‘First diary. Please be gentle.
There are some paradoxes in the Exxon-Russia-U.S. Government joint venture in the Russian Arctic. Logic supports “the country that runs out of oil last wins.” The “Drill, baby, drill!” party’s proposition is “the country that runs out of oil first wins, and we will work overtime to make sure that country is the U.S. of A!” How does specie Homo Drumpfus reconcile Exxon's unpatriotic intention to make Russia the country that runs out of oil first? They clearly need help from a logician, and I will give it to them here.
I, in turn, need help from an oil stocks securities analyst to derive proper weights for two constituents of an oil company’s stock price: (a) assets (foremost, proven reserves), and (b) projected income. Adding x% of proven reserves in the Russian Arctic Shelf to Exxon’s balance sheet will be a huge event. But increasing the supply of oil will depress oil prices, and that should, at the margin, decrease Exxon’s profits.
Both Exxon and Russia urgently need world oil prices to rise, preferably to the $100 per barrel halcyon days of the Bush years. If I were Exxon’s CEO, addressing Exxon’s board in a secure remote location, I would seek the board’s backing for a Trump-Exxon-Russia oil exploration joint venture on the basis of controlling the amount of oil reaching the market in furtherance of monopoly power. So, Ms. Oil Securities Analyst, is increased monopoly pricing power the reason why an x% increase in proven reserves provokes a y%>x% increase in stock price, rather than actually delivering the newly found oil to market? I say, “Yes!”
Let’s recall the two Iraq wars. In War #1, under Bush the Greater, Iraq invaded Kuwait for the purpose of removing Kuwait’s oil production from the market, not for stealing Kuwaiti oil (despite the two-neurons-connected-by-a-spirochete contrary coverage by U.S. media). Iraq destroyed and left burning as many Kuwaiti wells as they could torch on their way out. I expect the oil price increase incidental to the reduction of Kuwaiti oil supply made Exxon execs and the Saudis giggle (to say nothing of the Bush family’s knee-slapping laughter). Destruction of Kuwait’s oil infrastructure gave Saudi Arabia the inside track to supply jet fuel in 2001 to [redacted].
In War #2, under Bush the Lesser, the U.S. (and, I speculate, with malice aforethought) removed a lot of Iraqi oil flow from the world market. Maybe that’s why Rumsfeld said Iraqi oil would pay for the war. He did not say sale of Iraqi oil would pay for the war; rather, I think he referred to the financial return to Exxon, the Saudis, and the Bush family from raising the price of oil by reducing oil supply by one Iraqi unit.
Given a projected market price for oil for a given date, there is a finite and defined supply of oil that maximizes profits (classically, when marginal cost equals marginal revenue). That Micro 201 analysis slights the impact of not only monopolistic market control, but, more impactfully, monopolistic POLITICAL control. Confidence in Exxon's enduring monopoly political control should cause securities analysts to raise their estimates of Exxon's future cash flows.
In theory, a company’s value is the present value of its discounted future cash flows. Right now, the applied discount rate in corporate PV calculations is ~2% per annum. This means that out-year cash flows contribute much more than they would at, say, 10% per annum. A consequence is that the value of long-term political protection of monopoly power is especially valuable these days. Installing Exxon’s CEO as Secretary of State protects both Exxon’s monopoly powers AND whatever Russian monopoly power Putin can exact, at least until the next federal election in 2060.
I expect Exxon foresees even higher profits than the above arguments augur due to the results of the “gasoline shortage” experiments they performed, most ostentatiously in the 1970s. Those experiments showed that demand for gasoline is highly price-inelastic (even more than pure market models predict due to propensity for hoarding during shortages). The experiments also showed the validity of a profit-maximizing “fast attack, slow release” pricing strategy. Once consumers (quickly) adapt to a suddenly higher price, demand remains price-inelastic, so price drops slowly, and only then due to what some economists would call competition (and I call “disintegrating collusion”). Um, what behavior should we expect from Exxon as they stoke their monopoly power?
Is it becoming clearer why a Trump victory was so important to Putin and Mother Russia generally (especially her oligarchs)?
I cannot make enough time available, but would some fellow Kossacks like to organize and introduce a resolution at Exxon’s annual shareholders’ meeting to reincorporate Exxon in Russia and move Exxon’s corporate headquarters to the shore of the Russian Arctic Kara Sea? Execs could ice skate outdoors all year round (for five more years). Please draft the resolution as a shareholders’ “thank you!” to Exxon’s execs to grant them relief from Texas’ hot (and ever hotter) climate, thus insulating the execs from the climatic consequences of their flogging fossil fuels pursuant to shareholder demands.
Perhaps Exxon-Mobil could sponsor a Trump rally there to celebrate the opening of not only their new headquarters, but also Trump Tower Siberia (the new offices of the EPA). Trumpitburo member Sarah Palin really COULD see Russia from there!