Exxon Mobil: Oil 50% Overpriced

May 15th, 2011
in econ_news

oil up Econintersect by Sanjeev Kulkarni:   In testimony last Thursday in Washington,  ExxonMobil CEO Rex Tillerson objected to a Senate Democratic proposal that would repeal $21 billion in incentives for the companies over 10 years.  The Democrats are pointing to record high oil industry profits and say profits indicate that oil companies do not need the help.

According to an article at  Forbes, Tillerson testified that the price of oil today should be between $60 and $70 a barrel.  Tillerson blamed the higher price of oil on futures trading by major oil comanies and high-frequency trading by hedge funds.  The current price arounf $100 is 42% to 67% higher than the price range suggested by Tellerson.  

A plan unveiled by Senate Democratic leaders Tuesday would use tax incentive dollars now going to oil companies to reduce the Federal deficit.

Follow up:

According to an article at Politico:

But the companies and their supporters in both political parties say it is unfair for Congress to single out one industry or set of companies, particularly those with cyclical profits, high-paying jobs and investors of all stripes.

Tillerson expounds on that point in his testimony. He notes that Democrats want to repeal oil and gas companies from using a section 199 tax deduction that is available to all U.S. manufacturers. Oil and gas companies already deduct less — 6 percent — than the 9 percent deduction claimed by other U.S. manufacturers. “Frankly to then deny a select few companies within the oil and gas industry this standard deduction is tantamount to job discrimination,” according to Tillerson’s prepared testimony.

Similarly he said a foreign tax credit Democrats want to repeal for U.S. oil and gas companies — which those companies other U.S. businesses have used since 1918 regarding overseas income — would lead to a double taxation.

"All of us here today recognize the strain that high gasoline prices impose on many Americans particularly during difficult economic times. And we owe it to our customers and your constituents to address the topic in an open, honest and factual way," Tillerson will say. "Unfortunately, the tax changes under consideration that target the five U.S. energy companies represented here today fail to honor these goals."

Other companies that testified were Shell, BP America, ConocoPhillips and Chevron.

The Huffington Post wrote the following:

It was all too much for Sen. Jay Rockefeller (D-W.Va.).

"I get the feeling that it's almost like you're -- like the five of you are like Saudi Arabia. That you're caught up in your profits, you're highly defensive, you yield on nothing," he said. "I think you're out of touch. Deeply, profoundly out of touch. And deeply and profoundly committed to sharing nothing."

Congress is facing enormous pressure to make deep cuts in essential government programs, in order to reduce the budget deficit. Americans are struggling to make ends meet -- a struggle made dramatically worse by high gas prices. Meanwhile, the Big Five oil companies -- Exxon Mobil, BP, Shell, Chevron, and ConocoPhillips -- made about $34 billion in profits in the first three months of 2011, up 42 percent from a year ago.

"The nature of your life, the nature of your international travel, the nature of the size of your profits -- I don’t think you have any idea what the size of your profits does to the American people's willingness to accept what you have to say," Rockefeller said.

Sources:  Politico, Forbes and Huffington Post 

Sanjeev Kulkarni is an entrepreneur based in Pune, India. He worked for large organizations in board level position before venturing on his own. He is currently involved as an investor in health care software company and as an investor, mentor in an automation company. Very widely traveled, he has experience of working in different geographical areas with people of varying nationalities. He did his BS from Indian Institute of Technology, Delhi.



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