Jack Tymann: Blaming gas prices on the oil companies won't solve problem

JACK TYMANN
Jack Tymann

Jack Tymann

Our government must stop condemning Big Oil for high gas prices. This attack on free enterprise is untrue and un-American. If this is our government’s only response to rising oil prices, we’ll soon see gas prices at $5 per gallon and beyond.

Exxon Mobil Corp. officials, responding to allegations that they are causing high gas prices, revealed: “For every gallon of gasoline, diesel or finished products we sell in the United States, we earn 2 cents per gallon.”

That’s not a typo.

Two cents.

Their profits account for less than half of 1 percent of the total!

Exxon Mobil further reports that it nets “8 cents for every dollar of revenue from all of our businesses worldwide.” That’s the average profit made by the Fortune 500. There are 5 billion Exxon Mobil shares, at $88 per share, owned primarily by “we the people” (individually, in pensions and in IRAs). So Exxon Mobil’s $10.6 billion in 2011 first-quarter profits gave shareholders a $2 gain per share, a modest return on investment.

Exxon Mobil accounts for only 3 percent of the world’s oil. Its huge size/revenues are dictated by the massive state-owned entities with which it competes. Its profits should be viewed not in billions of dollars but as a percent of revenues.

The idea of increasing Exxon Mobil taxes by eliminating write-offs for exploration and technology expenditures is irrational. This would increase gas prices and diminish domestic exploration.

Furthermore, our government must stop attacking executive compensation as a cause of high prices. If all Exxon Mobil executive compensation were cut to zero, the impact at the pump would be microscopic.

The largest contributor to gas prices is the actual crude oil, which makes up 65 percent of the pump price. Refining and distribution make up another 22 percent.

The remaining 13 percent comes from gasoline taxes (combined local, state and federal), which vary state to state. These taxes average 48 cents per gallon across America, 24 times greater than Exxon Mobil profits.

So what factors actually establish and increase the price of crude?

Oil prices are set by OPEC, then varied by speculators. Oil is a global commodity, traded on exchanges via futures contracts, impacted by various factors. The most important: global supply and demand. Projections call for increased demand due to growing economies in China, India and elsewhere. This is exacerbated by the concern that the world is near “peak oil,” where demand may soon exceed production capacities.

Other factors currently increasing oil prices are Middle East unrest, the falling U.S. dollar and U.S. government restrictions currently stifling domestic exploration and production.

The U.S. dollar, weakened by quantitative easing, has declined 17 percent this year alone and is currently indexed at 73, close to a historic low. The USD Index measures the performance of the dollar against other currencies (which speculators use in buying oil). The weaker the dollar, the higher the price of oil. The weakening dollar has significantly increased oil prices, and poses a growing threat going forward.

Today the global economy is recovering, energy use is climbing and the U.S. dollar is sinking. The oil-rich Middle East is in chaos. More than 2.5 billion Chinese and Indians are demanding more imported oil. New U.S. domestic oil exploration is almost nil. American gas prices are rising. Instead of blaming Exxon Mobil, the culprit is U.S. government policy.

To reduce gas prices, our government must cease quantitative easing, institute pro-business policies to restore economic growth, reduce deficits and debt and strengthen the dollar.

Additionally, we need to move toward energy independence. We’ve got to “drill baby drill” and demonstrate to the speculators that more supply is on the way.

Current moratoriums and permitting roadblocks on offshore drilling in the Gulf have reduced U.S. production by 80 million barrels a year. 2011 will mark the lowest number of leases sold in the Gulf since 1965. Other restrictions are preventing domestic oil production in Alaska and elsewhere, costing many thousands of jobs, increasing imports and depriving the U.S. Treasury of billions of dollars in royalties, lease revenues and taxes.

We need to focus on eliminating $500 billion per year in energy imports via increased domestic production, a great way to cut deficits and create millions of new American jobs.

If our government continues to deny reality, and instead chooses to attack successful companies while attempting to seize and redistribute their would-be profits, this will increase gas prices and threaten the very core of the free-enterprise system that makes our nation exceptional and prosperous.

Let’s stop beating up on the oil companies. Let’s instead enable them and take steps to make our nation stronger and more prosperous and get on the road toward energy independence.

Tymann retired as president of Westinghouse International where his team led business development in 75 nations. He is currently founder/managing director of Naples-based SEP World (Sustainable Energy Partners). He is a regular commentator to the Daily News, a frequent lecturer in Southwest Florida and a weekly guest on WGUF-FM talk radio. Contact him at: Commongoals2009@aol.com.

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