TAKING STOCK

Big Oil has little reason to lower prices

by Malcolm Berko

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 the oil companies and Congress want to keep oil over $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 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?

R.E.

Fort Walton Beach, Fla.

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 the 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 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 and 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 is valued at $2.6 trillion billion only cost them $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 profit 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. And 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.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@comcast.net.
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