Obama Clueless on Oil Economics

"John McCain’s support of the moratorium on offshore drilling during his first presidential campaign was certainly laudable, but his decision to completely change his position and tell a group of Houston oil executives exactly what they wanted to hear today was the same Washington politics that has prevented us from achieving energy independence for decades. Much like his gas tax gimmick that would leave consumers with pennies in savings, opening our coastlines to offshore drilling would take at least a decade to produce any oil at all, and the effect on gasoline prices would be negligible at best since America only has 3% of the world’s oil. It’s another example of short-term political posturing from Washington, not the long-term leadership we need to solve our dependence on oil. Instead of giving oil executives another way to boost their record profits, I believe we should put in place a windfall profits tax that will help to ease the burden of higher energy costs on working families, and we should invest in the affordable, renewable sources of energy that Senator McCain has opposed in the past,” said Barack Obama.

After reading this from the Obama campaign, I’ve got to say that I think Obama may be the most clueless politician around when it comes to economics; particularly the economics of oil. Where to start? While there are many issues I have with his statement, two in particular are especially horrible.

First, he complains that, “opening our coastlines to offshore drilling would take at least a decade to produce any oil at all.” This is the same argument Bill Clinton made in 1996 about drilling in the Arctic National Wildlife Refuge [ANWR] when he vetoed legislation allowing the drilling. It would have been very nice if oil from ANWR had started pumping in 2006. 500,000 barrels per day may not have solved all of our problems, but would certainly have impacted our economy in several ways. First, assuming that drilling in ANWR didn’t impact oil prices, this would have reduced our trade deficit by almost $20 billion per year. The reality is that it would have also impacted oil prices, so the price of imported oil would have dropped, reducing the trade deficit even more. The irony of Obama’s statement is that he then calls McCain’s position “short-term political posturing.” It is amazing to me that Obama complains off-shore drilling will take too long, then speaks of short-term posturing on McCain’s part in the very next sentence.

His position on off-shore drilling is bad, but not as bad as his support for the windfall profits tax: “I believe we should put in place a windfall profits tax that will help to ease the burden of higher energy costs on working families.” This is one of the dumbest statements imaginable and proves Obama has no clue on how the economy works. The windfall profit tax will not ease the burden on working families, but will put a tax directly on them. Here is how a windfall profit tax will work in practice:

You have a company like BP (BP) that pumps oil out of the ground in Russia with Teekay Tankers (TNK). This oil is then refined overseas. Once they have products like gasoline and diesel, they then decide where to ship these products since there is a surplus of gas and diesel in Russia. Option 1 is to ship it to the U.S. Option 2 is to ship it elsewhere. If you ship it to the U.S., your profits will be taxed with a windfall profit tax. If it is shipped elsewhere, it will not. BP will ship the product elsewhere until U.S. prices increase enough for the NET profit of shipping it to the U.S. equal the NET profit of shipping it elsewhere. In other words, pump prices will have to increase the amount of the windfall profits tax to make it worthwhile to ship to the U.S. I’m not exactly sure how this eases the burden on working class families.

Comments

[Rokjok777]

windfall profits tax = bad idea. Continuing ostrich-head-in-sand energy policy of current administration (and third termer McCain) = much much worse idea. America needs to move from black gold to green gold. Look at Toyota: they saw the writing decades ago, now they own the hybrid market while GM and Ford lose share. But with the current (and McCain) crowd we'll continue massive subsidies to oil & gas companies while conservation, fuel cell, hydrogen, solar, wind, tidal, and geo wither. Great for big oil, great for America?

[Saul Sterman]

Very nice article!

Two suggestions:

1) Instead of opening an article with a quote, first state something like "I find the following quote to be ....", then the quote.

2) We are all aware of the energy issue/problem and that a coherent energy policy doesn't exist. Instead of just pointing this out, how's about some positive thinking; attempt to formulate a national policy or directive. I understand that this was not your objective in this article, but you seem like a smart guy… so how's about doing something for your country!

My contribution can be seen here:
www.crossprofit.com/ar...

As you can see I practice what I preach! I'm not saying that the above linked article is the only viable solution to our (and the worlds) energy needs, however, at least it is doable and solves more than one problem. In conjunction with other measures we can thwart the gradual ruination of the U.S. economy.

As stated in the linked article, this would give us a desperately needed time reprieve for renewable sources such as solar energy and others to come to fruition.

Perhaps inherently patulous, yet any reasonable person understands that technology develops in stages. No technology attains its pinnacle without going through various development stages first. See the example in the article.

The SA version of above linked article and comments can be seen here:
seekingalpha.com/artic...

Saul Sterman

[pachanguero]

Obama is Jimmy Carter all over again. He is a cigarette smoking, socialist, racist lawyer.
And has special interests up his ass.

I am not a republican I am independent however I will vote for McCain this time as the choice is so clear.

A racists fake cigg smoking hypocritical lawyer or a honorable decent old dude.

[User 154465]

At least with Obama as President the US will again find it’s moral compass and the world will be a much safer place.

[Semper Gumby]

User 154465,

Does that compass point point to grid north or true north. Safety is relative from zip code to zip code.

[paultaut]

With Obama as president the US will allow Genocide.

The US will never intervene again and will placate rather go against the wishes of the World's Dictators.

The US will insulate itself from the outside world.

[User 212203]

so you think bp and exxon would let their refining assets and their huge retail systems just wither on the vine. unlikely

the US is a net exporter of distillates btw.

the windfall profit tax is not cut and dry. the rationale for companies benefiting from these external events - peak oil or whatever you want to call zero supply response depite a 650% increase in price - is that they invest to solve the problem. if they dont, then a tax might not be a bad idea.
this country desperately needs an energy policy.
we can either tax gasoline more - politically suicidal i know - and keep the cash here, orr we can let the market "work" and let oil run up to 300 bucks on its own in which case the money goes to the energy producers. its pretty cut and dry. either the money stays here or it goes abroad.
i agree on anwr though, its idiotic that the us doesnt drill there. if americans want to be so inefficient, let them trash their own backyard.

[yank]

I think it's admirable to try to get everyone into a hybrid until you actually go to your local Toyota or Honda dealer and see that a hybrid costs $3-5k more than a conventional engine and that you would have to drive it for 9 to 10 years until you breakeven. Let's get real shall we? The average middle class driver can't AFFORD a hybrid. And they are the ones getting crushed by higher prices right now. As for the windfall profits tax idea; that has to rank right up there with wage and price controls as one of the most idiotic suggestions yet. And the comment that "We can't drill our way out of this mess" is also empty rhetoric. What do you suggest? Sitting at home by candlelight and singing "Kumbaya"? We need to be doing several things such as:

1. Conservation.
2. Increasing efficiency of fuel use.
3. Increasing supplies (did I hear someone say "drilling"?)
4. Govt subsidies for exploring alternative fuels that have a reasonable chance of either supplementing or eventually replacing fossil fuels.

Simply put, Barrack Obama based on his staggering lack of experience is not qualified to be the President of the US.

[oldfolkdancer]

The reason Big Oil Companies profits are SOOOO BIG is because of all the consolidation that took place in the past turning many smaller companies into fewer larger companies. The consolidation took place as a cost saving strategy. And for this they and stockholders should be punished?

[Mmarrkk]

You could have titled the article "Obama Clueless on Economics" as he is equally inept at all economic theory EXCEPT the theory of Marx, Lenin, etc. Oh, and Robin Hood! Steal from the rich, give to the poor. Take away from the producers, give to the takers.

He is a disaster waiting to happen. It will take many years to recover from his crap, much like it did with Carter. Unfortunately, he has the vote of the young who are too inexperienced to know good economics from the tattoos they all love to have, minorities because he either a) panders to their nanny-state needs or b) their racist tendencies and then the just plain stupid (Al Gore, for one).

I just hope McCain can stop him. Or maybe his wife can open her mouth again. Or her preacher. Or his scandal ridden past. Anything, please!!! I fear for our country with this joker in charge.

[bowater]

you are 100% right with this article.
we must open all ways to take the energy burden off the USA.
our standard of living goes down with every increase in oil price.
ie. my cousin has a wife and 4 young kids. they used to go to the movies and dinner once a week. with the extra $50.00 a week that he has to spend for gas, he cannot do this activity any more. that is a depreciation of his standard of living.
the money going for gas and not entertainment.
we must get our Democratic Senators and Congressmen to act now, so we don't suffer in the future.

[Mmarrkk]

The only way to get a Democratic Senator or Congressmen to do anything is to either a) ensure it provides them money in pocket either now or in the future, b) makes Bush look bad, c) supports taxing more earners and giving away more money to failed projects and programs. Well there a few more, like if you can get Murtha in a position to hang out to dry a US servicemen, or if you can ensure Obama with a huge discount from market value on a property deal, etc. But don't get your hopes up. The Dem's are forever locked in their socialist agenda.

And I don't have much hope for Repub's either. Only a few are true conservatives and many suffer similar issues as Dem's. Except the tax side. Their only true difference from Dem's...they don't want to tax us to hell. If they only could stop spending like drunken Democrats! Sorry Teddy.

[paulk8756]

I don't understand how you all can be so down on Obama. Why, he's full of good ideas, one of the most recent being a $4,000 college scholarship for kids who do 100 hours of "community service." That works out to $40 an hour, or some 6X the minimum wage. No wonder the kids love him!

[Brian Pursley]

Obama isn't clueless: he's a Harvard-trained Bolshevik who believes in totalitarian government control of capital and dependence on foreign oil.

[carbonates]

You make excellent points. To elaborate, a windfall profits tax would only affect US oil companies. Since NOC's (National Oil Companies owned by foreign governments) currently control most of the oil produced, they would then have a competitive market advantage over American oil companies. The result would be MORE imported oil, a LARGER trade deficit, a WEAKER US dollar, more INFLATION, lost jobs in the US oil sector (which despite its relatively small size is a well-paying sector), and HIGHER prices for oil products. Obama is following the lead of Hillary and is simply pandering to the uninformed, believing that if he promises something that they will vote. Never mind that his ideas are ludicrous.

[Joyful Alternative]

A vote for McCain is a vote for 100 more years occupying Iraq with 38 military bases. Money borrowed from China to occupy Iraq does not bode well for America's financial future.

Currently, this administration has in place no tax incentives or other encouragement for replacing home heating oil or for installing geothermal systems. That is, at best, short-sighted.

And everyone does know, don't they, that Jimmy Carter installed solar heating panels on the White House and Ronald Reagan had them removed. We'd be so much better off if so many dopes hadn't been charmed by an old grade B movie actor repeating his favorite roles.

[paulk8756]

Here's the good news... If we became energy independent beginning with utilizing our domestic oil and gas reserves, we could leave Iraq in the next hundred days, not years.

But even better... We could get Obama to finance the cost of solar arrays on every house in America. At $40K per or so, that sounds like it's right up his alley.

[alphameister]

The comment by Brian Pursley is right on the money. Obama might be closer to Hugo Chavez than he is to the incompetent Jimmy Carter.

[Waiting for action]

Looks like the issue will be divided again... The Republicans on the get more product and use supply and demand to solve it and the Democrats on the other - tax the "Big Oil" companies and do nothing about supply - hit the consumer in the pants for being too wasteful and the best - wait another 100 years to act on this issue...

Get real... Windfall Profits Tax did not work last time and it will not work now. The only thing that will work is working hard to produce what we have and find an alternative to the black stuff!!

Our elected officials need to be held accountable for this mess... We should demand that they use every means possible to let the world know, especially the other producers, that we the largest consumer will not be held hostage by them. Open up the flood gates and start drilling and refining some US oil from any place we have reserves....

[Waiting for action]

Another thing... Why can Hugo Chavez and Castro drill 50 miles off Florida and we can't?

Who is better at making sure we do not create an environmental problem? The US producers that we can control or Chavez/Castro who we have not been able too???????

[User 186719]

The oil companies already have plenty of off shore drilling leases they are not using. How would giving them more leases produce more oil? A better idea would to make them make lease payments on leases that are not being used. Also, I think Obama'a plan for windfall tax would only apply to companies that are not putting profits back into new resources. I think that is a very good plan.

[paulk8756]

User,

Here's a news update for you. The oil companies are drilling their leases as fast as they can. The problem is it can take YEARS to do the environmentals required to get the permits courtesy of the Congress (...not to mention the lawsuits for onshore exploration).

Don't you think the Greens and their minions in Congress all KNOW this, and it's but another SUBTREFUGE for not drilling at all...?
Everyone's going to have to wake up to what's REALLY going on in Washington for us to have any chance to get out of this mess.

You can add this one to their growing list for why not to explore: There's not enough product to be worth it... New oil wouldn't lower the price... Speculators are gaming the market... We have to stop global warming... And, last but certainly not least, my all time favorite, "Let's sue OPEC!"

Just remember who to thank when you're filling up (...at the future price of $6-8!!), the GREENS and the DEMOCRATS in Congress.

[paulk8756]

Today's headline: "Dow falls below 12,000 as economy continues to suffer." ...and as Democrats reject calls for additional domestic oil and gas exploration. It bears repeating, it's not SPECULATING on higher oil and gasoline prices when you're betting on a SURE THING!

[akapital]

If Economics was a science then your article might have some merit. But economics is not a science. There are no constants. There are no constant objective principles like gravity or inertia. Its some combination of theory and carrying out of policy (mostly out of pure fiat, more commly known as market forces or sometimes invisible market forces).

Therefore, such claims that one idea is baseless or dumb or clueless is generally totally founded on ideology. Yours is rooted in the status quo of oil dependency, so of course any alternative appears backwards or clueless to you (this appears to be more of a shortcoming on your part). The fact that you do not even consider an alternative view limits your thinking and vision....but you have the numbers...and numbers win the wars...until the well runs dry anyway.

[jackooo]

"This is the first time I have been proud of America".
Pull oil company incentives. Then we can pay more to subsidize their products.

[Solution]

The solution is actually very simple:
1. Tax non-energy-saving vehicle and pay it as incentive to energy-saving vehicle. Make sure energy-saving vehicle is actually cheaper as a result. Gradually increase the tax as years go by.
2. Increase electricity and heating cost but pay twice for solar energy generated on each household roof. If you have solar system gererate 50% of your bill, you will enjoy $0 utility.
Do I get you vote for president of 2008 ?

[User 96623]

This is Republican BS that will try to get McCain elected. What a Tragedy this would be.

[paulk8756]

I will grant you that McCain is simply Obama-lite.

[halconnoche]

One of the more positive trends I see from the higher gas prices is the undercurrent of anger I hear from people I talk to each day. Not at President Bush or Big Oil, but at Congress for allowing a minority of environmentalist to control our country's energy policy. This is the type of undercurrent that the media consistently underestimates and could cause Obama to fail miserably in November. Raising taxes and hamstringing the companies that can search for oil does nothing to produce one more gallon of gas or kilowatt of power.

[surgcare]

Moral compass !!! Who's moral compass . You mean its ok to lie to people by telling them that gas prices will come down by taxing the oil companies . The democrats compass points directly to "hypocrosy" .

[caddy]

Until either of them start addressing conservation practices and sustainable energy incentives this is all hot air, and for Mr. Schleien to perpetuate this is both irresponsible and reckless. Frankly i'm disappointed that this article has gained so much traction from so many seemingly intelligent people. Obama thumbs down, McCain thumbs down, Mr. Schleien thumbs down. You can all do better. Take a lesson from Mr. Tim Russert.

[User 189732]

Howsabout we get pissed about all the subsidies going to huge farming/agricultural conglomerates - after all, we need food more than gas and their profit margins are stunning compared to the oil industries paltry margins of 5-10%.

Our energy problems have come to roost after nearly 50 years of piss poor strategies. We may see some respite from our gas prices but in reality, the longer term picture is a view with ever increasing prices.

Of course, you could move to Venezuela...

[AviGandhi]

Some of this is ridiculous.

Back to the question at hand: the article posted above.

I wholeheartedly agree on the windfall profit idea, though if he were to reinvest the tax revenue into developing electric cars (like the sweet sweet Tesla) that are affordable to the masses (unlike the sweet sweet Tesla), it could have middle-to-long term benefits.

Relating to ANWAR and offshore drilling, though, I think you're wrong. ten years from now, I would argue that we will be past our need for oil. Furthermore, Clinton prevented drilling in ANWAR because of what ANWAR is: a wildlife reserve. Drilling in the region (as well as off state coasts) would devastate ecosystems there. Using the "it'll take to long" argument, at least in Clinton's case, was to get bear-hating oil lobbyists off his back. And you're right: 500,000 BPD would do approximately jack-shit to alleviate our energy problems. At this point, more oil/gas is no longer a solution. It's time to get creative.

To others commenting on this article:

Paultaut: Sort of like our President, who won't do shit about Darfur, Tibet, and Myanmar is now?

Pachanguero: Thanks for contributing intelligently to the discussion. Your points are well thought out and eloquently expressed. Just one question: in what way does Obama "have special interests up his ass" that McCain doesn't?

Waiting for Action: In what way do we EVER control U.S. producers?

Brian Pursley: Obama doesn't believe in dependence on foreign oil, he believes in abandoning oil. You can't be dependent on foreign oil when you have windmills and clean-coal plants powering an electric grid that then powers the car you plug into the socket in your garage. And let's be honest; if Iraq had no oil, we wouldn't be there (Darfur, anyone?) so McCain, in wanting to stay in Iraq, is the biggest proponent of dependence on foreign oil.

[Joyful Alternative]

Hugo Chavez is drilling in Key West now? The last disproven rumor was that Mao was drilling off Florida. Why would Chavez need more oil with those tar sands around Maracaibo?

[twistandshout]

None of the candidates has convinced me on energy, they are both pandering in about equal amounts.

The Obama = marxist comments are downright laughable though. Always entertaining.

[The wizard of Wall street]

AviGandi - Your comments are non-senseical. Where do you think the power to power electric cars comes from? Currently we burn coal and NG (very little nuclear) look at the numbers of power loss - It is currently worse for the envt to use electric cars than a gas powered car. Global warming is the biggest hoax ever, congress loves it because it gives them a reason to tax us. I am a scuba Diver and have been diving near oil rigs, not only is the water pristine , marine life flourishes there. You have been brainwashed by the greens. The reason why we dont use alternative energy is because of those same green morons in congress - the only way to create enough energy to remove oil from the picture is to go nuclear, (which Obama does not support). I find it amusing how he bashes McCain about campaign finance but is cheating the system himself.

You cant tax your way out of supply and demand, think about your arugement, you say were dependent on foreign oil, but your against drilling here, sounds hyprocritical to me.

[muley101]

You guys need to understand what is really happening with the Dems. They believe that they have the election won as long as they do not skrew up. Their strategy on all fronts is to talk a lot and say nothing.

[JAAG]

WOW!!!
Most of you are clueless and have been brain-washed by the oil companies; I guess their marketing is great and effective. Here is the deal Brazil has developed ethanol technology and it has become virtually independent of foreign oil. If Brazil did it in 2007 doesn't that mean that the USA could have done it 20 years ago? or so? Of course but oil companies control the government. Oil companies are squeezing the last dollars from their infrastructure and laughing all the way to the bank. I predict that when there is no more oil left miraculously the oil companies will have alternative energy infrastructure available to make money on their new industry.
Obama is extremely smart and so much more so than all of you brain-washed, programmed dummies, Mcain is the one that has admited himself that he needs to be educated.
The windfall taxes he proposes are set to finally find alternative energies; in other words if the oil comapnies invest a lot of money then they will no see a wind fall tax if they refuse then Obama would tax them and use the money to develop new technologies as well as giving the middle class a tax break !!!
You people don't get it but that's ok; Obama will save you too.