By Rick Glaze
A wise person, who became kind of a mentor, once told me that if you want to eat a fresh, homegrown tomato in the summer, you have to plant it in the spring. Others have used that lesson in nonagricultural areas as well. For example, if a young person wants a career in medicine, he/she would have to study premed and then attend medical school for many years in order to achieve that goal.
Strangely though, many House and Senate members did not have the benefit of a wise mentor.
At a time when oil supplies are constrained and geopolitical fears, such as the Iran situation, threaten the supply further, these leaders are the first to scream about the evils of gouging and profit-making, yet they have no track record of thinking ahead.
There are some basics to consider. If demand is high and supply is limited, what do you think happens? OK, I’m waiting for your answer. Well good, I see you’ve been reading this column. You are right, the price goes up.
Increasing supply would help. To increase supply you need to find where the black bubbly is, drill some holes and pump it to a refinery to make it into something people can use - like gasoline, plastics for seat cushions and iPods. If the oil producers are stopped from doing this, supply is constricted and the price goes up. Rumor has it that areas in Alaska could increase the U.S. domestic reserves by 50 percent, and the outer continental shelf has more oil than Saudi Arabia.
In 1995, in an example of shortsightedness, President Clinton vetoed an oil production bill saying it would take as much as 10 years before the oil could be produced. Ten years is up - we don’t have that production and oil is $75 a barrel. Where is a good mentor when you need one?
ExxonMobil (XOM: $64.22) has made it into the Hall of Shame for reaping record profits. They booked $10 billion last quarter in profits, which is about 9 cents per gallon of gas. The federal government’s 18 cents per gallon tax netted it over $55 billion, which begs the question, who is gouging whom? Speaking of gouging, federal and state taxes on gas in the United States average approximately 38 cents per gallon. In Britain, a gallon is taxed at $4.03, in Germany, $3.82; in Italy, $3.57; and in the Netherlands, a whopping $4.12.
Rick Glaze is president of Glaze Capital Management Inc. of Los Altos and a registered representative offering securities through First Allied Securities Inc. For more information, call 934-0920.
