Big Oil has little reason to lower prices; they won’t fall for years

//May 8, 2008

Big Oil has little reason to lower prices; they won’t fall for years

//May 8, 2008

Dear Mr. Berko: Oil now costs more than $100 a barrel, and
our president comes from oil wealth, while our vice president was chief
executive officer of Halliburton, the largest oil-service firm in the world.
I’m certain that Congress gets huge amounts of influence money from the oil
companies, big and small. And it seems that the oil companies and Congress want
to keep oil costing more than $100 a barrel.

So is there any way we can see oil fall in price or gasoline
drop below $2 a gallon?

Why haven’t Exxon or the other big oil giants funded
research from their trillions of dollars of sales into alternative-energy or
renewable-energy resources that would bring down our costs?

I just put 126 gallons of diesel in my rig at $4 a gallon
and paid $504 to haul a load from Tampa, Fla., to Fort
Walton Beach, Fla.

I need to know if you think prices will come down soon or if
I should get another job after 21 years of trucking. Will it happen? Can it
happen? And why hasn’t it happened?


Fort Walton Beach,


Dear R.E.: The best time to do something is when you don’t
have to. The second-best time to do something is when it’s staring you in the
face. And the next-best time to do something is when you don’t have a choice.

In the years preceding World War II,
U.S. tire manufacturers
Goodyear, B.F. Goodrich, United States Rubber, Cooper, etc. owned substantial
interests in enormous rubber plantations in Ceylon
(Sri Lanka), Malaya (Malaysia), Borneo,
Indonesia and Sumatra. And the sap from millions of rubber trees was
shipped by cargo containers from Ceylon
and other archipelagic states to U.S. rubber giants in the States.

The balance sheets of those huge tire manufacturers were
immodestly rich, thanks to the inexorably growing values of their rubber
plantations. And they grew even richer as the market price of the latex
increased due to the tremendous

demand for tires.

Meanwhile, Goodyear, etc. also owned the patents and the
technology to produce synthetic rubber and purchased every new synthetic
process that could become a threat to their monopoly. They knew that synthetic
rubber would eliminate the need for natural rubber and that synthetic rubber
could collapse the huge investment values of their rubber plantations. However,
the big rubber companies would spend a few dollars every year on synthetic
research, primarily as a public-relations gimmick with no real intent at success.
Why compete with yourself?

World War II became a reality in 1938, long before it became
a fait accompli in 1941. But during those years, the “rubber barons” ignored
the inevitable and refused to develop platforms for a synthetic product.
However, when the need became critical, the rubber barons, fearing
nationalization of their industry, reluctantly put their fat heads together. So
with government sponsorship, the tire consortium united in a spirit of
cooperation and produced a synthetic rubber known as GR-S (government
rubber-styrene) on a commercial scale to meet the needs of the U.S.

That reality of 70 years ago is similar to our oil crisis
today. The oil crisis is spitting in our face though it has not yet become a
fait accompli. There are various proven processes to produce alternative fuel
and reduce the cost of gas below $2 a gallon. However, the greed of the oil
barons is no different than the greed of the rubber barons of 70 years ago.
Exxon owns 29 billion barrels of oil at $100 per barrel, with an inventory
value of $2.9 trillion. That oil cost costs Exxon a measly $5.45 per barrel.
Chevron’s estimated oil inventory is worth an estimated $2.2 trillion, at a
cost of $5.34 per barrel; and Royal Dutch Shell’s inventory valued at $2.6
trillion billion only cost the company $5.77 a barrel. And those are trillions
with a capital T. Those companies have a profit of over $95 a barrel, and
they’ll fight (to near death) to maintain that margin and the favorable tax
treatments on their enormous profits per barrel.

Because alternative fuels and renewable-energy resources
would cripple balance sheets of the oil companies, it makes sense for Big Oil
to aggressively resist efforts to develop competing products. Since 2002, Big
Oil collectively earned nearly $1 trillion in profits after taxes. Since 2002,
Exxon put zero percent of its profits into renewable or alternative energy; BP,
0.6 percent; Chevron, 0.5 percent; Conoco Phillips, 0.7 percent. Big Oil has no
incentive to succeed, and like the rubber barons of 70 years ago, they have
enormous incentive to protect their profits and the status quo.

The American public has the motivational mentality of a herd
of dairy cows waiting to be milked. So oil executives and Congress sit in
executive “snivel” chairs and have no mandate to act. And there’s little
government support to develop alternative-energy or renewable fuels in
meaningful quantity at meaningful prices. Americans need a compelling threat to
cause Big Oil and Congress to take action.

In the meantime, sell your rig, and find another job. I
doubt oil prices will come down in the next few years … there’s no reason for
them to.

Malcolm Berko responds to letters he receives; send
questions to Berko, c/o Central Penn Business Journal, P.O. Box 1416, Boca Raton,
FL 33429.
He answers questions by mail or in his column for free. If readers want
in-depth analyses, they may be asked to become clients.
©Copley News Service