Did you hear the news?
This year’s government budget included a new tax on oil producers.
Bad timing, if you ask me. What, with oil prices sitting around $100 a barrel, the last thing I’d think the government would want to do is reduce incentive for oil producers.
But hey, who am I to say? I’ll let the numbers have the podium…
Already, drilling is down 43% compared with last year. Even though it may be a little early to start tallying drill stats, it’s easy to see that many large drillers are now concerned about the fiscal practices of the government.
What’s next? Nationalization?
Funny thing, though, if you weren’t a tuned-in Outstanding Investments reader, you’d think I was talking about the U.S. government and drilling in the Gulf of Mexico.
Luckily, the news above comes to us direct from our neighbors across the pond in the U.K. And the drilling stats are coming straight from the North Sea, where drilling is slowing and prices are rising.
It paints quite a picture, doesn’t it?
The government increases taxes from 50% to 62% on oil producers’ profits. Thinking shortsightedly, as most governments do, this is an attempt to boost tax revenue and help spur the economy and lower debt.
But in the long run – with sound economics as our guide – all they are going to do is create higher oil prices. Companies like BP and BG Group have already gone on the record saying this may significantly decrease investment in the U.K.’s North Sea.
In our global energy economy, these big oil companies can look elsewhere – places with less tax and more oil.
Unfortunately, I feel this story coming from the U.K. is a precursor to what’s set to happen in the U.S.
What’s the Real Price of Oil – WTI or Brent?
There’s been a big ole hullabaloo over the difference in price between Brent crude oil and West Texas Intermediate (WTI) crude.
The price difference at some points has been nearly $20 a barrel between the two geographically separated markets. For instance, earlier this year, Brent prices were close to $115, while WTI was sitting closer to $95.
What’s the reason? In this case, it’s just simple story of supply and demand. In Cushing, Okla., where WTI oil is piped and stored, there’s a glut of supply. Oil being piped down from Canada’s oil sands, along with other marginal North American production units, is weighing down WTI prices.
In the meantime, North Sea production is stuttering, so naturally, Brent prices are a healthy bit higher.
With overregulation running rampant in the Gulf of Mexico and Alaska – along with a lot of greedy government eyes looking for any revenue stream they can find – the big oil companies operating in the U.S. seem to have big targets on their backs.
Indeed, there’s already quite a buzz growing around Washington whether or not to repeal the Bush-era tax breaks that oil companies receive.
Repealing those tax breaks would give us the same doomed situation that the U.K. is starting to experience. It’s clearly not the best policy action to take.
This all brings me to my main point: If you get away from energy, you lose.
The energy sector creates jobs, increases GDP and lowers the cost of living (among other things.) That’s a triple-whammy you won’t find in any other industry.
Take the natural gas industry, for example. With increased shale gas coming online, massive amounts of jobs are being created, revenue streams are flowing and the price of natural gas has dropped for customers. Win. Win. Win.
This applies to both onshore and offshore oil and gas. Without a “permitorium” or increased taxes, these industries can give the U.S. the lift it needs.
Looking at the big picture, here’s what the American Petroleum Institute’s president and CEO Jack Gerard had to say:
Total employment related to offshore Gulf of Mexico oil and natural gas industry operations could reach 430,000 jobs in 2013 if the permitting slowdown is reversed. As large as the jobs numbers are, however, they are just a fraction of all the jobs our industry could create with more forward-looking development policies in all federal onshore and offshore areas. And along with the increased jobs and energy production could come hundreds of billions of dollars of desperately needed additional revenue to the government. Policymakers now debating tax increases on the industry should understand that producing at home more of the oil and natural gas our nation will need is a far better way to help fix our economy and pay down our debt.
Clearly, there’s a bright future for American energy. But it’s up in the air if the current administration along with Congress can make this best-case scenario a reality.
Matt Insley,for The Daily Reckoning
What the heck do we need taxes for? Just do like I did, put it on the credit card.
What the heck do we need oil and gas for? Just do like I did, shut down drilling for a while, then release strategic reserves.
What the heck do we need politicians for? Just watch out for what I did last time Noah was around. 2012′s coming soon, wake up humans or you’re gonna get it, and I ain’t gonna save you (all).
Pretty soon all the have-nots will kill the haves, and since there is no God, we’ll leave it to the apes.
On August 5, 2011
Pingback: carbon marcky
Pingback: marko man
Pingback: universal remote
Pingback: sat prep course saugerties
Pingback: makia julpo
Pingback: learn SEO
Pingback: Colton Barren
Pingback: integrated algegra videos
Pingback: mcculoch chainsaws
Pingback: sat math help
Pingback: keith jones
Pingback: pre algebra dvds
Pingback: party city casino codes
Pingback: youtube views
Pingback: women's clothing
Pingback: My Sources
Pingback: facebook followers
Pingback: spilleautomater i norge
Pingback: Asbestos removal
Pingback: coupon codes
Pingback: bicycle team building
Pingback: Origami owl scam owl origami
Pingback: online perscription drugs
Pingback: amoxicillin allergy toddler symptoms Here
Pingback: Buy Followers
Pingback: Is Social Media Affecting Your Credibility
Pingback: memory foam mattress topper
Pingback: Qualify for a IRS Offer in Compromise
Pingback: buy tumblr followers
Pingback: jalia parsnip
Pingback: Fast Loans
Pingback: YouTube video seo
Pingback: mark mania
Pingback: LEGO Marvel Super Heroes Movie
Pingback: chase banking
Pingback: camera reviews
Pingback: right here
Pingback: Financial services
Pingback: cheilitis angular
Pingback: Private investigator
Pingback: herbal remedies for
The dollar in your pocket is worth a whole lot less today than 100 years ago. And you have the Federal Reserve to thank for you. So, as the Fed approaches its 100th birthday, Gregory Bresiger reflects on the controversial institution, relaying the criticisms of several of the Fed's most vocal opponents. Read on...
There's been a lot of press lately about the 3-D printing revolution - much of it right here on The Daily Reckoning. But there is one technology that's already threatening to make 3-D printing yesterday's news. Josh Grasmick examines a new kind of printing... that takes place in the 4th dimension. Read on...
Rejoice! What was perhaps the freest market in the entire world is now ended. Crushed. Wiped out by the swift hand of the state. Wait... That's NOT a good thing? (Sigh)... Oh well. It was fun while it lasted. Dominic Frisby explains why the shutdown of the Silk Road is such a travesty. Read on...
There is one chart, just one chart, that market analysts and gold bugs alike could learn a lot from. It displays clearly the ebb and flow of one critically important trend, where it's headed through the end of the year, and how you can use it to your advantage. Greg Guenthner explains...
China's push towards a more market-based economy could kick into high-gear, as recently proposed economic reforms are some of the country's most radical policy changes in over three decades. But what will that mean for foreign investors and how could it shape the global economy? Frank Holmes takes a closer look...
John Mauldin spoke with Steve Forbes on the future of gold and the Federal Reserve in an interview released yesterday. What he said may surprise you.