all sitting like ducks in a row giving the stiff-arm to pressing unfriendly inquiries from a host of Democratic Senators.
The formal showdown between Big Oil and Big Politics was enormously revealing theater about just how selfish and narrow-minded, cash-rich industry can be when called upon to do their patriotic duty in balancing the budget. Ouch!
Here are some other juicy disclosures from the hearing:
- The average cost of producing 1 barrel of oil was $11; the average price of the oil in the marketplace: $72 -- some 6.5 times the cost of getting the oil out of the ground.
- The profits for the big 6 oil companies was $36 billion in the year's first quarter. A large part of the $36 billion was used to buyback shares or pay dividends to shareholders.
- These giant US companies have only 1.4% of global oil reserves; the national companies of OPEC have 68% of the reserves. Therefore, argue the CEOs, best not to take away tax advantages, i.e. what the Senators call "subsidies."
- If those nasty Senators take away the tax advantages, exploration for oil in the US will dry up and move abroad where the tax advantages are splendid. This is called waving the red flag, and threatening to put the nation's oil deficit in even more dollar-bashing trouble.
- If Obama doesn't loosen restrictions on drilling in Alaska and offshore US, we will become even more horribly dependent on importing foreign oil.
- There is NO energy plan for the US- and warns Sen. Max Baucus of Montana- "we will require the good faith on everyone's part- which is going to be enormously difficult." This is an understatement when one sees the way the oil executives and the Senators agree on almost nothing. No CEO would admit the tax advantages were subsidies.
- The deduction for intangible drilling expenses was given to the oil industry in 1960 when a barrel was worth about $15-17. So, why do they need this favor when oil is $100 a barrel? Good bloody question, I thought. The oil execs looked horrified and warned that all exploration in the US would cease and desist.