Exxon Mobile Windfall Tax

Every consumer who operates a car, heats a home, or travels has felt the pain of higher energy cost. Increasing energy cost has left consumers with less money in their pockets but a few companies have benefited with soaring profits with no end in sight. A prime example of record-breaking profits is Exxon Mobile who only has one-tenth of the oil market in the United States. This past quarter, Exxon Mobile posted the highest profits for any publicly traded company. The profits accumulated where over $10 billion dollars in the fourth quarter that equates to $80,000 per minute for three months. With consumers paying more for energy and big oil companies producing mind-boggling profits have caused the government to determine if these profits are justified. Windfall tax is a common discussion circulating around the media and government. Windfall taxes simply states that an organization must share the excess profits that is produced with the consumers. The people who scrutinize and ask for a windfall tax on big oil companies do not have the same standards for higher profit industries such as technology and fianance.

During the time that a barrel of crude oil approached $80 in mid-2006, many consumers and organizations where screaming, “price gouging or price fixing” towards the big oil companies. A common misconception of consumers is that the oil companies do not set the price of oil. Oil prices are traded, similar to a common stock, by three major international petroleum exchanges. These energy trading floors are New York Mercantile Exchange, the International Petroleum Exchange in London and the Singapore International Monetary Exchange. Similar to a common stock, the more demand for oil, the higher the price; more build up in oil or supply, the lower the cost. “Prices of crude oil markers and petrol markers are affected by a myriad of factors from overall supply/demand for crude oil, supply/demand for petrol, freight rates and competition in the crude markets, and competition in the regional and domestic markets for petrol” (Crude oil pricing, Ð'¶14). Events like 9/11, hurricane Katrina, and the war in Iraq have introduced much turmoil in the world. Majority of these world events happen in areas where oil is produced, refined, or traded. “The price of oil briefly surpassed $78 a barrel Friday and finished 4 percent higher for the week after Israeli terrorist attacks against Lebanon stoked fears of a wider Middle East conflict and possible oil-supply disruption” (Foss, 2006, Oil Prices Settle at $77 a Barrel, Ð'¶1). A headline such as the one by the Associated Press introduces kinks in the supply of oil. Unfortunately, world news about wars, refinery bombings, and terrorist attack are a common theme and aides to the turmoil in oil pricing.

Windfall tax is not a new topic of discussion in Washington and history has proved a negative effect on the US economy. On April 2, 1980 President Jimmy Carter signed the Crude Oil Windfall act to combat the absence of price controls on the energy industry and the rise of oil and energy prices during the late 1970s. “...Congress passed the 1980 windfall profits tax, domestic production fell by nearly 100 million barrels per year and extracted $40 million from the industry that could have been invested in domestic production.” (Burd, 2006, Windfall tax would do more harm than good, Ð'¶3). Like all publicly traded companies, big oil companies must live up to investors and shareholders. A balance of profitability, research and development, and expansion are some signs of a strong growth company that would attract investors. Introducing a windfall tax would cause oil companies to increase the price of energy to offset the additional tax that would be imposed to maintain a healthy profits and balance sheets. With the Dow Jones approaching record highs and increasing optimism in the economy; introducing a windfall tax may have a negative effect in the overall economy and the momentum it has gained.

A decrease on demand was not observed with gas topping three dollars a gallon over the 2006 summer driving season. “Demand for gasoline is expected to be up 1.5% [2006] this summer from a year ago. Increases in drivers' incomes are expected to help soften the blow of rising energy prices and help lead to the increase in demand” (Hagenbaugh, 2006, Driving won't be cheap this summer, but gas prices may fall as it gets hotter, Ð'¶9). Looking at historical energy cost, with inflation accounted for, a gallon of gas was only 29 cents in the 1950s and 1960’s. “Americans paid just 29 cents per gallon for gasoline in 1955, but incomes were much lower at that time. As a result, gas today would have to cost more than $5 per gallon to have the same economic effect on motorists as 29-cents-per-gallon gas had on them in 1955” (2006, The market, not the president, sets prices, Ð'¶ 11). No doubt that that record-breaking energy cost is a burden on the consumer. There are not much statistics that prove that the average consumer cut spending or changed driving habits. Comparing historical statistics and taking in account the recent increase in personal income, the net result is a moot point.

The last refinery to be constructed in the United States was in 1976. Existing sources of energy must continue to be upgraded to introduce new technological refining methods and increase overall efficiencies while reducing pollution. Large cap oil companies, such as BP and Exxon, are constantly upgrading existing factories with consumer benefits in mind. For example, on September 20, 2006 British Petroleum (BP), a United Kingdom refinery and oil research firm, announced a three billion dollar refinery upgrade in northwest Indiana. The refinery upgraded does not only produce 15 more auto fuels per day, but creates up to 80 new permanent jobs. The factory upgrade is not due to be complete until 2011 but positive consumers effects are immediate. The upgrade is the largest project in Indianapolis since the Colts football stadium and will require an upward of 2500 construction workers. More oil in the market will increase supply and have a potential of lowering fuel prices for drivers. “…the upgrade will add production at the margins and as a result could have an impact on gasoline prices” (Coyne, 2006, BP Plans $3 Billion Investment, Ð'¶5). Large oil companies are making record profits, but these profits are reinvested to increase efficiencies in existing refineries.

No one denies the world must adapt to be less dependant on oil and new means of energy sources must be discovered. Not many other industries take the same risk during research and development as oil companies. Identifying