Oil industry under fire in Washington

Posted Wed Apr 2 2008 12:39 PM by Nelson Ireson

As oil companies rake in record profits and pump prices soar ever higher, Democrats in Washington are asking why the industry is fighting so hard to keep massive tax breaks. The answer - simple supply and demand - seems to fall a bit short. But it's one thing to see the problem, and another entirely to be able to fix it.

Senior representatives of BP, Chevron, ConocoPhillips, ExxonMobil and Shell were recently called in front of a committee on energy independence and global warming to defend their actions. In the face of $55 billion in combined profits, the lawmakers wanted to know why so little had been invested in alternative fuels research and why the companies were working so hard to protect tax breaks amounting to $18 billion. Democrats recently voted to remove the tax breaks, but President Bush has pledged to veto the removal.

The oil company representatives tried to make the case that the tax breaks are necessary to drive investment that could lead to more oil production - from areas protected from drilling for environmental reasons, reports The Guardian. The rationale seems to indicate the companies believe that more supply could help drive down prices, although ExxonMobil's standalone profits of $40 billion seem to refute that premise - the companies clearly aren't fighting to remain profitable in the face of stiff competition on price.

Despite its massive profits, ExxonMobil is investing only $100 million in renewable energy research and development. Most of its cohorts are investing similarly small amounts in relationship to their profits. It's understandable that the oil companies are not keen on finding new ways to make their product obsolete, but on the other hand it's hard to understand how an industry taking $55 billion to the bank annually could be dependent on tax breaks.

Whether the committee's review of the situation will result in anything concrete - in terms of lower prices at the pump or increased renewable fuels investment - remains to be seen, however.

Reader Comments

Wed Apr 2 2008 2:01 PM
Jason says

"The oil company representatives tried to make the case that the tax breaks are necessary to drive investment that could lead to more oil production - from areas protected from drilling for environmental reasons, reports The Guardian."

What, so they can use that money to funnel back in the pockets of lobbyists and politicians to get access to protected areas? What a vicious and cruel cycle.
Wed Apr 2 2008 2:10 PM
Ivan says

The answer is simple - you can't fight oil companies, especially if they are backed up by the President.

With that much money, they can do w/e they want, deal with it, $4 gas is only months away.
Wed Apr 2 2008 5:37 PM
Gus says

I've got a little secret for all of you fools.

Shhhh, don't tell anyone ok?

THESE ARE PUBLIC COMPANIES.

Buy some stock and shut up. Trust me...
Wed Apr 2 2008 8:06 PM
worldbfree4me says

@ GUS

True indeed Gus, these are public company's, but before your good buddy Bush came to office, Oil sold at $30/barrel and you and me both paid $1/gallon. Its clear to me that we the consumer are taking it in the shorts without any Vaseline period! Bush and his cohorts can forget about a trip to heaven. I hope it was worth it to stick it the little men and women out here living day by day pinchin penny's to make it!
Wed Apr 2 2008 8:22 PM
Gus says

Well, by investing in these companies I've made more money than I'll spend on gas for years, so what can you do?
Companis are in business to make a profit, and taxes don't solve anything...
Wed Apr 2 2008 9:23 PM
MyWheelsOnWalls.com says

I'm with Gus on this one. Also for the record the ban on drilling in enviromentally sensitive areas was done by Clinton just as he left office thus driving up the price just as Bush stepped into office. Nice move!!!!!

Once again George takes the rap from one of Bill's moves. Invest in oil people after all the money I make as an indiviidual is what pays my mortgage and not a government hand out.

Although like Gus I am thankful for Clinton's ban because I too have money in Oil stocks.
Wed Apr 2 2008 11:44 PM
Gus says

Well, some people see everything as someone else's fault. I'm sure that terrorism wasn't brewing during the Clinton years either, while he was playing hide the cigar...

But back to the topic at hand, yes the price of oil is high, and yes the price of gas is high, but you can look at article after article after article and they all say the same thing, these prices, all of them, are market driven. And, people are willing to pay them. And, they aren't that high. Look to Europe if you want to see high.

So, if the market doesn't like the prices, people will buy more economical cars (as is already happening in DROVES, at least in Southern California). This drives down demand and drives down (or holds down) the price. In 10 years you'll probably hardly see new Expeditions and Suburbans compared to 5-10 years ago. Only the people that really need them will buy them. Sports cars will be more of a luxury, and the normal car will be a Camry, or maybe a Taurus, getting 25-35 mpg. So be it. That's life.

Maybe soon we'll come up with quick charge batteries. A car that charges in 5 minutes and offers similar range to a normal car will sell like crazy. No oil changes? No maintenance? Why not?

There's lots of new technology just over the horizon, I mean it's really close. It's not all doom and gloom, and it's not all George's fault...
Thu Apr 3 2008 12:22 PM
Jason says

@ Gus

I'm not sure why you called me a fool? I just pointed out a cyclical fact of DC. I wasn't pointing fingers at anyone or even saying that I shouldn't buy oil stock to make money. I do thank you for the simple economics lessons though. Not sure where else I would have learned that without your help. Maybe next you'll say I should buy stock in financial companies? Oh, or better yet, Halliburton?

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