The House of Representatives hard at work

The House passed a bill "allowing the Justice Department to sue OPEC members for limiting oil supplies".

Oh yeah, that'll work.

"The legislation also creates a Justice Department task force to aggressively investigate gasoline price gouging and energy market manipulation."

Which DOJ has been doing off and on for 35 years. But hey, if at first you don't succeed, try, try again. (But then quit; no use being a damn fool about it.)

(Link provided by Richard Warr.)

Better analysis of high gas prices is provided by John Lott:

Senator Obama sees part of the solution in a massive windfall tax on American oil companies. Putting aside the fact that having politicians blame oil companies is a bit hypocritical — U.S. oil companies have paid more than three times in taxes to the government than they have earned in profits over the last 25 years — higher taxes on profits will reduce production and increase prices. A higher tax on profits will mean fewer investments in producing oil and that in turn will mean less production in the future.

Ironically, Democrats won the 2006 elections and took control of both the House and the Senate by promising they would reduce gas prices. Yet, with regular gas now selling above $3.67 a gallon, Americans can only longingly remember the average prices of about $2.20 a gallon that Democrats were complaining about in early November 2006. The Democrats’ bigger sin is that they seem to have no understanding of how markets work.

Better--as well as funny--analysis is also provided by Mark Steyn.

But, before we start suing distant sheikhs in exotic lands for violating the NOPEC act, why don't we start by suing Congress? After all, who "limits the production or distribution of oil" right here in the United States by declaring that there'll be no drilling in the Gulf of Florida or the Arctic National Mosquito Refuge? As Rep. Wasserman Schultz herself told Neil Cavuto on Fox News, "We can't drill our way out of this problem."

Well, maybe not. But maybe we could drill our way back to $3.25 a gallon. More to the point, if the House of Representatives has now declared it "illegal" for the government of Saudi Arabia to restrict oil production, why is it still legal for the government of the United States to restrict oil production? In fact, the government of the United States restricts pretty much every form of energy production other than the bizarre fetish du jour of federally mandated ethanol production.

Finally, for a bit of optimism, see the UK Telegraph's "Oil's Perfect Story May Blow Over".

Comments

[traineeinvestor]

I think Congress is on the right track to reduce the amount of oil being used in the US. If OPEC nations feel they will get sued in the US they can just stop selling to the US. Plenty of other willing buyers. Soak the oil companies? Yes! Another excellent way of reducing the amount of money spent on oil exploration and research into a variety of means. Also good for pushing the prices higher still.

I'm not sure whether these people have failed an economic literacy test or gotten an "A" on the hypocrisy and stupidity test.

[allenc]

As a retired geologist with many friends in the oil business I strongly feel that if we, as a nation, got genuinely serious about drilling for oil in all the places such as ANWR and off the coast that are currently off limits, that would drop the price of a barrel of oil maybe as much as 25% before we pulled a drop of oil out of the ground. But that won't happen until after the Nov. election because if Congress gave the go ahead, Bush would get the credit for suggesting such action. As we all know, the Democrats would do anything to prevent Bush from looking good. So, quit bitching or quit driving, gas prices are only going up until the election or the new President is in office.

[Ken]

Is it possible to file suit against congress for limiting oil production and manipulation the oil market?

[1-2]

Craig,

I wrote this the day they passed NOPEC. Thought you'd find it interesting. If you feel this comment is too "self promotional" feel free to give it the axe.

NOPEC? How About NOCOW.
http://1-2knockout.typepad.com/12_knockout/2008/05/nopec-whatabout.html

[Dave]

First, don't believe anything around "profits" unless they are including net. For example, XOM made over $70B, but only posted ~40B of profits - because they spent over $30B on stock buybacks. John Lott's link does not include this money, as does that meme that's about saying that the oil companies are only making 10%, and a chart showing other industries.

"A higher tax on profits will mean fewer investments in producing oil and that in turn will mean less production in the future."
Uhhh, not exactly. Back to XOM - they are looking at spending ~30B (up from $22B last year), while looking at ~80-90B(up from ~$70B last year). This is a very standard way of looking at things(and would work in different markets), but it falls apart when you realize there aren't enough places to invest their profits.

Especially when you take into account they are often paid back in oil and gas from their investments. Or that they are more likely going to be limited by resource rich nations limiting their activities and demanding a larger cut/slower payments. Or take into account their shrinking reserves, which they need to replenish. Or that these reinvestments take years, if not decades to come about. Or that the current price of NG makes it less likely to be reinjected into fields, which diminshes returns more than taxes.

"Well, maybe not. But maybe we could drill our way back to $3.25 a gallon."
and
"that would drop the price of a barrel of oil maybe as much as 25% before we pulled a drop of oil out of the ground"

I have no problem saying that 25% of the current price of oil is due to speculation, which could be better served by increasing the margin to 50% instead of 7%. But any idea that there is a current supply problem is just silly, as will the idea of pumping our back to $3.25. If ANWR (and other places) immediately started putting 1m barrels per day out - there's no evidence OPEC wouldn't drop by the same, barring a guarantee not to. Leaving the supply the same, and keeping things exactly where they are now.

At best, this would limit volatility for a time. Really, holding onto those untapped reserves is much better for 5-10 years down the line, as nonOPEC nations drop in productivity.