More on our completely OT - but very interesting - subject:

I think that Anil makes some profound points.  Among my favorites:

• the folly of alternative fuels that require large resource inputs to produce;
• the inefficiency of the internal combustion engine;
• the importance of energy efficiency (buildings, transport methods & patterns, "off grid" sources, etc);
• the importance of keeping our eyes on future technology breakthroughs: fusion?

I am fascinated that Germany - thanks to government policy - has the world's largest solar presence.  And it's cloudy much of the year.  Individuals can install systems and feed power into the grid.  Solar, wind, and nuclear should not be underestimated, IMHO. 

Short-term my biggest gripe is specifically the US's oil addiction.  Our per capita usage of OIL is extremely high (see HERE) and our administration's policies have only encouraged more consumption of oil.  We're using money we don't have to pay for this madness.
 

For those of us concerned with oil stock price performance (part of DI's original question), here is a nostalgic visit to the year 1980. You would want to read the article named "Deja Vu 1980". A few snippets :

• Instinctively we sense a potential two-thirds gain in stock price for our oil and gas buy recommendations by November 2008. It actually happened at a similar time 28 years ago when our twenty buy recommendations gained a median 68% from April 30, 1980 through November 30, 1980 (see charts).
• Like today, most of those stocks were already in a steep uptrend after having scored handsome gains. Like today, 1980 was an election year, oil price was advancing strongly, Iran was the U.S. Government’s nemesis and inflation was raging.
• Unlike today, the U.S. Federal Reserve Bank was raising interest rates that ultimately drove the stock market and oil stocks to the low of August 1982, in the second year of a new president’s term.
• We believe the historical parallel justifies maintaining and possible increasing commitments to our buy recommendations while keeping a wary eye out for signs of a peak should steep increases actually occur. Finally, good news for energy in 1980 was also good news for stocks as the S&P 400 Industrials advanced 34% during May through November.

So, my view would be to keep a wary eye out on the charts for any blow-off top on Oil Stocks, but hold on until that blow-off top comes about .... Anil

I would like to mention in favor of the longer term oil bull case. This is from the professional journals I read every day (today's Oil Daily - available by subscription only). It talks about how the Russian state control has hamstrung the state oil giants. Here are a few quick snippets :

• Former Russian energy official Vladimir Milov, a prominent critic of the current
  administration in Moscow, told the New York Energy Forum Thursday that it is
  policy, not natural declines, that is hampering output of both oil and gas, and
  may cause problems for power.
• In 2004, he said, 11.5% of oil production was in state hands and 88.5% was
  private. By 2007, the ratio was 39%-61%. Milov, like others, expects the ratio to
  move further in favor of the state.
• State-private combos and joint ventures are also falling victim to what Milov calls
  “management paralysis,” where sophisticated technical input from a company like BP will, for example, have to go through Gazprom senior staff and often ends up strangled in red tape.

Another interesting fact mentioned in the article was that many regional oil producer companies in Russia, under the state control, received only $35-50/B revenue for their oil when current oil prices exceed $100/B. This means there is hardly any incentive left to look for & to stream new, more expensive oil, at least for those oil companies receiving less than half the market price. I believe this Russian example is typical of the changes that accompany a major ownership change from private companies to state controlled oil companies. Thus, this may apply more widely to all the resource nationalist countries state oil companies such as Ecuador, Venezuela etc.

I would hazard to guess that upto one quarter (25%) of the world oil supply could be hamstrung by such policy inaction, making the bull case for oil continue at least for a few more years. As a result, I would hold on to my energy overweight. One may want to review the portfolio for a little bit of reshuffle, but I think even the International majors will continue to benefit from the lack of non-OPEC production growth ... Anil

Just to make the case in favor of raising gas prices at the pump, I think it is a much more logical approach than a windfall profits tax.  With high oil prices, the problem we're looking at is consumption being too high.  Production already is clearly not high enough or oil would be cheaper in the first place. 

I know some will say we shouldn't tax either, and that is a fair viewpoint, but if we're going to tax anywhere we should do it on the consumption side, not on the production side, which is what a WPT is basically going to do.  Raising the price of gas should, in theory, eventually reduce consumption, which should reduce demand for oil and reduce the price.  Also, one good thing about taxing at the pump is that it is fairly easy, with the infrastructure already in place, and it will fall equally on both domestic and foreign producers (while a WPT would only hurt domestic producers). 

The extra tax could be funneled to public transportation, which is much more energy efficient, and which has languished over the years and could use a boost.  But even if the money is just wasted on a black hole like ethanol at least it would be targeting the consumption side. 

That said, we may be a little bit late to the party to try to constrain consumption through this manner.  Europe has had high gas taxes for decades now and have had plenty of time to adapt.  You can't just slap on a heavy tax and expect it to have an impact over night.  Not to mention, I highly doubt that Americans will accept higher gas taxes since we seem to believe that cheap gas is an inalienable right.  We can, however, easily be focused on bogeymen such as oil companies which serve as convenient scapegoats for current problems.   

I'm not saying definitely that either side of the equation should be taxed, but a WPT seems like just about the worst possible way of applying a tax.  Unfortunately, it's also probably the idea with the most public support. 

Anil - in general, I agree with most of what you say. (And to reitterate, a tax - in my view - would be futile on a scarce resource; it would just get passed on to the consumer and make the situation even worse. An alternative - price controls - would be disasterous). But, getting back to the addiction, yes, any of the options you mentioned would help. For instance, cars that get 100 mpg using advanced technologies would help; use of advanced LED's for all illumination needs would help; nuclear and coal would help; solar and wind likewise; geothermal and hydro; etc. And I have no objections to synfuel - but not from food sources. And, while there is the danger of price gouging with those energy resources as well, those resources are not in unfriendly hands; and those resources are open to market competition. Whereas I cannot just start drilling in my backyard and hope to find oil!

I have no dispute with the fact that we need energy. While I enjoy gardening, I don't want to have to raise my own corn and wheat, nor read by candlelight. This is not a quick fix, to be sure. But I believe we must head in that direction as quickly as possible. For the short term - next 5 years or so - oil interests will keep the upper hand. But the more actions they see from others - actions that will signal the passing of their dominance - perhaps the more sane they will be regarding monopolistic pricing. Those in the oil commodity can make good profits - and that is what is happening now. Oil at $200/barrel by year end is not out of the question; but the harder it gets, the more opportunity there is for alternative developments.

Here's an interesting read on some developments:

http://www.metimes.com/Business/2008/05/15/the_worlds_biggest_clean-energgy_project/3552/

for all your responses and thoughts. This is such a big and all encompassing subject (taxes & energy) that there are bound to be a lot of opinions on it. However, I see a bit of a consensus emerging :

• Our (Mankind's) energy dependence/ addiction (I call it requirement) is direct result of global economic progress and to cut back on that requirement by edict will result in economic hardships,
• The oil requirement can be lowered by improving energy efficiency in every part of the energy chain, not just transportation fuels,
• Added energy taxes do not seem like a good idea, especially if they just add to general revenue (like in Eurozone) and don't give incentives or improve energy efficiency
• Added taxes may only make sense if specifically directed to finding true alternative energy sources,
• Lastly, we hope that OPEC will not mess this efficiency drive by opening the taps wide, right?? ..... Well ....

Now, all we need to do is to find a volunteer to take these consensus findings to the pols and get them on board to draft proper resolutions to take care of this relatively straight-forward problem without the obfuscating legalese and bureaucratic obstacles. Do we have someone who can do that? ...... Hmmm ..... Volunteers come forward please ... Anil

Sorry for the sequential posts. This is such an important subject that I think it is worth continuing this "monologue", for at least bringing out what I see as naive efforts by our elected leaders. Congress seems hell bent on finding a scapegoat for the Oil Heat generated by the public. This is clear from the recent Oil Daily snippet below (with help from a hedge fund manager to support their allegations about rampant speculation in commodity markets):

• Masters (A hedge fund manager who testified) said index speculators provide &ldq