Deb at Schmaltz und Grieben mit Alois, Klaus, Deb und der Luger posted about one of my favorite subjects--profits of the big oil companies. There are excellent points in that post but there are also some things I want to comment on:
Gasoline prices are indeed primarily based on supply and demand but oil company profits are a factor in price as well. This article does a nice job of breaking down who gets what. It says refiners get about twenty-four cents a gallon of three dollar a gallon gasoline. Ten percent profit margin for refiners like ExxonMobil would imply that they are getting 2.4 cents of pure profit on every gallon Exxon sells. But Exxon also is a producer of crude oil so there's profit there too. So it isn't accurate to say that profits don't contribute to the price of gas. They sure do. Take the profit out and you would notice a difference. But the fact remains the price of gasoline is mostly a function of supply and demand.
Deb makes an excellent point about Congress enacting legislation to increase oil supplies. For more exploration, etc I think it has to come from government incentives both on the supply and the demand side. Unless the federal government goes into business for itself (let's hope not) that's the single best thing we can do as a country. Unfortunately Congress has proven itself over and over again to be incapable of doing anything remotely resembling progressive energy legislation.
I don't think it's reasonable to think that the U.S. can influence other countries. We can't even manage to make an energy policy of our own.
My main problem with Big Oil is that I think they exploit the situation. For example, yesterday morning as I drove by my normal gas "station" (remember that term?) regular gas was $3.17. When I went by it that same evening it had risen to $3.25. So am I to believe that the price of crude oil rose enough in ten hours to cause that change? I think not. Unless that gasoline hadn't been paid for by the station yet I think that either the station or the refiner or both had price increases from their supplier and saw a quick opportunity to raise prices and blame it on the rising price of crude. My hunch is that that not just one but both of them did so. I don't begrudge the retailer. He's only taking seven to ten cents a gallon of the three and he still has his overhead, etc to pay from that. But Big Oil has the financial wherewithal to not make that increase until the increased cost oil and gas actually are in the pipeline. I think they are doing just the opposite because they know they can.
April 4, 2008 in
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Thanks Lew for that insight, I didn't think of that angle, and you're right I'm sure.
I guess I was crafting my original piece for the audience of people who actually *listen* to folks like Bill O'Reilly who tell them to boycott big oil or complain to Washington so they'll "punish" big oil by taxing them more, and that will drive down the price of gas.
I would like to have been writing for the audience of truck drivers who--just today in NC where I live--protested the high price of diesel by collectively slowing to a crawl on our interstate highway, slowing rush hour traffic to a crawl (pissing off a lot of trucking's end-use customers, as well as-- ironically--burning more gasoline in the process by driving at a less efficient speed!)
I think I'd just reached that point where I had to say something to THOSE people (on the off OFF chance they'd be reading) to help stop the madness (i.e., colossal waste of time, emotional energy, money, and political capital represented in the complaints and voting proclivities of the average person who spends more than five minutes a day "protesting" the price of crude in this country.
And don't forget how little these people factor in the plummeting value of the dollar and the fact that a huge chunk of those oil company profits are made from overseas sales! Even if the cost of a barrel of crude were to remain the same as it was 6 mos ago, our cost at the pump would still be higher b/c our money isn't worth as much. Of course that whole concept might be just too much to hope they'd understand!
Posted by: Deb at Apr 5, 2008 1:44:59 AM
Keep the gov out of the business, and we'll be just fine. It wasn't the feds who invented horizontal drilling, and thus opening up the potentially 500 billion barrel Bakken Formation in North Dakota. It was just regular old wildcatters trying to make a (better) living. Or, as you put it, bigger profit.
PS When was the last time any kind of federal economic policy had any kind of positive impact? And I mean positive in a capitalistic free-market way, not positive in a rent-seeker way. Look at ethanol and grain prices. Just the merest hint that the feds might get into the game by directing fuel standards has driven the price of these commodities through the roof. It's stupid for the government to be doing energy policy for anything besides supplying the military.
Posted by: Scott at Apr 5, 2008 8:39:35 AM
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