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FTC Investigates Oil Price Manipulation

Written by Steve Austin for OIL-PRICE.NET

Friday, 15 July 2011 10:10

The price of gasoline does not always follow changes in the price of crude oil.

By STEVE AUSTIN for OIL-PRICE.NET, 2011/07/11

This article was written by <a href="http://oil-price.net/en/articles/ftc-investigates-oil-price-manipulation.php">Oil-Price.net</a> which provides free information on crude oil.

Oil prices are at it again. In June 2011 rates have dropped almost 20 percents from the $114 high that it touched 4 months earlier. Going by the current trades, oil prices are hovering slightly below $98 as we enter the third quarter of 2011. The media, scrambling for an explanation it seems, has been quick to attribute these rapid fluctuations in oil price to the unrest in the Middle East and natural calamities across the globe such as the Japanese earthquake and tsunami. But the Federal Trade Commission (FTC) begs to differ. In fact, extreme fluctuations in oil prices over the last few months have led the Federal Trade Commission to launch a full-fledge investigation into the oil and gas markets.

FTC Investigation

The FTC wants to find out if there has been any kind of anti-competitive conduct or any price manipulations responsible for this. Many see the price variations as a ploy on part of the oil companies to boost profits rather than in keeping with the market trends. The FTC investigation was triggered due to the fact that the oil industry displayed major profits despite claiming decreased usage of capacity. The investigators will analyze why the refinery operators decided to close down some equipment for maintenance. Such a move often translates into a spike in oil and gas prices. The utilization rate this year was the lowest for the same period in nearly three decades. In view of these concurrent events, price manipulation seems quite plausible.

Politics of the Move

Democratic senators have endorsed the FTC move to conduct a thorough investigation into the matter. This is in sharp contrast to the situation in mid 2008 when oil prices touched $145 while George W Bush was the President.

An oil man from Texas, Bush was renown for his affinity to the oil industry and so was vice-president Dick Cheney, formerly the CEO of Halliburton, one of the largest oil servicing companies. Consequently, it seems, the previous administration was least bothered about looking into possible price manipulation. But in 2008 the dynamics of politics have shifted and the Obama administration is not so much at a conflict of interests. As a result of this shift, the government set up a task force comprising federal and state agencies to probe the matter.

Refineries or Speculators

Though the Democratic senators have pointed the finger of suspicion at oil refiners, the FTC has stated it will not restrict its investigation to just one aspect. Oil producers, transporters, marketers, and traders will all come under the scanner. Furthermore, the FTC stated that it will also verify whether any of these have been feeding misleading information about the price of oil to any federal departments or agencies. The FTC is acting under new regulation known as the "Petroleum Market Manipulation Rule" which came into effect in 2009.

FTC investigators have been granted the authority to request and obtain all documents pertaining to the shutting down of some refineries. Once guilt has been established, the FTC also has the power to impose penalties on the companies that adopt such unethical practices. Oil speculators have also come in for their share of the blame for fluctuating crude prices. It is estimated that today about 80 percent of oil futures are in the hands of speculators whereas this figure stood at about 35 percent back in 2001. Independent analysis has demonstrated that the price of each barrel is inflated by at least 8 cents for each million barrels of oil controlled by speculators. Given this data and the current volume held by speculators, the fair price of a barrel of oil should be somewhere between $60 to $70. Needless to say, the impact of speculators is significant: if crude was at $70 then the price of gas at the station will come down to about $2.70.

Defensive Claims

The International Energy Agency (IEA) has come to the defense of the refiners by stating that record low utilization of refineries does not mean that gas and oil prices are being manipulated. IEA representatives backed the oil industry claims that global demand and supply were responsible for the spikes and dips in the oil price graph. This gave some credibility to the stance of oil traders that recession, greater unemployment, and mixing of ethanol into motor fuel had weakened demand for gasoline causing the refineries to stay put.

The IEA has also disbelieves that speculation was largely responsible for the volatility shown in gas prices of late. Agency representatives attribute this to the fact that speculative trading in oil has been lackluster over the past two years. Refiners' trade groups have termed the investigation a waste of time and money.

More Regulations, Absence Of Enforcement

Although full of good intents, this investigation will likely not result in any punitive action or affect any trader's practice. By comparison, 100 years ago, President Theodore Roosevelt lived by his slogan "Speak softly and carry a big stick". Through matching his word with action, President Roosevelt became the first American to earn a Nobel Peace Prize. Now nearly 100 years later President Obama, also a Nobel Peace Prize winner seems intent to follow the opposite slogan: "Be loud and carry no stick".

A leitmotiv has emerged over the last few years plaged with crisis (all caused by lack of enforcement). First in response to the banking crisis, many new regulations were put in place. But the already existing regulations would have averted the crisis, had they been enforced. The BP spill is another example: legislators were quick to push new deep-water drilling regulations whereas the existing regulations would have averted the disaster, had they also been enforced.

Whatever the FTC concludes will likely follow the same pattern. New laws, regulations will supercede existing ones with either no clear way to enforce them, or whose enforecement will hinge on officials eyeing a second career in the private sector, thus causing a conflict of interest and creating an incentive to "carry no stick". Instead of examining the root causes of the matter and bringing the real culprits to book, an easy scapegoat might be targeted and made an example of. For many it will feel like not all are equal under the law, and rightfully so.

Last Updated on Friday, 15 July 2011 10:23

Why Gasoline Prices Refuse to Slide

Written by Steve Austin for OIL-PRICE.NET

Friday, 15 July 2011 10:37

The price of gasoline does not always follow changes in the price of crude oil.

By STEVE AUSTIN for OIL-PRICE.NET, 2011/06/27

This article was written by <a href="http://oil-price.net/en/articles/reasons-why-gasoline-prices-refuse-to-slide.php">Oil-Price.net</a> which provides free information on crude oil.

Crude oil prices have been in the news off-late for the sudden fluctuations in the international market. Various factors such as a weak global economy, a strong dollar, and easing of tensions in the Middle-East have all led to the fall during the April-June 2011 period. The price per barrel of crude is around $90 as of June 2011. However, the price of gas at the filling station has stayed pretty steady at $4 per gallon or thereabouts depending upon which part of the country you live in. According to our estimates, the price of one gallon of gas will average at around $3.86 during the summer holiday season of 2011.

Factors Influencing Prices at Retail Outlets

The price per gallon of gas at the pump is determined by various complicated factors and a whole range of issues which includes - the demand and supply of crude oil along with factors like inflation, local taxes and changes in currency valuations. A typical breakup of the per gallon gas price would be as follows:

Price of crude oil - 68%
Federal and state taxes - 14%
Refining costs - 10%
Distribution and marketing costs - 5%
Profit margins - 3% Though demand and supply is responsible for substantial hikes, "free enterprise" is to be blamed at all other occasions. And how? The moment there is speculation that crude will be trading higher, retailers usually increase their prices in an attempt to keep their margins intact for future purchases. Contrarily, when the price of the crude decreases, retailers are not inclined to lower rates as fast as they have raised it in order to maximize profits.
When the crude is in an upward spiral, the retailers have little or no opportunity to earn profits. But when the crude is cheaper, they see a chance to capitalize on the situation and delay lowering of prices at the pump. It might be correct from their point of view because if they suffer losses, they may have to shut down their business. This in turn will lead to fewer jobs, lesser competition and even higher gas prices.
Blame the Government

For the present situation, lay the blame on the federal monetary policy for the spiraling commodity prices, including the oil. The Obama administration's proposal to do away with tax breaks for the oil industry has increased the cost of production; this is reflected in form of high gas prices at pumps. The fact is, not only major oil companies, even small domestic firms are being affected by this move. Small firms account for about 90 percent of the country's oil and gas wells, and abolishing tax breaks does not bode well for gas prices in the domestic market. Reduced domestic oil production and supply will lead to greater reliance on foreign oil pushing us into the vicious cycle again.
The government also recently decided to curtail drilling in the Gulf of Mexico. This has led to supply shortage of 10 percent making gasoline more expensive. And this according to me has made profit-loss graph equation of oil companies very volatile. In simple terms, they make a profit when the going is good and the moment they feel threatened by higher taxes, they simply transfer the price rise to consumers.

Stockpiling of Crude

There also have been reports that some oil companies stockpile crude instead of sending it to the refineries when the prices are low. The logic is to make profits when the prices rise further in the global market. With the price of crude dropping significantly and demand for gasoline expected to rise with the onset of 2011's summer, these companies hope to make a killing when the crude starts moving upwards.

Gas Tax Woes

Another important factor that determines the price of gas at the pump is the tax that is levied on gasoline sales. Every state has its own policy in this regard and that is one reason for the difference in gas prices across the nation. The national gas tax has stayed at 18.4 cents since the mid 1990s. Tax collected in this manner is usually spent on public transportation within the state. California has the highest gas taxes at about 47 cents per gallon while Alaska has the lowest at 8 cents.
In Indiana, it's double taxation for consumers because the state has a 7 percent tax on sales along with a 8 cents per gallon tax. California, Illinois, and Michigan, also have similar sales taxes though the percentage levied varies. The high price of gasoline has not been a deterrent to the many states planning to further increase their gas taxes. This is because higher prices at the pump fetch more money in the form of sales tax and this boosts the state's budget significantly. Connecticut, Maryland, Hawaii, and Nebraska have passed legislation on gas tax hikes. New York, however, is toying with the idea of doing away with its gas tax of 33 cents a gallon.

Outlook for Gas Prices

We expect that prices will come down during the summer of 2011 and will stay that way till late July or so. This is when the hurricane season would have set in and offshore drilling platforms and refineries often have to shut down operations due to storms.
After a small gain, prices are likely to drop again by the end of October or early November 2011. However, natural calamities or political upheavals in any part of the globe will have an impact on the price of crude and may push up rates at gas stations in their wake. Speculators are also, to a certain extent, responsible for the drastic fluctuations in gas prices.

Increasing role of China in the Oil Market

Written by Merlin Flower for OIL-PRICE.NET

Friday, 25 March 2011 09:01

At present, China is the fourth largest oil producer in the world

Increasing role of China in the oil market

By MERLIN FLOWER for OIL-PRICE.NET, 2010/03/31

This article was written by:

http://www.oil-price.net/en/articles/increasing-role-of-china-in-oil-market.php

Oil-Price.net which provides free information on crude oil.

China, it seems, is everywhere. In what has become a routine, not a day passes without a mention of China in the news, in everyday conversations and predictions. As the next superpower, the country is wielding clout in every sphere possible. The growing influence is felt even in the oil market where the Asian giant is one of the biggest players.

Iraq's oil field is just emerging from the ravages of oil, but China is already there. PetroChina Co. has already got development projects for Halfaya and Rumaila Oilfield in Iraq. The company has also signed agreements for co-cooperation in the oil field with companies in Turkmenistan, Kazakhstan, Uzbekistan and Russia. Last year Chinese companies spent more than $32 billion to secure oil, metal, coal fields in Asia, Africa and Australia. The Chairman of PetroChina Co. has said that the company was planning to invest at least $60 billion for foreign acquisitions in the next decade.

Seemingly, at present, China is the fourth largest oil producer in the world. Last year oil output was put at 189.49 million tons, (3.79 million barrels a day) a fall by .04 percent than expected. According to the National bureau of statistics, China produced about 15.11 million tons of oil in the month of February. But, the country consumes oil many times more. As a result of which imports contribute to as high as 52 percent of the oil consumed.

Indeed, China became an oil importer only in 1993 but has come a long way since. China's oil imports could reach a record 210 million tonnes this year, up by 5.5 %. So how does China go about for energy? Let's see:

In one of the largest export deals for Australia, China National Offshore Oil Corp has decided to buy LNG from BG Group Plc's proposed export terminal in Queensland. Based on the deal signed, China would get 3.6 million metric tons of LNG yearly for the next twenty years from 2014. The deal is estimated to be worth more than $80 billion. Last August PetroChina Co. signed an agreement worth A$50 billion ($46 billion) with Exxon Mobil Corp. to buy 2.25 million tons of LNG with Chevron Corp.-led Gorgon LNG venture.

Of course, this is despite the tensions on the political front. One would remember the Rio Tinto trial where an Australian citizen and three of his colleagues were standing trial (since given 7-14 years of prison sentence) on charges of bribery and for infringing on commercial secrets. Anyway, the trial didn't stand in the way of growing trade relations with China. Also, PetroChina Co., and Royal Dutch Shell agreed to a $3.44 billion deal to buy most of the Australian assets of Arrow Energy Ltd., the coal seam gas producer.

"Australia's trading relationship with China is healthy and mutually beneficial" says Australian Energy Minister Martin Ferguson, "Australia is committed to strengthening that relationship and being an important partner in our region's economic growth."

In other deals, China's largest oil and gas producer, PetroChina Co., which holds about 7.5% stake in China Petroleum Finance decided to raise its holdings to 49%. The move made possible by buying stakes from the parent company China National Petroleum Corp. Thus, PetroChina Co. gets better returns on investment, as it gets finance quite easily.

On the oil reserve front:

§ According to China Petroleum and Chemical Industry Association the volume of oil processing grew by 29 percent this January. The country processed about 7.13 million barrels per day (bpd) in January. § China National Petroleum Corp (CNPC) is filling its commercial oil reserve tanks in Dalian. The total capacity of the oil reserve is 240,000 cubic meters (reports Shanghai Securities News) § PetroChina co. is building an oil hub in Chongqing municipality-capacity 3,000,000 cubic meters. § A new refinery with the capacity of about 200,000 bpd is being built up in the city of Tianjin § A recent poll suggests that the refineries had planned to process oil at a record rate of 2.88 million barrels per day (bpd) of crude in the month of January, this year § Dushanzi Petrochemical project, the 10-million-ton largest integrated refining project became operational and started production. Also on the completed list were Urumqi Petrochemical aromatic hydrocarbon facility and Guangxi Petrochemical refining facility

China National Petroleum Corporation has presence in twenty nine countries in Africa, Central Asia-Russia, South America, the Middle East and in the Asia-Pacific. In 2008, the company produced about 138.75 million metric tons of crude oil and 66.41 billion cubic meters of natural gas.

Last year, PetroChina Co., under its 'High Growth in Oil and Gas Reserves program' made a number of discoveries in Erdos Basin, Tarim Basin, Hailar-Tamsag Basin, Sichuan Basin, Junggar Basin, Songliao Basin, Bohai Bay Basin and Qaidam Basin with 'favorable prospects.' CNPC says it was successful making discoveries in Songliao, Bohai Bay, Ordos, Tarim, Qaidam, unggar, , Sichuan, and Hailaer basins, The company says the discoveries added to more than 500 million tons of proven oil for the next five years.

Report from Chinese Academy of Social Sciences (CASS) suggests oil production to be between 177 and 198 million tons in 2010, which could increase to 182 to 200 million tons by 2015. Still, as stated earlier, China needs huge imports of oil. The crude oil imports were likely to bolster by 9.1 percent this year, according to a February report of China National Petroleum Corp. The domestic output is expected to decline after 2020, says the study. So, after 2020, nearly 64.5 percent of the consumption is set to be met by imports. At the start of the year the oil imports rose as high as 33 percent compared to the same time a year ago.

And, Africa is one potential place for China's oil expansion program. The country is the third largest trading partner of Africa with Angola being the largest source of oil. The top three countries on the crude oil import list last year were Saudi Arabia, Angola, and Iran respectively. As the Nigerian government is planning to increase its reserve capacity to 40 billion barrels of oil with four million barrels a day, it's looking to China for more investment. The country has been battering militants and political tension and is seeking to bring back investments. There are more than twenty licences up for renewal in the oil domain from China with investment of more than $50 billion riding on them.

China's march to find more oil for imports, hasn't been without controversies:
The government has been accused of supporting corrupted governments for oil-Sudan, the case in point. China is Sudan's biggest foreign investor and supplier of weapons to the Sudanese government. In 2007, CNPC signed a deal to explore for oil in North Sudan on the Red sea, in a joint deal with PT. Pertamina, the Indonesian oil company. The trade between China and Africa has crossed $100 billion on a yearly basis.

What China is doing:

The country is offering aid to countries rich in natural resources even if the governments have dubious human rights records. It also doesn't work to forget that Chinese investments in Africa have helped the continent with infrastructure like roads, hospitals, clean water, schools and electricity. This month the Chinese Foreign Minister Yang Jiechi said that Africa's oil imports from Africa accounted for just 13 percent of the total imports, lower than exports to the US and Europe. But then, China is all set to overtake the U.S. as Africa's second largest investor very soon.

Changing dynamics

In essence, China is pumping in massive investments into the oil domain in the form of exploration and licence deals. In fact, that is a good thing as underinvestment could increase the oil prices in the long run. But then Crude oil consumption is rising in China too. The IEA revised the oil demand forecast for China up by almost 100,000 barrels a day. China is expected to consume about 8.7 million barrels a day next year, or 3.6% above 2009, says the IEA. IEA predicts that China will account for about seventy five percent of global oil consumption by 2030.

On the face of it, a multi-polar world is for the better but could the globe afford to have another superpower consuming energy just like the U.S.? Ironically, on the clean energy front, China invested $34.6 billion in 2009, while the U.S. investment was $18.6 billion. But before rejoicing check this news too: In the search for unconventional energy sources the country has signed agreements with Canadian Athabasca Oil Sands Corporation to develop the environmentally disastrous oil sands project. Clearly, China is leaving no stone unturned in its quest for energy.

Last Updated on Friday, 22 April 2011 12:21

Oil Prices down - for now

Written by Giuseppe Marconi for OIL-PRICE.NET

Friday, 17 June 2011 11:58

Oil prices down - for now

Last week, oil prices were at a two-month low of less than $100 per barrel. Many analysts termed the drastic fall in prices a result of the domino effect

By GIUSEPPE MARCONI for OIL-PRICE.NET, 2011/05/16

This article was written by Oil-Price.nethttp://oil-price.net/en/articles/oil-prices-down-for-now.php">Oil-Price.net> which provides free information on crude oil.

The price of crude oil is closely watched by market analysts and the common man alike. This is because the uncertainty associated with it brings frequent fluctuations depending on factors like the strength of the dollar, global politics, and natural disasters. This year has been a particularly unpredictable one and even the most seasoned speculators are having a tough time. Last week, oil prices were at a two-month low of less than $100 per barrel. Many analysts termed the drastic fall in prices a result of the 'domino effect'.

Causes for Decline

Oil had been trading at about $114 at the start of the week and this dropped to $97 by Friday. This fall came in the wake of reports of the death of wanted terrorist Osama bin Laden at the hands of the American forces. In just one week, the price per barrel fell by about $17. It was also the biggest weekly decline in more than two years.

Demand and Supply

The other elements that contributed to the fall in prices of oil were an increase in domestic stockpiles reported by the US Energy Department. The US stockpile stands at 367 million barrels which is the highest in about six months. It shows an increase of about 1.5 million barrels which has been partly due to a significant decrease in demand as compared to the previous year's figures for the same period.

Commodities investors exited from oil after being burned by declining silver and gold prices. The increasing popularity of energy efficient vehicles and cars using alternate fuels has given rise to speculation that the dependency of Western nations on oil will decrease significantly and there will be no way for oil prices but down.

There is also a theory that holds the psychological factor responsible for making the oil market an unstable one. The perceptions that the Middle East has about world issues are thought to be largely responsible for determining their trade policies with regard to oil.

Strong Dollar

The strengthening of the greenback also helped keep oil prices at bay. The performance of the dollar is inversely proportional to oil prices. For instance, if the dollar weakens by about .05 percent the dollar price of oil will rise by .05 percent since oil is traded in dollars. It is the same for other commodities such as gold and silver.

Hence, when the dollar weakens, these commodities appeal to holders of foreign currency. That is when they buy these items and sell it when the dollar rises as commodities then appear expensive.

Labor Data

US unemployment figures compounded the matter further and caused oil prices to stay down. News that OPEC (Organization of Petroleum Exporting Countries) may possibly increase their output targets after a meeting in June 2011, has also factored in determining oil price.

Oil Price and Recession

It is a fact that a strong economy translates into higher prices of oil since there will be a significant increase in demand. However, a sharp rise in oil prices can have an adverse impact on the economy and even bring about recession. When recession sets in, people choose to reduce their driving in an effort to cut costs. For instance, many employees will seek work from home options in an attempt to avoid commuting expenses. If more and more people do this, it will lead to a dip in demand for oil.

Similarly, during times of recession, people tend to cut down on spending in all spheres of life including home needs, grocery, gifts, and the like. When the demand for goods decreases, the need for retailers to ship items to buyers also goes down. Shipping in products from manufacturers is also reduced as a result.

The drop in oil prices has brought relief to many analysts who were worried it would worsen the economic situation globally. They opine that high prices will be a hindrance to economic recovery.

Future Prospects

Oil producing nations hope that the demise of bin Laden might help ease tensions in the Middle East which will help increase oil prices. They had increased production after the breaking out of civil unrest in the Middle Eastern and North African nations. However, it is being seen that demand is falling though supply has risen. This is a strong indication that prices are likely to drop even further.

Many experts expect oil prices to drop to $80-$85 in the imminent future. Economic conditions the world over are steady and no drastic changes are being foreseen by analysts. Combined with the disaster in Japan, this is likely to cause crude oil prices to stay low for some more time. Though this may not appear to be good news for investors right now, it is a positive indication that economic recovery is on track.

Others contend that the dip in oil prices is just a temporary one. They opine that once the economy strengthens, there will be a spike in demand and the price of oil will inevitably begin to inch upwards. This school of thought also says that the present supply is insufficient to meet the needs of booming economies such as India and China, which will boost the price of oil soon enough.

Dramatic fluctuations are predicted to continue through summer 2011, with the rate staying somewhere between $90 and $120. This will be largely due to the rise in inventory, the lackluster US labor data, and the possible repeal of Oil tax breaks.

© oil-price.net 2009, all rights reserved. Permission to redistribute articles from oil-price.net on other sites can be obtained by contacting us. Redistributed articles must contain a copyright notice and a link back to http://oil-price.net.

Last Updated on Friday, 17 June 2011 12:09

End Tax Breaks for Big Oil???

Written by Steve Austin for Oil-Price.Net

Friday, 03 June 2011 14:15

Facing public resentment, Big Oil tax breaks may soon end.

Will Ending Tax Breaks for Big Oil Make a Difference?

By STEVE AUSTIN for OIL-PRICE.NET, 2011/06/01

This article was written by http://oil-price.net/en/articles/will-ending-tax-breaks-for-big-oil-make-a-difference.php">Oil-Price.net> which provides free information on crude oil.

The controversial bill proposed by the Democrats to end the substantial tax breaks extended to the major oil companies known as 'Big Oil' did not make it. Big Oil commonly refers to the five industry giants - Exxon, Shell, BP America, Chevron, and ConocoPhilips. It is estimated that these companies have garnered profits of about $900 billion in the past decade alone! The rise in prices of gas and crude oil has fetched them over $30 billion in the first quarter of this year. Despite this, over the years, the federal government has been providing them with various types of subsidies through tax codes.

Since direct grants would put the focus on the government's preferential treatment of Big Oil, they extend benefits in the form of deductions, credits or exemptions; in short, tax breaks. Now, the Democrats have come up with a proposal which suggests doing away with some of these tax loopholes for the oil companies. Known as the 'Close Big Oil Tax Loopholes Act', Democrats claim that this will help rake in up to $21 billion over a period of ten years and thus, help bring down the budget deficit.

There are suggestions that the savings will be better utilized if diverted to promotion of clean energy programs. Solar and wind are the energy options of the future and developing these is likely to be high on the priority list of the federal government for quite some time to come. Though stopping these tax benefits has been on President Obama's agenda for long, it has taken him three years to propose any action on the matter. His detractors see this as a ploy to curry favor ahead of an election year.

The Politics of the Issue

With gas prices touching $4 per gallon this summer, the move to eliminate tax breaks is being seen more as political rhetoric than anything else by analysts. In reality this move will not impact much on the federal deficit or even the prices at the pump. At best this move may somehwat appease consumers (as well as earn votes) and only serve as a kind of vengeful retribution and will not actually translate into any benefits for the government or public. It will also have a negligible adverse impact on profits for the oil companies.

The public views Big Oil with resentment mainly because of the clout they wield and the money that they rake in. The common man sees the price of gasoline at the pump and an increase of even 10 cents produces outrage against these oil conglomerates. Hence, any kind of action that hints at reduction of benefits to Big Oil is welcomed and appeals to the emotions of the layman.

Big Oil Executives' Defensive Statements:

Though the figures and analysts say otherwise, the honchos of Big Oil did not hesitate to term the proposal detrimental to the American economy, when they appeared at the Senate hearing. They claimed that doing away with the tax breaks will lead to job cuts and investors' exit from oil. This is in contradiction to earlier claims by Big Oil saying that they do not need incentives or subsidiaries from the government for oil exploration purposes. Also, Big Oil executives claimed that it was unfair to target them alone while many other industries are also sharing these tax breaks. They also urged the administration to encourage drilling if it really wanted to keep gas prices in the country down.

The PR departments of Big Oil have also been successful in propagating the myth that ending subsidies for them will lead to significant increase in taxes for the rest of the population.

Republican Stand

Republicans are protesting against the move and claim that the measures will have no impact on existing gas prices. The matter will be voted on later this week and it seems highly unlikely that the Democrats will win the vote in the Senate and the House of Representatives.

At least two earlier attempts to scale down on tax breaks for oil companies have failed in the Senate. Even if they don't win, Republicans sure will have gained sufficient political mileage from it which will stand them in good stead in the elections next year. In an attempt to garner support for their proposal, the Democrats have embarked on an online campaign. They are planning to use grassroots-level activists to target Republican senators on their support for Big Oil.

The Republicans have also come up with a bill 'Offshore Production and Safety Act of 2011' which favors American exploration and offshore drilling ventures. This addresses matters such as lease sales in the Gulf of Mexico and in Virginia as well as setting of a timeline for reviewing pending offshore applications.

What Happens to the Profits?

Big Oil executives have been found to be using the profits to boost their personal wealth and enriching their shareholders. Reports say that the profits have been used by executives to increase their stock holdings and to pay out generous dividends over the past five years.

A Real Solution?

Opponents of Big Oil and supporters of energy independence claim that even if the tax breaks are stopped, this will not resolve the bigger issue of price manipulation. They suggest that Wall Street oil speculators be controlled and prevented from raising the prices of oil artificially. It has also been recommended that OPEC members be stopped from manipulating prices, and tax incentives for foreign oil be stopped.

Last Updated on Friday, 03 June 2011 14:25

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