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In terms of supply and demand it probably means nothing to the oil market, but would have significant impact on other energy markets. Realize that oil companies are already taxed at 50-60% due to their most profitable opportunities being overseas. At least that applies for the major oil companies. Many countries that possess large oil reserves rely on taxing oil production for a majority of their nation's revenues. It is possible that one or more of the majors may relocate their headquarters overseas to avoid U.S. taxation if the tax hit becomes too large.
The larger impact would be on natural gas and shale oil production. An abundance of natural gas production is helping keep energy prices much lower overall that they would otherwise be. This is due to the natural gas boom that emerged in 2007 with the technological advancement of horizontal drilling. Natural gas prices have plunged from $15 to $2. We could see natural gas prices move back up should taxes be raised.
Bottom line is that raising the tax would bring in little in tax revenues, but could force consumers to spend considerly more on their overall energy consumption. Oil prices would likely not move much from the impact. With that said, I would support ended the tax loopholes that benefit energy companies as part of an overall tax overhaul that lowered the corporate tax rate.
There are no oil subsidies, just tax breaks for what the industry has sold as being a form of R&D (research and development). Oil subsidies are when government foots some of the cost for politically popular forms of oil for populist reasons. These distort the marketplace and indirectly encourage non-efficient uses of resources. These are very common in parts of Asia as cooking oil is usually sold at a fixed price and does not rise even when marketplace conditions change. When the government is forced to raise prices massive protests follow like those seen this week in Jakarta.
The tax credits encourage more drilling and production which actually depress prices ever so slightly. Further it could easily be argued oil companies are allowed to extract resources at a level too far below market prices which fattens their profits, but also encourages more production. On the good side there are hundreds of thousands of really high paying jobs as a result and more domestic supply of energy resources.
Could it not be said that if any company or industry is given favorable tax treatment that the US taxpayer is "subsidizing" a lower price or job creation? Semantics aside, it all comes down to whether the cost to the taxpayer is worth the end result. In other words, do the jobs created and the "lower" cost of the product offset the cost to the taxpayer. Remember that lost revenue is adding to the national debt and the growing interest on that debt. Or is it all about dumping the cost onto uninformed taxpayers to gain political support (contributions or votes) from those who benefit from the policies?
The REALITY of oil is that the inexpensive to extract and process oil is gone.
From here on out, it will be *very* expensive to find new oil. For example it is easy to drill an oil well in shallow water. But that has been done everywhere it can be done. That leaves very deep water drilling. And that can cost $1,000,000.00 a day to drill!
Then there is different "quality" of oil. Shale oil and lower grades of crude oil are expensive to process into a usable form. As to if this is economically feasible depends on the current price of oil...
..however I suppose you could factor subsidies into that equation as well? If the subsidies go bye, bye, would the price of oil need to be higher to make extracting and processing this oil economically viable?
Oil companies are not going to do something which is going to cause them to lose money.
So if subsidies are removed, then oil companies might cap those expensive wells. Then there would be a supply shortage. Then oil prices would increase. Then they would open those wells again.
This happened with natural gas years back. The price of natural gas went up, then everybody and his brother started exploring for natural gas. Now there is plenty.
Also actions speak louder than words. Some oil companies are selling off their expected "future" oil well profits to get large amounts of cash now. These are in the form of investment trusts. I'm told they NEED to do this to pay for the now very expensive oil exploration and drilling costs. So if they are dripping in cash, then why are they doing this?
Another thing to consider is the price of oil and the U.S. economy. Higher oil prices can wreck an economy. I think we have adjusted to these higher prices and we must do so for the future (due to the high cost of exploration/drilling/processing). But too much higher and that will again wreck the economy.
Bottom line: I would not do anything to upset the "apple cart" at this point!
I second that. You must be confusing the cost difference of European Petroleum with American Petroleum and incorrectly assuming the United States subsidizes the cost of oil to keep it low. The truth is the oil Europe and United States pay the same price for oil, minus a very small price difference in shipping since Europe is closer to the Middle East. The price difference is because Europe taxes the hell out of Gas. Germany charges 61 cents in taxes per liter, that adds up to $3.18 a gallon in taxes alone. Add that to the true cost of gas, around $3.52 before taxes, and you come up with $6.70 a gallon. The United States average taxes on petroleum total 48 cents a gallon and 53 cents for diesel.
I like the theory behind it, the people using the gas are the ones using the roads. Thus instead of taxing everyone to pay for some new bridge or highway, you just tax those using them. In practice what happens is every time the government is short money, they tax fuel more. For example in the UK, part of the fuel tax is spent on the rail system and parking lots.
CON: Whatever subsidies or tax breaks oil companies enjoy will do nothing to affect the industry if they are ended, and the money "saved" or added in revenue will do nothing to help solve the financial mess our country is in.
PRO: If we do end these subsidies/tax breaks, we can finally get Obama to shut up and quit whining about them and using them as a policital football to kick around and stir up the uneducated masses with.
"WASHINGTON — The Senate blocked an effort to end billions of dollars in tax breaks for the oil industry, brushing aside President Obama's argument that the five big oil companies were doing "just fine" while consumers were struggling with painfully high gasoline prices.The measure to kill the industry tax preferences failed on a 51-47 procedural vote Thursday. It needed 60 votes to overcome a Republican-led filibuster that was supported by some Democrats from oil-rich states."
If the oil companies do not receive tax breaks why would senators from oil producing states be blocking legislative action? The reason it is a "political football" is that no one expects to get the votes to take any action. Which does not mean it is not a legitimate issue. what makes this argument ridiculous is that it is all about fiscal conservatism and the so-called conservatives are against it because it affects their voting base.
How much impact it will have on our "financial mess" is irrelevant to whether they deserve special treatment. Either their business model works or it doesn't. Free market! Either it is beneficial to the taxpayers as a whole or it isn't.
Every dime of lost tax revenue adds to our debt, plus interest! It would not surprise me if the oil companies suddenly became much more efficient with their resources after favorable tax treatments were denied.
Selling oil company trusts is no different from selling stock. All companies do this at opportune times to generate income for new projects. This is no smoking gun.
It will come down to raising revenue to control the deficit. Lost tax revenue will add to out national debt. Should we raise taxes on ordinary Americans or look at tax loop holes that many industries have lobbied for and gotten? If the economy gets stronger, but your taxes double to fight the deficit and pay interest on our debt will you be better off? Who wants to see taxes go up so that oil companies (or any industry) can be provided favorable tax incentives? Raise your hands.
Could it not be said that if any company or industry is given favorable tax treatment that the US taxpayer is "subsidizing" a lower price...
Even if we back out taxes and compare it to Europes prices w/o taxes, we still end up with about a 50% discount compared to Europe.If we could get Big Oil out of DC, we would probably and finally get affordable cars with diesel engines. So with their higher MPG we would make the the higher cost at the pump with cars that go further on less gas. We could also get rid of Ethanol which does not boost MPG.
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