A big chunk of Iraq's oil production is going to China, according to a story Monday in the New York Times. That may be a good thing for both U.S. companies and consumers.
The Times reported on what has been an ongoing trend -- companies from China and elsewhere winning Iraqi oil contracts. According to the story, nearly half of Iraq's oil now goes to China.
The article played up the seeming absurdity in this. The United States and its allies, after all, are the ones that paid heavily (through the loss of lives as well as money) by ousting Saddam Hussein and trying to keep the peace afterwards. That ended the sanctions on Iraq's oil industry, now allowing for a huge wave of investment that's expected to double the country's oil output over the next decade or so.
But the fact so much of this investment is coming from China isn't necessarily bad, which the story acknowledged but did not dwell on.
More oil on the global market generally lowers oil and gasoline prices. Oil is a globally traded commodity. It does not matter which company or country is pumping it or consuming it. If the Chinese want to gulp more oil, it's high time that Sinopec (SPH) and other big Chinese energy companies spend the money and take the risks of getting the stuff out of the ground.
And if they want to do it in Iraq, all the power to them. Exxon Mobil (XOM), BP (BP), Royal Dutch Shell (RDSA) and other international oil firms aren't being more aggressive in bidding for Iraq's oil because the terms are pretty lousy.
Royalties, taxes and other fees in Iraq typically take 90% or more of a firm's profit. The comparable figure in the United States is somewhere around 50%. With the U.S. shale boom in full effect and deep water opportunities expanding worldwide, there are plenty of places oil firms can invest. In most parts of Iraq, the international oil firms don't even get a cut of the profits -- they are restricted to working on a contract basis.
"That is not how Exxon made its fortune," said Fadel Gheit, a senior energy analyst at Oppenheimer. "Exxon wants a 20% or 25% return on its investment, not the 3% or 5% Sinopec is willing to work for."
Eliciting sympathy for oil companies may be a hard sell. Yet nearly 50% of oil company stock is held in either pension funds or IRAs. So many individual investors benefit from higher profits for big oil firms.
So if the Chinese want to settle for lower margins in Iraq -- and help keep a lid on gas prices in the process -- what's the problem?
You paid less for gasoline in April, and that led overall inflation lower for the second month in a row.
The Consumer Price Index, a key measure of inflation, fell 0.4% in April, according to the Labor Department. Compared to a year earlier, prices are up only 1.1%, a level of inflation that's considered rather low.
Falling gas prices were the main driver for the broader decline for the second month in MOREAnnalyn Kurtz - May 16, 2013 8:40 AM ET
Beyond Big Miss: Wkly earnings down, aggregate payrolls up, PT for econ. reasons WAY down.Returnees working cheap = wage/price disinflation
— Dan Alpert (@DanielAlpert) April 06, 2012
Dan Alpert, a managing partner at Westwood Capital in New York, is one of my favorite sources. He was a life saver on that fateful Sunday night in September 2008 when it seemed the world was ending. He was in the CNN studios doing TV MOREPaul R. La Monica - Apr 6, 2012 3:07 PM ET
President Obama defended his energy policy on Thursday, and at the same time called out Republicans for promising lower gas prices while allegedly ignoring alternative sources of energy.
Without mentioning any of the candidates by name, Obama went so far as to suggest that the Republicans seeking the presidency are the kind of people who might deny that Earth is a sphere.
"A lot of the folks who are running for a MORECharles Riley - Mar 15, 2012 1:57 PM ET
Two new polls from The Washington Post and The New York Times show President Obama's approval rating has dropped precipitously over the past month.
In particular, Americans are not pleased with how Obama is handling the economy.
But most economic data indicates the economy -- and especially the job market -- is actually picking up steam. So what's causing this drop?
One theory is that rising gas prices are dragging down the president's MORECharles Riley - Mar 13, 2012 1:38 PM ET
Gas prices are up, and the president's poll numbers are down.
A full 50% of Americans now strongly disapprove of how President Obama is handling the economy, according to a new Washington Post-ABC News poll. That's the highest level of his presidency, and a 9-point jump from the previous month. Another 9% of Americans somewhat disapprove, while only 38% say they approve.
It would appear that rising gas prices are at MORECharles Riley - Mar 12, 2012 10:43 AM ET
Americans are rightfully annoyed about rising gas prices. But politicians are making matters worse. They are fueling (pun intended) the anger by constantly talking about how they will lower gas prices.
Newt Gingrich is the latest, with his promise for $2.50 a gallon gas. President Obama bemoaned the spike in gas prices in a speech Tuesday as well.
I wish whomever is occupying the White House next January good luck in lowering MOREPaul R. La Monica - Mar 6, 2012 2:23 PM ET
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