So it’s also worth noting, as ProPublica does today, that removing the $4 billion tax subsidies for oil companies wouldn’t affect gas prices much, either.
“The impact would be extremely small,” said Stephen Brown, a professor of economics at the University of Nevada, Las Vegas. Brown co-wrote a study in 2009 arguing that if the subsidies were cut, the average person would spend, at most, just over $2 more each year on petroleum products…
From the beginning, the Treasury Department has said the President’s proposal would raise prices at the pump by less than a cent per gallon at most. Brown’s study, produced for the non-partisan think tank Resources for the Future, came up with similar results. Even the American Petroleum Institute, which opposes cutting the subsidies, said in a press release on Monday that eliminating them wouldn’t affect gas prices.
This is a nice fact check of political nonsense:
The argument offered by Senate Majority Leader Mitch McConnell and other Republicans who oppose cutting the incentives is that it would drive up costs for oil and gas companies and ultimately reduce production and supply, leading to higher prices. (Domestic production, incidentally, has increased 10 percent over the last two years, and more oil wells were drilled in the U.S. last year than in any since 1985.)
As the Treasury Department’s analysis showed, the numbers don’t support McConnell’s assertion. Treasury’s Alan B. Krueger told a congressional subcommittee in 2009 that cutting tax incentives to the oil industry would raise costs by less than 2 percent and lead to a reduction in output of only one half of one percent. The United States produces about 10 percent of the world’s oil supply and holds less than 2 percent of global reserves. Since oil is a globally-traded commodity, a small drop in U.S. production would have an even smaller effect on the global price of oil.
If only those pesky facts made the politicking harder.
— Reuters, whose long-form and enterprise journalism has gotten noticeably better in the last year or so, has an excellent special report on the oil mini-crash last week.
Too often, market reporters sees on one news event and blame it for whichever way the market blew that today. This, by contrast, is a nuanced look at how a variety of factors combined to send oil—a very liquid market—down 10 percent at one point last Thursday.
In interviews with more than two dozen fund managers, bankers and traders, no clear cause emerged for the plunge in price. Market players were unable to identify any single bank or fund orchestrating a massive sale to liquidate positions, not even an errant trade that triggered panic selling, as seen in the equities flash crash last May.
Rather, the picture pieced together from interviews on Thursday and Friday is one of a richly priced commodities market — raw goods have been on a five-month winning tear over all other major investment classes — hit by a flurry of negative factors that individually could be absorbed but cumulatively triggered a maelstrom.
Computerized trading kicked in when key price levels were reached, accelerating the fall.
“It was a domino effect,” said Dominic Cagliotti, a New York-based oil options broker.
The negative factors — prominent cheerleaders turning bearish, some weak economic data, cheap money from the U.S. Federal Reserve ending by July, a lessening of political risk — merely provide a backdrop for the waves of selling. What stands out is the way computers turned readjustment of positions in a huge and deep market into a rout.
— Bloomberg’s Jonathan Weil points out that it’s uh-oh time for real for the Greeks. They’ve taken to blaming the speculators in denying a report from Der Spiegel:
The May 6 article, which said Greece had threatened to drop the euro, was “not only completely untrue but also written with incomprehensible flippancy,” the ministry said. “Such articles are not only provocative but also highly irresponsible as they undermine Greece’s efforts and those of the Eurozone and serve only the interests of speculators.”
Red flags don’t get more glaring than this. Whenever you see an issuer of securities — be it a sovereign nation or a Wall Street bank — blame speculators, journalists or rumor- mongerers for its troubles, you know the bosses there are panicking.
The other dead giveaway that the Spiegel story might have been on the mark, at least partly, was that the press release didn’t point to anything specific in the article as inaccurate.
Remember when Bear execs got Vanity Fair to credulously print their claims that speculators, aided by CNBC, took down Bear Stearns? And of course, these guys:
During the 2008 financial crisis, U.S. Treasury Secretary Hank Paulson and Securities and Exchange Commission Chairman Christopher Cox blamed short sellers, taking a page from Dick Fuld at Lehman Brothers and John Mack at Morgan Stanley.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at email@example.com. Follow him on Twitter at @ryanchittum. Tags: Big Oil, Corporate Welfare, Euro Crisis, Jonathan Weil, ReutersHas America ever needed a media watchdog more than now? Help us by joining CJR today.