Comment by jmyeet | Hacker News Reader

Comment by jmyeet | Hacker News Reader

The politics around this have been really interesting to watch as different people cherrypick (or just manufacture) evidence to push a particular agenda.

I stumbled across a creator on Tiktok who knows a lot about the oil and gas industry [1] who has been illuminating (to me at least) about what's been going on here.

Here's my summary: we haven't had a shortage of oil production although that was off its peak. The real problem was a lack of refining capacity that was caught off-guard by this year's massive increase in demand. There are a bunch of reasons for this. Some capacity was lost due to a hurricane. Other capacity was offline as certain plants were being transitioned to a renewables future when the demand was lower and it wasn't anticipated it would return so strongly and quickly.

Have Exxon, Chevron, etc made bank with the spike in prices? Absolutely. If you want to propose something like what Spain has done with a windfall tax to fight inflation (something no politician in the US talks about) then I'm on board.

But you can't just turn on an oil well or a refining plant. It takes time. Oil companies, for all the heinous crap they have done, antiticpated this demand spike was temporary better than any politican has.

On the political side you see Democrats desperate for prices to go down so they get slaughtered less in the midterms and Republicans desperate for this not to happen for the inverse reason (eg Republicans wanted to stop selling oil from the SPR).

But the warning signs of this price drop coming were evident months ago as inventory levels of gasoline started to go up.

[1]: https://www.tiktok.com/@mrglobaltoo

> If you want to propose something like what Spain has done with a windfall tax to fight inflation (something no politician in the US talks about) then I'm on board.

There were absolutely talks about a windfall tax.

https://www.congress.gov/bill/117th-congress/house-bill/7061

https://thehill.com/opinion/energy-environment/3527261-biden...

https://www.bloomberg.com/news/articles/2022-06-15/progressi...

There were talks. It would've never passed the Senate.

They said windfall taxes were something no US politician would talk about.

There's literally been a bill in Congress since March that's been referred to the Ways and Means Committee about imposing a windfall tax.

So it's not only something that US politicians talk about, it's something some have even proposed in Congress.

> for all the heinous crap they have done, antiticpated this demand spike was temporary better than any politican has.

It's not that they necessarily anticipated the spike and subsequent fall; it's more to do with investor dynamics. Oil is a traditionally huge boom and bust field and is incredibly capital intensive. After the bust in the mid 2010s, coupled with huge investor outflows due to ESG reasons, the message that oil companies got from investors was to minimize capital spending (because they had little) and focus on profitability. So when this cycle came around, few were looking to do commit the capital to lift supply up. And now that demand is swinging back down, I suspect the bust cycle will look less dramatic then it has in the past.

> And now that demand is swinging back down, I suspect the bust cycle will look less dramatic then it has in the past.

I've seen people who seem to know a lot about this industry make this point. We probably won't see $1.50-2/g prices but next year we'll probably see ~$2.50/g and that's probably a good thing, better than a more extreme boom and bust cycle.

The Odd Lots podcast had two episodes on this a few weeks ago.

"Why It's So Hard to Get the Oil Taps Turned Back On"

* https://play.acast.com/s/oddlots/e1ad7bcd-9c53-4ebc-b0fa-aeb...

* https://podcasts.apple.com/us/podcast/why-its-so-hard-to-get...

"A Concrete Plan to Bring the Price of Oil Down Right Now"

* https://play.acast.com/s/oddlots/896a08ad-4cbc-4041-8c01-aeb...

* https://podcasts.apple.com/us/podcast/a-concrete-plan-to-bri...

How on earth is a windfall tax supposed to reduce inflation? Adding taxes makes goods/services more expensive.

You would be removing the incentive to produce more oil. Why would an energy company invest enormous amounts of time and capital to increase production and refining capacity if the government seizes their profits?

Nobody enjoys producing oil. Profit is the only motivation to perform such a difficult/unpleasant task.

> How on earth is a windfall tax supposed to reduce inflation? Adding taxes makes goods/services more expensive.

Because a lot of price hikes haven't been because of inflation. They've exceeded inflation. Another word for that is "profiteering" (or "price gouging"). It's the reason why it's typically iellgal to profiteer off of a natural disaster, for example.

Put another way: Exxon, Chevron, etc are raising prices not because costs have increased but because they can. The record profits they've all recently announce bear that out.

So a windfall tax does a similar thing to increasing interest rates: it's a form of wealth redistribution. Raising interest rates diverts money to banks and investors. Taxation diverts money from corporate profits to the government who can then use that money for the people who are most vulnerable because of, say, the skyrocketing cost of gas and rent.

> Because a lot of price hikes haven't been because of inflation. They've exceeded inflation. Another word for that is "profiteering" (or "price gouging"). It's the reason why it's typically iellgal to profiteer off of a natural disaster, for example.

> Put another way: Exxon, Chevron, etc are raising prices not because costs have increased but because they can. The record profits they've all recently announce bear that out.

This doesn't make any sense. It's purely a supply/demand issue. Oil is potentially the most liquid commodity in the world. If someone wants to price gauge, your competitors will sell for less. We haven't built a new refinery in the US since ~1979. The oil producers are basically maxed out on refining capacity and trust me, those guys want to sell as much oil as possible. They made record profits because there's a shortage of a critical resource and tons of demand.

The way to fix this is by increasing production capacity. If you've made it more expensive to expand production, it should be obvious that you cannot expand.

> Taxation diverts money from corporate profits to the government who can then use that money for the people who are most vulnerable because of, say, the skyrocketing cost of gas and rent.

The ~30T deficit says otherwise. Our interest payments on that debt alone is ~$400B annually and will only grow. That's over HALF our military budget in interest payments. The government has done a terrible job of managing money.

Inflation comes from government spending. Look at the Fed's balance sheet! If you double the amount of dollars, but there's the same number of goods/services...you would think dollars would be worth less.

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