Saturday, February 28, 2009

Oil & Gas Cartels and American Inertia on Energy Issues : Major Culprits for the Current Economic Situation in the World?


Nothing is as it seems in this world, not even a "barrel" of oil. Look at this 55-gallon steel drum used to transport oil. Is it a "barrel of oil?" Find out below.


Everyone talks about the economy, but no one does anything about it. To get the world back on the road to economic recovery, we have to know something about how the world economy works. For example, ENERGY, and especially oil is a big issue.

Everyone talks about energy, but who knows even the most BASIC facts about it?

YOU do?

Let's try some simple questions about OIL. You will find the answers further below.

Questions about Oil

1. About how many barrels of oil are used up daily in the world? How many are consumed in the USA? What percentage of total oil consumption in the USA is accounted for by gasoline? Try to guess approximate figures if you do not know them.

2. How many U.S. gallons, or liters (litres), or British imperial gallons are found in ONE barrel of crude oil.

3) How does the price of a "barrel of oil" relate to the steel drum in which oil is actually transported? Explain.

4) In what year did U.S. oil production hit its peak?

5) What political consequences followed? - that are still with us today.

Answers about Oil

1. 80 to 90 million barrels of oil are consumed worldwide per day. U.S. consumption is calculated at 20 to 25% of world oil production, and about half of all U.S. oil consumption is gasoline. WAY TOO HIGH. Oil in the U.S. has to be increasingly imported since the USA relies almost 60% (!) on imports. Does that have some impact on the "economic freedom" of Americans? You bet it does.

2. The price of a barrel of oil is based on a barrel of 42 gallons, equivalent to 158.9873 liters (litres) or 34.9723 Imperial (UK) gallons, but those volumes are for calculation purposes only. Years ago, oil was transported in 42 gallon barrels, but not any more.

3. Oil is now transported in steel drums of 55 U.S.gallons. Music freaks will enjoy knowing that the 55-gallon steel drum has also become the de facto standard sized steelpan. In the early days of the oil business, Standard Oil used the 42 gallon barrel, which became the standard, only to be replaced as far as transport is concerned by the 55-gallon steel drum, a consequence of U.S. military shipping requirements during World War II. But the 42 gallon barrel was retained as a calculation basis.

4. US oil production peaked in 1970. U.S. oil production at that time was 25% or 1/4th of the world market, whereas the U.S. currently produces only ca. 12.5% or 1/8th of the world market.

5. Oil prices rise whenever demand exceeds supply, a situation which the oil-producing cartels try to control by cutting or stagnating production arbitrarily as they wish, which leads to oil price increases.

From the years 1948 to 1972, the price of oil remained steady at about $3 per barrel.

Although the use of oil as an instrument of political control in the world began organizationally with the formation of OPEC in 1960, the defining point was hit in 1970's when United States oil production started to drop as a percentage of world oil production.

The USA had put itself in the unenviable position of being reliant upon the oil cartels. As written at WTRG Economics by James L. Williams, this became politically clear in 1972:
"[W]hen the price of crude oil was about $3.00 per barrel and by the end of 1974 the price of oil had quadrupled to over $12.00. The Yom Kippur War started with an attack on Israel by Syria and Egypt on October 5, 1973. The United States and many countries in the western world showed support for Israel. As a result of this support several Arab exporting nations imposed an embargo on the countries supporting Israel."

Oil has remained a political football since that period. As more and more oil had to be imported by the United States and as U.S. policies ran counter to the oil cartel countries, the price of oil has sky-rocketed, and this has been followed by comparable price increases in consumer goods that are produced using petroleum products or oil-based energy (just about everything). The current economic recession is just the logical end result of a price push policy by the oil cartels, which has led to prices for consumer goods such as homes that are far removed from the normal economic realities.

But not just the oil cartels, but also America itself is greatly to blame for the current economic situation. Nothing had been able in the last 40 years to move Americans to change their greatly exaggerated over-consumption of energy.

American automobile manufacturers continued to produce technically outdated gas-guzzling cars, while at the same time, car manufacturers and drivers in Europe, for example, moved toward smaller vehicles with lower gasoline (petrol) consumption. Furthermore, U.S. federal and state governments failed to increase taxes on gasoline to European levels, thus providing people in the United States with no incentive to adopt sensible energy consumption habits.

America's energy woes are thus in large part its own doing. This pattern continued until 2008, when the price of oil rose to an extraterrestrial high, 50 TIMES the price of oil in 1972, topping out at $147 a barrel on July 11, 2008. The price of gasoline (petrol) topped $4 per gallon, and finally, it appears, America had gotten the message. It had an ENERGY PROBLEM. It was a SHOCK.

People started to change their thinking, AND their behavior. They started to take vacations closer to home. They drove their cars less. They thought no longer about buying gigantic gas-guzzling SUVs but started looking at more economical vehicles, or considered not buying a new car at all. Rather than opting for gradual and intelligent change, America had opted for the "now or never" sudden flash, and they got it and are now in the middle of a forced restructuring of an economy that should have been renovated slowly already during the last 40 years, but was not.

The inevitable change in consumer behavior, more than any subprime catastrophe or bank failure itself, is at the heart of the current economic recession in the United States. Consumers have not only stopped spending like there was no tomorrow. They have stopped spending, period. The major culprits for this change of heart are the oil and energy cartels and American energy inertia, which has irresponsibly permitted the price of oil to reach levels that put fear and a lack of trust into the hearts of consumers around the world. And once such fear has been established, it is very difficult to replace it with anything else.

Nor have events in other energy spheres other than oil helped the situation. When energy giants such as Russia cut off gas supplies to European countries in the middle of winter because of a contract dispute with the Ukraine, as happened less than two months ago, you know you have a serious world political problem involving a lack of sovereignty because of energy dependence. It has put people on the alert. Trust in governments and institutions is at a low ebb. Fear and anger are the pervading emotions.

Even the oil cartels are suffering. Due to the outrageously high price of oil in 2008, demand for oil fell in 2008 for the first time in 25 years and is expected to fall even further in 2009. The foundations of the world economy have been badly shaken and every country that does not want to exist at the whim of the oil cartels is looking for alternative solutions.

In the meantime, here in Germany, the construction of windmills as alternative sources of energy and the production of biofuels to replace oil, gas and gasoline (petrol) is proceeding at an accelerated pace. The writing is on the wall. The oil cartels have nearly killed the golden goose. Only when fear is eradicated and trust is reestablished will things improve, and that is going to take a while. Right now the world is in a panic that will take strong measures to reverse.

Economic Recovery : Are You a Part of the Solution, or Are You a Part of the Problem? Latham & Watkins as a Negative Example of Recovery Policy

As can be read in numerous news sources (we refer here to the AmLaw Daily), Latham & Watkins is to lay off 190 associates and 250 non-legal staff - while "Latham's 550 strong partnership will be unaffected by the cuts", apparently under the motto that it is the other guy who should make the sacrifices necessary to cope with the current economic situation.

This is not the first time that the Latham firm has done this kind of thing. It also laid off people in the 1990's.

Perhaps it is time that society began to put severe financial and tax penalties on these kinds of irresponsible employment policies. If companies viz. law firms are not responsible for their employees, who is? Well, if it is the government, then very high mandatory company and law firm payments for unemployment insurance for their employees should be imposed.

According to the Global 100 law firms (see, Latham & Watkins ranked 19th in the world among law firms in terms of profits per equity partner at $2,270,000 per partner based on gross revenues of $2,005,500,000. Due to the current economic situation, profits per equity partner and gross revenues, according to the AmLaw Daily, dropped as follows in 2008:
"Profits per equity partner dropped 21 percent from $2.27 million to $1.8 million while revenues fell 4 percent from just over $2 billion to $1.9 billion."
The AmLaw Daily calls this loss "dramatic". By our calculations, the drop in profits would have dropped Latham & Watkins from 19th to 28th place on the Global 100 profits per equity partner list - hardly a "dramatic" drop (28th and not 29th because position 19 would then be vacated).

If we assume that the 190 associates to be laid off earn on average let us say $200,000 a year and the 250 non-legal staff earn $68,000 a year, that results in an annual payroll savings of $38,000,000 for legal staff and $17,000,000 for non-legal staff or about $55,000,000 per year. Those figures are hypothetical since an outsider can not know the actual salaries of the people affected, but the numbers should be somewhere in the ball park.

Question: For the above hypothetical numbers, how much of an annual profit cut would the 550 partners at Latham each have to take to RETAIN all of these people in their jobs? What sacrifice would the law partners at Latham have to make to not throw their colleagues out on the streets, where YOU, as a taxpayer, ultimately have to take care of them and be their bailout - if they do not find other work, and they may not for quite some time, in a current economy marked by legal layoffs.
ANSWER: We just divide the $55 million by 550 = $100,000 per partner.

In other words, rather than each of the 550 partners at Latham & Watkins taking a $100,000 pay cut out of their own profit of $1.8 million per equity partner, dropping their individual profit to $1.7 million and thus doing their share of sacrifice for economic recovery, 440 people and their families - with far fewer resources at their disposal - are being thrown to the wolves.

Are Latham & Watkins part of the solution? NO. They are part of the problem.

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