’)A for instance.
Oil costs ExxonMobil $2.
They resell it as gas for $5.
Right now if the oil goes up to $3 they resell it for $6.
Now, when they’re making $8.4 billion of profit in one quarter, what would be the big downside of absorbing the cost increase and keeping the end user’s price at $5? Their profit drops from $3 to $2. Would that be so horrible?
Rex, that is exactly what they would do. It is one of the hidden secrets in America- shareholder class-action lawsuits, engineered by large NY firms like Milberg and Weiss, soak up millions of dollars and thousands of hours of court time.
A corporation is legally required to attempt to maximize gain in any legal and ethical means possible. This is why we need a strong regulatory environment, to make sure that corporations don’t make gains at the expense of the public good.
Don’t fault big oil, fault the legislators who take their money and allow them to run roughshod, without regulation.
Of course it would. They would have less to donate to their political causes. What you propose is a violation of their right to free speech.
I say let it float up to wherever it needs/wants to.
Oh Oliver… You know there’s such a terrible shortage of refining capacity since no one’s built a new refinery in 30 years. Of course the existing refineries have all been massively upgraded over those years to meet demands, obviously.
You know how they make supply of gasoline and other refined products magically just barely meet demand? I read recently that they make sure to export all of the “excess” refined product at significantly lower prices than they would sell it to us for. Shortage created! Ka-ching!
I wish I could remember where I read about that, but it was a newspaper outlet somewhere. Maybe SF Chronicle?
How about we start by getting rid of all the corporate welfare we give the oil companies? The Republicans went to the mats to kill Democratic efforts to get rid of breaks on royalties for drilling on public lands recently. I don’t begrudge oil companies all the profit they legally can make, but we don’t have to shovel public money to them on top of that.
Of course, this recent crisis started when Mr. 33% started trash talking Iran.
Just thought I would take this opportunity to remind Bushbots that during the Clinton administration, 7 short years ago, gas sold for about 85c/gallon.
It’s a good thing we let private industry gouge the consumers in WW2. The Axis is one thing, but Lord knows the Third Reich pales in comparison to… shareholders.
What’s more important? The American people or Exxon making $4 billion in profit vs $8 billion?
…you’re actually suggesting that the stockholders would sue ExxonMobil for not taking advantage of a shortage like this, hoarding what they have, artifically inflating demand, and taking every nine-tenths of a penny they can, and that they are in the right to because those fortunate and wealthy enough to own sizable shares of the company are more important than the average middle class family who actually has to buy the damn stuff all the time? Thats… thats actually what you’re saying? I mean I’m just looking for clarification here
Well, of course they would NEVER get sued by their stockholders, for failure to serve the company’s best interests. Things like that NEVER happen.
How typically liberal. Be extremely generous with OTHER PEOPLE’S money.
J.
I’m with Factcheck on getting rid of the subsidies. However, he also reminds us how cheap gas was some years back. That’s true. Gas was very cheap. And guess what? Gas was so cheap that the oil companies in the face of poor earnings and miniscule profits had to lay off tens of thousands of people. Smaller oil companies were forced to shut down.
I don’t remember Democrats saying anything about it.
Another thing Oliver misses is that the oil companies profit margin is around 9 cents a gallon of gas. The average amount of taxes collected on a gallon of gas? 45 cents. 18.4 cents of that is federal. As such, the federal government collects twice as much on a gallon of gas than the oil companies do. Why don’t Democrats suggest cutting the gasoline tax?
Do oil companies suddenly stop charging consumers the 45 cents? I don t see why they would
You mean, you don’t see why they would want to sell more gasoline at the same profit margin, with no additional cost?
“The average amount of taxes collected on a gallon of gas? 45 cents. 18.4 cents of that is federal. As such, the federal government collects twice as much on a gallon of gas than the oil companies do. Why don t Democrats suggest cutting the gasoline tax?”
This is an interesting point, and one that people bring up a lot. My question is this: The market seems to be able to handle the profit + taxes, right? If we cut out the taxes, do oil companies suddenly stop charging consumers the 45 cents? I don’t see why they would, unless it’s determined that the number of gas-users will increase at a percentage larger than the price cut.
This isn’t a rhetorical question. Obviously, taxes (state and federal) make things cost more. I’m skeptical, though, whether without these taxes, we’d be paying considerably less…Less/no federal tax on oil would just mean — I assume — more money for oil companies and less money for our broke-ass government.
If as a consumer, I’m giving the same $2-3/gal, I’d rather see money go to the federal government, which provides me services/protection/etc., than a gas company which provides me with gas. Not sure if this makes sense.
Cellulose, their profit margin remains 9 cents a gallon whether or not the tax is 18.4 cents or 0 cents. Remember, the profit margin is ‘per gallon.’ They have no incentive to raise the prices again, after the taxes are taken out.
One of the things that people get confused with when they start directing their ire at gas station owners is that they make 6-8 cents per gallon sold. It doesn’t matter what the price is.
When we SHOULD get mad is when prices start to fall. That is when the stations make their most money. Why? Because they make sure the price per gallon drops slowly while the wholesale price per gallon drops quickly. They make their money on that spread.
Rex, the profit is per gallon. That’s why the oil companies would have no incentive to keep prices at the same level. Besides, they know everybody would be watching.
They did it in Florida last year. The state eliminated the state tax for a month. The prices went down 16 cents a gallon and stayed.
I think, Jay C, that they wont because theres no real way to see that the consumer will ever see a penny of that cut. There could be a provision in any such bill saying that so long as Exxon and co. dont increase the cost of gas above, I dunno, $2.75 per gallon for like two years or something that the tax could be lowered to accomodate that set price. But no such bill would actually pass beccause of the constraint it would put on business. And if there were no such constraint then theres really no reason to think that lowering the tax would benefit anyone but the company execs themselves who are under no obligation to price their product any lower if were all clearly willing to pay through the nose for it.
Incidentally, if youre going from the same study I’m going from, I think you mean they make 9 cents on every dollar, not gallon. Maybe you are right, but I just dont see them operating at only a 3% profit margin.
We’ve got enough budget deficits- that “rebate” on gas will have to be repaid. That’s like a credit card company writing you a check- that goes on your bill at the end of the month.
Maybe we should take this opportunity to find real alternatives to our reliance on gasoline. The costs to keep oil available (war) will only go up, and considering the fact that we have to control greenhouse gases, now is where we have to start weaning ourselves off of petroleum.
A retreat to $1/gallon gas will only return us to our wasteful ways, unfortunately.
So JayC when an oil company refines the oil into gas and sell it to us they only get a 9 cent profit on the gas per gallon? I’m pretty sure that doesn’t include the profit they make off the raw crude. I would guess it costs maybe $20 a barrel for an oil company to produce a barrel of oil, if it sells for $60, that leaves a huge profit on what makes up about 58% of the cost of refining oil into gas. So the actual profit per gallon is much higher, like $1.00 or more per gallon when gas prices are in the $3.00 range.
Oil companies have every incentive to keep the price of oil high JayC, and thus the price of gas.
“It s a good thing we let private industry gouge the consumers in WW2.”
Oil companies do business the way they think they need to to prosper and survive. I happen to think they are in the process of losing a big public relations war; but if your idea is so easy, so doable, why don’t you guys get one of your many deep pocket billionaire financers to buy an oil company and run it per progressive principals. Would end the argument either way, wouldn’t it? Exxon $4 a gallon, Mobil $4 a gallon; People’s Gas $0.37 a gallon. I mean I can no longer claim progressives can’t run a heart attack-inducing, high saturated fat ice cream business, because compassionate fat mongers Ben and Jerry have done that very thing. Likewise, Progressive Insurance is out there and doing well. So why not an oil company? Instead of ruining other peoples’ businesses, why not do it yourself? Ice Cream to insurance to big oil. C’mon. Show us how its done.
Dugger
Nice strawman Dugger.
It’s almost breathtaking watching Jay Caruso spin; I can guarantee that had gas prices dropped during this illegitimate administration–Caruso would be yapping about how AWOL George was the Economic Messiah and how our last democratically-elected President had screwed up the economy.
Let’s take Caruso’s points one by one. First, Caruso advocates doing away with the Federal gas tax. To be sure, that would lower prices. But what Jay C. ignores about a gas tax is that it helps pay for the many negative externalities such as damage to the environment. The gas tax also helps pay for the maintenance and development of roads and highways.
Second, Caruso attempts to argue that low oil prices caused oil company workers to be laid off. This is akin to arguing that someone can be too fit. What’s important to realize is that when oil companies were laying off people in the mid-1990’s, the oil companies were still very profitable; they weren’t losing money. In fact, several made what was then record profits. In addition, executive salaries at the oil companies went up.
Third, Caruso makes much about this 9.8 cent per gallon profit margin. What baloney. What Jay ignores is that gas is a pretty inelastic commodity–Americans have little choice but to pay almost whatever cost as there are few alternatives. And there is no product differentiation–the gas you buy at an Exxon station is no different than the gas you buy at the Acme Gas Station. In a competitive industry, one or more gas companies would drop their profit margins in order to make up the profits in volume. Think WalMart–WalMart sells the same products as everyone else but they make their profit on volume.
In case you guys haven’t noticed corporations run this country.
If I give a “donation” to a politician with the expectation of something in return it is called a bribe. When a corporation does the same it is called a political contribution. The ONLY way things are going to change in this country is when Americans finally get off there as*ses and break the stranglehold that corporations have on our lives. The high price of gas is just another sign of Capitalism run amuck. As citizens are we to partake and share in the wealth and benefits of our economic system or do we function only to serve that system?
I’m with factcheck. It’s the legislators. The oil companies would be just plain stupid to not take advantage of what congress gives them. Big business does not have a conscience no matter what they tell you. And apparently, neither does our government.
“Oil costs ExxonMobil $2.
They resell it as gas for $5.
Right now if the oil goes up to $3 they resell it for $6.”
a barrel of oil=42 gallons. Light crude on the spot market goes for about $70/bbl today. That’s $1.6667/gallon.
The amount of gasoline you get out of a barrel of crude depends on the quality of the oil and the refinining method, but this DOE source http://www.eia.doe.gov/kids/energyfacts/sources/non-renewable/oil.html , says its about 19.5 gallons.
70 / $19.5 == $3.58 per gallon.
Obviously petroleum products produced from the remaining 22.5 gallons in the barrel are sold, but nevertheless Oliver’s economics and use of arithmetic are, well, let’s say imaginitive.
I can guarantee that had gas prices dropped during this illegitimate administration Caruso would be yapping about how AWOL George was the Economic Messiah and how our last democratically-elected President had screwed up the economy.
Wow. Flanagan is bringing up completely irrelevant drivel. What a shock.
First, Caruso advocates doing away with the Federal gas tax. To be sure, that would lower prices. But what Jay C. ignores about a gas tax is that it helps pay for the many negative externalities such as damage to the environment. The gas tax also helps pay for the maintenance and development of roads and highways.
Please. The gas tax is used for whatever the legislators want to use it for. Tax receipts are tax receipts. You say it’s for roads and highways. I say it’s for pork barrel projects. The issue is lowering prices and eliminating the gasa tax does that which you admit.
Second, Caruso attempts to argue that low oil prices caused oil company workers to be laid off. This is akin to arguing that someone can be too fit. What s important to realize is that when oil companies were laying off people in the mid-1990 s, the oil companies were still very profitable; they weren t losing money.
Your ignorance in such matters is astounding and I find it amusing that you allow it to be put on display so easily. Companies don’t lay off people when they are doing well. You go and tell all of the smaller oil companies and refineries that had to shut their doors that they weren’t losing money. Idiot.
I’m not going to waste my time with the rest of your post as your third point is more irrelevant nonsense. If you could ever discuss something with a little intellectual honesty it would be a miracle. The profit for oil companies on a gallon of gas is around 9 cents per gallon. You say “What baloney” bit offer nothing to refute such a point. Why? Because it’s true and the reason why I brought up the 9 cents is because you have the banshees around here screaming about PROFITS! PROFITS! as though it’s so horrible.
Wow. Flanagan is bringing up completely irrelevant drivel. What a shock.
Shorter Jay Caruso:’ I’m so into AWOL George, I show up on his colonoscopy.’
Please. The gas tax is used for whatever the legislators want to use it for.
More silliness from Jay Caruso. Since 1997, 85% of gas tax revenues have gone to the Highway Trust fund.
JayC, oil companies make much more than 9 cents on a gallon of gas. The case that you are making is that they make 9 cents/ gallon in the refining process. This 9 cents would be in addition to the massive profit they make from the raw crude. So oil companies have every reason to like high oil prices and as a byproduct high gas prices. Distributors and refineries may have no reason to need high gas prices.
JayC, oil companies typically don’t lose much money when the price of oil is low. What they do is shut production down on wells where they don’t feel the production costs meet profit margins. When the price goes up they put these wells back on line to sell at the higher price. For instance if the price of oil fell to $17/barrel, oil companies might shut down half of their production because it just isn’t worth it for them to sell it at that price. This eventually lowers supply, and bingo.
They don’t lay off a lot of workers because a lot of that oil field service is done by outside companies like Halliburton.
Jay, could you fill me in on this? I mean, could you narrow it down to within a couple of years and tell me about some of these smaller oil companies that went bust?
I musta been out sick that day.
Oil companies often buy oil at a set price on long-term contracts, so they’re taking a risk that the price doesn’t drop, and leave them obligated to keep buying oil at an above-market price. And the point about being sued by shareholders is true. If Exxon-Mobil decided to take even a nickel per gallon hit on their gasoline, the stock price would fall, dividends would shrink, and the stockholders would be in revolt.
Moral: Capitalism sucks.
Quaker,
Google “oil bust 1985″ or “oil bust”.
Oil sold for $40/barrel in 1979 and dropped to about $12/barrel by 1986. The bust was a disaster for independent oil companies from Alaska to Texas.
“Moral: Capitalism sucks.”
Especially when it isn’t really capitalism. I love it when conservatives argue that this is all about supply and demand as if the oil industry hasn’t gone throgh a massive restructuring over the last ten years which has reduced competition between oil companies and lead to higher prices. The mergers began in the mid-1990s (and yes Clinton’s justice Department should have done more to slow or stop the mergers). Conservatives loves to accuse environmentalists of stopping the construction of new refineries. Why don’t they ever address the fact that the oil industry itself shut down refineries after a series of mergers to “reduce costs”?
“May 28, 2004
WASHINGTON Consumers are facing higher prices at the gasoline pump in part because a wave of oil industry mergers over the last decade reduced competition, according to a government study released yesterday.
The merger of Exxon and Mobil in 1999 when the two companies were No. 1 and No. 2 in the industry added up to 5 cents to the price of a gallon of gasoline sold by the combined company.
The General Accounting Office, an arm of Congress, looked at eight major oil industry mergers between 1994 and 2000 and found that six of them led to higher gasoline prices.
Some 2,600 mergers swept the oil industry since 1990, as firms sought to cut costs through economies of scale.
Refining capacity went from “moderately to highly concentrated” in the East Coast, and from “unconcentrated to moderately concentrated” on the West Coast, the GAO said.”
http://www.signonsandiego.com/uniontrib/20040528/news_1b28oil.html
I haven’t had time to read all the comments, so I apoligize if I’m walking on anyones lines.
Don’t the oil companies have a fiduciary responsibility to maximize profits? Legally, I think they have to. I’m not certain of this, but it sure does ring a bell.
Does anyone have more information on this? If I’m right, it should have a profound effect on the discussion.
The oil companies have a fiduciary responsibility to maximize profits and the government has a legal, not to mention moral, responsibility to ensure that corporate profits don’t come from exploiting consumers. One of the functions of government, in other words, is to protect its citizens from the excesses of capitalism. That, of course, is anathema to conservatives who don’t think fair competition, a clean environment or worker rights matter. Afterall, corporations are mandated to produce ever higher profits, not a clean environment or better living standards for their workers.
The government could have done more to ensure that the oil industry mergers of the last decade didn’t have such a detrimental impact on prices. Which is to say, the government should have done more to foster competition as the oil companies sought to reduce it.
“May 17 (Bloomberg) — President George W. Bush allowed an increase in oil refinery mergers to go unchecked since he took office and may have contributed to the highest gasoline prices in 20 years as the November election approaches.
The Bush administration approved 33 takeovers totaling $19.5 billion, on top of 21 deals worth $7.3 billion under President Bill Clinton, Bloomberg data shows. Reduced supplies were already pushing up gas prices in Clinton’s term, according to a Federal Trade Commission study conducted after pump prices rose to more than $2 a gallon in Milwaukee and Chicago in 2000.
…
Under Bush, the FTC hasn’t tried to block any proposed refinery takeovers. During Clinton’s eight years in office, the government sued once to block an oil industry merger. In February 2000, the FTC sought to stop BP Plc’s $33.1 billion purchase of Atlantic Richfield Co. after concluding the combination could lead to higher prices of oil pumped from Alaska. BP completed the purchase in April 2000 after agreeing to sell oil fields in Alaska and terminals and pipelines in Oklahoma.
The rise in gasoline prices helped refiners generate the highest margins from refining crude oil into gasoline and other fuels in the first quarter since at least 1990.”
http://quote.bloomberg.com/apps/news?pid=10000103&sid=aI43GNSYkDDQ&refer=news_index
What was that about competition and the free market?
The free market is for the little people. We compete for jobs, large companies have a defacto monopoly.
Maybe the oil bust was bad for some oil companies, so what? It was good for industries that use oil, and they were able to hire more workers. That is not the point.
The point is whether government should be giving these companies welfare, and whether the government has any power in reducing oil prices.
http://www.washingtonpost.com/wp-dyn/content/article/2005/09/06/AR2005090601818.html
“The industry likes to explain away the lack of adequate refining capacity by arguing that government regulation makes building a refinery virtually impossible. The last time we heard the “government regulation” excuse, it was from Vice President Cheney during the California energy crisis. It turned out our energy-maven vice president didn’t know what he was talking about, and that the real reason for skyrocketing prices was that Enron and the others were secretly manipulating the market by strategically withholding supply.
In the case of oil refineries, there’s no doubt that, given voters’ natural antipathy to having a refinery in the neighborhood, finding a new site requires much time, money and patience. But when President Bush floated the idea last year of speeding site approval by locating new refineries on inactive military bases, Valero’s chief operating officer declared he wasn’t interested. When you look at industry rates of return, he told The Post’s Justin Blum, it’s just not worth it.
This is the oil industry’s other Big Lie. Every year, Fortune Magazine, in its Fortune 500 issue, calculates the rate of return on shareholder equity for each major industry. Last year, when oil prices were a lot lower than they are now, the average return for both independent refiners and integrated majors was 23.9 percent. This year, it’s been even higher. And over the past decade, according to Fortune, the return on equity in the sector has averaged 16 percent, well above the investment hurdle rates in most other sectors of the economy.”