Oil: Simple arithmetic

An average family is likely to spend an extra $750 this year on gasoline, compared with last year. My oil company has informed me it will cost $3,795 to heat my house this coming winter — three times the cost a few years ago. Cash-strapped local governments are trying to figure out how they will afford to operate police cars and heat schools.

People are mad as hell. They want to know who to blame, and what to do about it. How much is involved, and where is the money going?

In 2004, the price of oil averaged about $40 per barrel. That’s almost double what it was when Bush first took office. Exxon-Mobil admitted to $25 billion in profits in 2004, in addition to lavish executive compensation. So we can safely say that $40 easily covers the cost of production, maintenance, depreciation, and plenty of profits.

This year, the price for a barrel ranged from $93 to as high as $145. Let’s assume the average for the year is $125. This is an extra $85, compared with 2004. Just to be fair to the oil companies, assume their expenses have increased by $10 in the last four years. That still leaves an extra $75 per barrel.

The United States will consume 20 million barrels of oil per day in 2008. Multiply by $75, and we see that an extra $1.5 billion is being sucked out of our collective pockets every day! That’s over $500 billion per year. And remember, this is extra cost, over and above any reasonable cost of production and profits. This is a really big deal. It will act as an economic depressant three times the size of the $152 billion “stimulus” package that Congress passed in February.

Worldwide, we are talking about $2.4 trillion in extra costs – 4 percent of the global economy – often paid out of the pockets of people surviving on a few dollars a day.

The oil industry is certainly getting a big share of this loot. The U.S. produces over 5 million barrels per day. Income from domestic production is shared mainly among U.S.-based oil companies. At $75 extra per barrel, these companies are taking in an extra $140 billion this year, just from domestic production. In addition, companies like Exxon-Mobil are global in scope, and get a cut of the extra profits from many of the oil-exporting countries.

In addition to the oil companies, there are traders and speculators, shippers and processors, drilling companies and pipeline operators, crooks and cronies, politicians and parasites. Undoubtedly, they are all sharing in the global loot.

The bottom line: We are being taken to the cleaners, while big oil companies, along with traders and speculators, are cleaning up.

What can we do?

We need greatly expanded federal help for households and local governments. Proposals now before Congress to implement a “fuel stamp” program and expand LIHEAP (Low Income Heating and Energy Assistance Program) should be passed immediately before the winter heating season begins.

The windfall profits of the oil companies, along with freewheeling speculation in the commodities market, should be taxed to pay for these programs.

End the war in Iraq and work toward normal relations with Iran. In addition to using over 100,000 barrels of oil per day for military operations, U.S. policy has resulted in instability and reduced oil production in both countries.

We need a massive program to develop clean, renewable energy resources. Al Gore’s proposal for a 10-year, $1 trillion effort to end our dependence on oil is a good starting point. It could also lead to millions of good-paying “green” jobs.

We need a National Energy Agency to regulate the private oil, natural gas and electric utility industries. It should have the power to control prices and to direct investment for the energy security of the people.

econ4ppl @cpusa.org