Black Gold

Yesterday, the heads of 5 of most of the world’s largest oil companies appeared before the Senate. Patrick Leahy, among others, asked some seemingly pointed questions, including asking the head of Exxon what his compensation was last year.

“12.7 Million Dollars,” replied the CEO, J Stephen Simon.

Wow – compelling stuff. The brave Senators went on to berate the oil executives for the ‘victim’ mentality with which the executives defended their corporate largesse, and basically, the Senators said “oh, sure (sigh)” and that’s about all.

While I approve of asking some pointed questions, I have to laugh at the woeful approach and application. Where was the question “12.7 Million? Really, including options?” which, while of little use, would have at least solicited a meaningful response. But more, where was the question “You claim oil prices are simply at the mercy of supply and demand, ok, so tell me, has oil demand spiked by 33% this year or the combination of supply dwindled and demand increased by that amount (33%), because oil prices have risen 33% this year” or “Supply huh? Wow, that’s kind of odd, because oil went up $9 per barrel when a couple of speed boats made threatening gestures – that’s not a supply problem, that’s a perception management problem.”

The truth is oil prices are rigged in the favor of the oil producers. Any slight hint of problem drives the spot market they created up, up and up, and it takes a long time for it to drop, even if the spike was over something dubious. The oil suppliers work in concert with the OPEC nations to build wells, refineries, and pumping facilities, and to find and employ cheap labor to work at them once built – in short, they are in lockstep with the people selling them the oil, and created virtual vertical monopolies on price. They are PLENTY happy with the state of affairs, a state of affairs they manufactured. They are no more victims than the name brand auto dealer, they know the market and help to dictate the delivery.

For those of you who have drunk the company kool-aid on refining capacity (from a couple of years ago), I have two responses, which sum up how completely that lie has been debunked:

1. Chevron's Robertson said the issue wasn't really one of refining, and more just the price of crude. We are investing all we can [in finding new oil] given the limitations of access and our own human capacity," he said. "We have adequate refined capacity, inventories are at an all time high. The issue is the price of crude." (from CNN Money Online)
2. Refining capacity in the US is up 25 % since 1984, and demand has NO WHERE NEAR climbed at that rate.

Further, in 2003, the then head of the US Petroleum Manufacturers said point blank that this issue isn’t about refining capacity, that lack of tax incentives, or EPA restrictions, didn’t in any way keep oil companies from building more refineries on shore. The simple fact is, in the oil companies estimation, US demand, over the long-term, was likely to decline as baby-boomers retired, and could be met by increased capacity at existing facilities. Thus, there was no cost incentive to build new refineries which wouldn’t be needed in 20 years.

Now of course, there is a new mantra, lack of supply, created (of course) by regulation and prevention of on-shore exploration – funny how that wasn’t the problem 2 years ago, or 10. In short, the oil companies didn’t really ask for access in anything like vociferous tones, tones of potential disaster looming without such access – and I wonder why not $$$$$.

The group which should be more ashamed I suppose than just the average Senator (who should be damned well ashamed), are the Republican Senators on the committee who went way beyond grand-standing to outright disinformation – suggesting that opening offshore oil drilling, or drilling in the Rockies shelf, would have any long term or meaningful affect.

First of course is the fact that even if reasonable supplies existed – and some do off the coasts – they are shoal-oil, extraordinarily hard to pump – the world’s easily accessed oil supplies have been tapped. So much for the “Oil regenerates itself and we’ll never run out theory.” We may not run out, but we are clearly running out of ready accessed oil. Offshore supplies at this point are of limited value

Second, getting that supply to market will take a decade or more. It will have no impact on current prices. If they had wanted to avoid this crisis, they knew the supply vs. demand projections, probably a decade ago, yet where were the dire warnings…. So much for the oil companies being ‘assets’ as one executive suggested that Congress should see them as. They helped create a crisis of supply with full knowledge.

Third, the overall capacity of the world to pump oil is projected to cap out in 2012 at 110 M/bbls per day – no matter what – and little investment is being done by the oil companies to change that, despite huge tax cuts, windfall real dollar profits. Once CEO opined that we shouldn’t cut those tax breaks or tax the profits because it might provide disincentive to oil companies to invest.. my reply what investment are you doing now?! – by the way – the answer is damned little. Just as they made a conscious decision to NOT increase refining capacity, they have made a conscious decision to create a supply crisis. The decisions about pumping capacity, about refining capacity, are all situations THEY dictated to the market, and these cries of ‘victim’ are smoke. They aren’t the only culprits, but they sure are on the list of usual suspects – and for good reason. In the end though, the real blame again falls to us, in believing that cheap oil would last forever, in accepting vertical monopolies, and in accepting politicians who’ve been for sale for 20 plus years doing nothing about a looming catastrophe to not only our economy, but the world’s. The ‘market’ worked exactly as expected – for the benefit of the seller.

But that’s not really the point. Companies will pursue profits in any and every way possible. If we allow vertical monopolies by companies in collusion with dictatorial regimes – then we get what we deserve. The real point is that these Senators, including Sen’s Obama, McCain, and Clinton, sat idley by while Rome burned. Rather than having the strength of character to demand higher fuel standards, to require real investment in alternative fuel sources or vehicles (beyond ethanol), they took campaign contributions from oil company PACs, or approved huge tax breaks which we, the consumer pay for in the form of ever deeper debt. In short, they’ve failed to lead for the 35 years since the oil embargo, but hey, a few questions which have nothing at all to do with getting at the truth, yep, that’ll help. You want to expose the reality, have the executives describe how the spot market works, how they collaborate with OPEC nations to produce and regulate supply – with far more influence than the President of the United States could ever hope for. Then maybe the US people will fully grasp that the fix has been in for a long, long time – ever since American Oil Company (you’d know them as Amoco if you’re older than 12) – leased it’s first pumps in Saudi Arabia in the 1940’s.

The shame is on the Senators for this sham spectacle dressed up like it meant something. They asked no meaningful questions, got no meaningful answers, and provided no meaningful insight. It was further salve on a festering problem, and it was much sound and fury amounting to nothing.