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I say it's time for the government to step in and put a ceiling on the price of fuel. Having these oil companies raking in record profits while the rest of the nation goes down in flames is wrong.
Here's my idea of how to accomplish it...
1. Set a fixed ceiling on the net profit of every oil company (say $250M per year).
2. Calculate the effective ceiling (which allows flex based on supply/demand) on fuel prices by:
($ oil company sells for per barrel) = ($ oil company buys per barrel) + ($ daily average operating expenses per barrel) + ($250M / average # of barrels produced daily)
Sooo... my version is a little simplified, but you get the general idea.
That still allows supplier countries (Iran and Venezuela) to get rich, but penalizes the companies that actually find and bring us the oil......which decreases the taxes they pay.
That still allows supplier countries (Iran and Venezuela) to get rich, but penalizes the companies that actually find and bring us the oil......which decreases the taxes they pay.
Yes, it still allows the supplier countries to get rich, but it also removes the incentive for USA companies to stay so focused on fossil fuels, and shift to renewable resources and alternative energy sources.
While it may decrease the taxes that the oil companies pay, it proportionally decreases the cost of everything in general. The decreased revenue that isn't accounted for by the decreases in other costs creates the need to streamline the government's operations, eliminating the needless bureaucracy and bloat, eliminate the pork barrel projects, putting society back on more even footing financially.
This in turn will boost morale among the majority of Americans (except the filthy rich, who might only bring in $1M this year) and create faith in our nation again. Additionally, it will aid the failing medical system, since the happier people are, the less prone to sickness they are, putting money back into the hands of people so they can afford the healthcare when they do need it, and so on... see it solves all problems ;-)
For all the people who say it can't be done, look at how Southwest Airlines has managed to stay profitable. They locked in a fixed rate, while the others let their oil prices float like an ARM.
They used their purchasing power and good credit rating to lock in a good price on a set amount of fuel for a set period of time. To do the same thing, the US would need to guarantee sales of xxx barrels/day for xxx amount of time. That simple strategy changes the game from buyers bidding the price up, to suppliers bidding the price down.
Sure, they buy their fuel on Futures Contacts, as a form of Year-Ahead price insurance. I used to sell grain the season ahead the same way (grew Corn, Wheat and Soybeans). For a commercial buyer or supplier, that makes good sense -- it takes an element of risk away.
Individuals can do the same -- buy a single 5000 gallon Future Contract on gasoline for the year ahead. If the price goes up, they are covered, but conversely if the price goes down, they must cover the difference.
But all of that ignores the long-term problem. Even with a known set price for a year ahead, at some price level the buyer(s) cannot afford it. If gasoline were under contract for the year ahead at $10 a gallon, most folks would be walking or driving very little. Future prices do not mean cheap prices. Once fuel reaches $20 a gallon, even Southwest will not be flying.
Option 3 for me is "Let the market work out the solution to the problem."
The problem with that option is that it's not a completely free market. The government has interfered and has a variety of subsidies, laws and regulations designed to maximize the profit of these corporations.
Fossil fuels have an inelastic demand and few viable substitues. So people will keep paying for fuel until they have no $$$ left, and the entire market collapses.
Can you point me to a bus that runs from Webberville, Tx to Sacramento, CA? Or even on that comes within walking distance to Webberville? I live a mere 7 miles from that thriving metropolis of 600.
For all the people who say it can't be done, look at how Southwest Airlines has managed to stay profitable. They locked in a fixed rate, while the others let their oil prices float like an ARM.
I saw that on the American Airlines documentary last year. All the airlines use commodity contracts and hedge contracts to try to outperform the spot market prices. Southwest took a gamble and got a good deal on a long term contract that beat everyone else's gambles.
If I recall properly, the documentary said that their contract expired in 2007, so they are in the same spot market price competition as everyone else now.
Quote:
Originally Posted by sterlinggirl
To do the same thing, the US would need to guarantee sales of xxx barrels/day for xxx amount of time. That simple strategy changes the game from buyers bidding the price up, to suppliers bidding the price down.
The US already does that with it's commodity contracts, and has been doing that for decades. The fallacy in this concept is that those commodities are sold to private industry as opposed to a socialistic or communistic style state owned fuel distribution system. The lack of price controls and the influences of an open market create price fluctuation due to demand variance, but lack the supply side impact controls by keeping enough of the political tax overhead to permit the market to hedge potential overhead costs into the price while relying on increasing demand to sustain the market.
What if somebody told you to choose between the following options:
1. You can buy all the gas you want at market prices ($4.50 to $5.00 a gallon).
2. You can buy gas for $2.00 a gallon however you will be limited to a ration of 40 gallons a month (about 2 fillups).
Which option do you want?
Neither of those options appeal to me, either. For myself I would choose option 2, since I don't drive very much. But my husband drives 100+ miles a day for work, he's a carpenter/woodworker. He needs his truck; he cannot carpool, drive a compact car, or take public transportation. At any rate, we don't even have public transportation in our area.
The US already does that with it's commodity contracts
I know how the future market works, and that's not what I'm proposing.
Current System:
Somebody auctions off their goods, and the bidding is in dollars. A rumor that something might be in short supply will send the bidding higher, so countries like Iran will start problems just to make us pay more for their oil.
The variable in this system is dollars.
I'm talking about reversing the bargaining process, where instead of bidding an increased dollar amount per barrel, the entire US market as one buyer can say "I have $$$ to spend, whoever offers me the most barrels for that amount wins the contract."
The variable in this system is number of barrels
Right now, the Russians are more than happy to help Iran with nukes because that tension props up the price the Russians get for oil. If the Russians and Iranians didn't profit from that tension, what would happen?
My guess is that these countries would stop paying terrorists to blow up pipelines.
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Or even on that comes within walking distance to Webberville? I live a mere 7 miles from that thriving metropolis of 600. 
