Thursday, May 12, 2011

Big Oil Tax Breakes? Fair or not Fair?

In the last weeks Americans have been complaining about gas prices (it´s around $4 dollars a gallon) and today the CEOs of big Oil companies appear in front of the U.S. Senate to justify 21 Billion dollars in tax breaks over the next 10 years, Is it Fair? Does the poor American consumer is abused from the Big Oil companies? I don´t think so and here is why:

In the early 1900´s exploring and extracting oil was a very profitable business in terms of invested capital (about 70% ROE) , nowadays is only about 6% . Oil is everyday harder to find, much of the new discoveries are in ultra deep water which carries a big risk (remember Macondo? BP´s Spill?) The demand for oil is growing and it will continue to do in the following years.

So in result the ones that comply about gas prices I have a solution: don’t use gas, buy a bicycle, skooter , electric car or what you can afford. The demand for something is only controlled by price and we are running out of oil. Peak Oil will happen between 3 to 8 years.

*this article or any of the previous or following ones does not constitutes any investment advice or suggestion.

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