Saturday, March 17, 2012
Barack Obama – the anti-Harry Truman – has once again passed the buck. In his weekly address, the central planner blamed everyone but himself on rising gas prices. Of course the easiest targets are the oil industry and their government sanctioned “subsidies.” This is an outright fallacy, if not a lie. The subsidies that Obama speaks of are basic cost recovery and tax deductions that all businesses use.
And let’s not forget the record profits that the Democrats often level at the oil companies. Their profit margin is 6.2 cents per dollar of net sales. When it comes to profit margin the Integrated Oil and Gas industry ranks 114 out of 215. They are hardly gouging the consumers. Here is how much money Exxon/Mobile makes on a gallon of gas:
Less than 3 percent of ExxonMobil’s earnings are from U.S. gasoline sales
ExxonMobil’s earnings are from operations in more than 100 countries around the world. The part of the business that refines and sells gasoline and diesel in the United States represents less than 3 percent – or 3 cents on the dollar – of our total earnings. For every gallon of gasoline, diesel or finished products we manufactured and sold in the United States in the last three months of 2010, we earned a little more than 2 cents per gallon. That’s not a typo. Two cents.
And the federal government makes 18 cents on the gallon at the pump. That doesn’t account for all of the other taxes that are imposed on the oil and gas industry. I wonder what the profit margin is for the feds. Can you say 100%!
The central planners haven’t just passed the buck onto the oil industry. They have also targeted speculators. Speculators provide a valuable service. They provide liquidity and assist in price discovery in the futures market. Obama and his confederates are suggesting that the markets are fixed and there isn’t an element of risk. A study published by the University of Michigan refutes those assertions:
Likewise, Büyükşahin and Harris (2011) find no evidence that the positions of hedge funds or other noncommercial investors predict changes in the futures price; rather futures price changes precede changes in positions. Brunetti, Büyükşahin, and Harris (2011) study specific categories of traders and test whether positions taken by speculators such as hedge funds and swap dealers cause changes in oil futures prices or price volatility. Their results are consistent with speculators providing valuable liquidity to the market and with speculators reacting to market conditions rather than vice versa. Similarly, Irwin and Sanders (2011) show that there is no statistically significant relationship between growth in the volume of oil futures contracts on the one hand and oil futures returns, their realized volatility and their implied volatility on the other hand. When a relationship is found at all, it is negative rather than positive, which is at odds with the results in Singleton (2011). Similar results are also reported in Stoll and Whaley (2011) and Sanders and Irwin (2011) based on a different data set.
Obama and the Democrats will continue to point to the boogeyman under the bed and the closet, while their government created monster roams the streets terrorizing the citizenry. The social engineers are the equivalent of Dr. Frankenstein – they are haunted by their own creation.