Will Cheap Talk on Big Oil Ever Change?
For the major U.S. oil and gas companies, the elimination of $4 billion in tax deductions is nothing. Given the record profits many of the large companies have reported in 2011, and, depending on how one does the math, the elimination of tax provisions or subsidies that allow the companies to pay nothing on drilling expenses incurred on federal land, which also allows companies to claim deductions for drilling in foreign countries, would only make less than a 1 percent impact on their bottom lines. But as President Obama said, this is $4 billion of taxpayer money that is being given to these companies when they are making record profits, and those same taxpayers are paying nearly record prices at the pump as consumers.
The obvious answer would be to end those tax subsidies and provisions, and some members of Congress tried—with an emphasis on tried. A bill voted on in the Senate to end those subsidies failed. The implications of the failed attempt might signal a trend that appears to be unbreakable, the oil and gas industry’s ability to avoid nearly every economic hurdle thrown its way. While there might be several lessons to learn from the failed attempt to end those tax subsidies, including the apparent fact that oil lobbies continue to be powerful, one has to remember that the cost of oil isn’t always caused solely by those companies making record profits on the commodity.
The Commodity Futures Trading Commission is currently suing two crude oil traders for manipulating oil prices. The CFTC alleges that James Dyer of Oklahoma’s Parnon Energy and Nick Wildgoose of Europe-based Arcadia Energy, manipulated oil prices in 2008 to earn $50 million for themselves. “First,” the CFTC explains in its statement on the lawsuit, “they purchased large quantities of physical WTI crude oil…even though they did not have a commercial need for crude oil.” The CFTC says they purchased the oil “pursuant to dominate and control the already tight supply… to manipulate the price of WTI upward and to profit from the corresponding increase in value of their WTI futures and options contracts.”
Next, after the WTI reached artificial highs, the CFTC says, the accused sold short on their derivatives, and sold their physical holdings, all in one day to drive the price of their short position derivates back down. While the case is still pending and history shows that manipulation cases are tough to prove, this might only be the first of many similar cases brought against fraudulent oil speculators who unlawfully drive up the price we pay at the pump. Obama has already set up a task force with one job, “rooting cases of manipulation or fraud in the oil markets that might affect gas prices,” including, the president notes, “any illegal activity by traders or speculators.”
Already, Sen. Bill Nelson, D-Fla., has voiced his concern about the presence of big oil subsidies, calling attention back to the original “Close Big Oil Tax Loopholes Act.” Unfortunately, in the case of Big Oil, talk is always cheap, but more is expected of words uttered from Obama’s lips. “Instead of subsidizing yesterday’s energy sources, we need to invest in tomorrow’s,” said the president during the same speech in which he called for an end to Big Oil’s tax subsidies. —Luke Geiver