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Sunday's Meet the Press

Meet the Press was pretty bad yesterday. The topic was oil prices, and Tim Russert just couldn't get the concept of supply and demand even though Energy Secretary Sam Bodman talked him through it:

MR. RUSSERT: Mr. Secretary, if, if demand is up but supply is down, why are the profits so high?


MR. BODMAN: For that reason.

MR. RUSSERT: No, think about that.

MR. BODMAN: You know?

MR. RUSSERT: Play it out.

MR. BODMAN: Demand is up.

MR. RUSSERT: Correct.

MR. BODMAN: Right?

MR. RUSSERT: Right.

MR. BODMAN: So you've got more demand, you're going to force price up.

You've got, you've got limited supply, and you're going to have...

MR. RUSSERT: But that's a decision by the oil companies.

MR. BODMAN: No, it is not. That is a decision--those are--oil is traded every minute of every day, and it's traded basically 24-by-seven. And it's, it is determined in marketplaces in New York and London and Tokyo, all over the world. That's the, the--the oil companies do not determine the price of oil; the producers determine the price of oil.

Ugh. Did Russert sleep through Economics 101?

But Senator Dick Durbin was even worse. He said the oil companies made too much of a profit. I'd like to know the definition of too much profit.

SEN. DURBIN: Am I the only one of your guests here that think that profit taking is a problem? I mean, I understand the basic laws of supply and demand. I understand that if the input costs have gone up, it's going to reduce your, your profitability. But here we have the most enormous profits in the history of the United States of America in business. The equivalent of $1,000 per household in America for profits. All of the market factors you described may suggest that the product is going to be more expensive to sell, but they don't forgive what I think is an outrageous profit taking by this industry.


And let me also say to Mr. Cavaney, to suggest that these are average, average profits--they're the largest profits in the history of American business. And to suggest that Mr. Lee Raymond's retirement gift is an average gift of $400 million for his service to the company? That's $3 for every household in America that they paid for Mr. Raymond's going-away gift.

Senator Durbin said this later in the program:

I mean, the bottom line is this: If you do not tax these corporations at this level they will continue to run up the profits to sky heavens.

Let's take a closer look at the profit Senator Durbin was so upset about. This is the break down of the price of gas:

Based upon a $3.00 gallon of gasoline, the average break-down is as follows.


Gasoline Retailer $.01 cents per gallon

Oil Company $.08 cents per gallon

Refining $.29 cents per gallon

Marketing/Distribution $.32 cents per gallon

Taxes $.59 cents per gallon (state and federal)

Cost of crude $1.71 per gallon (delivered)

The value of 8 cents per gallon profit for oil companies is an average. Exxon Mobile made 9 cents per gallon profit the first quarter of 2006. So, I'd like to ask Senator Durbin: who's actually making the profit here? Perhaps we need to implement a windfall tax on the government.


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Comments (67)

I have a question for idiot... (Below threshold)

I have a question for idiots like Durbin decrying the "windfall" profits of Big Oil(tm)

Where the f*ck has he been for the last several years when the price of housing went up between 100-300% and people were speculating...buying houses, sitting on 'em, and flipping them?

I want to see him broach the subject of taxing THAT "windfall" profit.

yeah. right.

Did Russert sleep throug... (Below threshold)
mantis:

Did Russert sleep through Economics 101?

Seriously, I never even took Econ in college, and I understand supply and demand. From high school!

And Durbin (my Senator) may be worse, but not more dumb. He understands this stuff, he's just trying to capitalize politically on people's unease about gas prices. If you say you want to punish the oil companies for gas prices, you will get votes. You'll notice a lot of politicians are getting on that bandwagon, from both sides of the aisle.

Here's my prediction, gas prices will not go down, ever. They will go up as demand is going up worldwide. Our priveleged position having cheap gas is gone (even though we're still gonna get cheaper gas than in Europe). Get used to $3+ per gallon.

It's time to get serious about alternatives (and yes I also mean for environmentalists who don't like nuclear or wind farms), as no possible amount of expanded drilling here is going to bring the price down (it may, repeat may, merely slow the increase by a very small margin).

"Cost of crude $1.71 per... (Below threshold)
Lee:

"Cost of crude $1.71 per gallon (delivered)"

Oil produced on U.S. soil is considerably cheaper than oil imported from outside the US these days. When the cost of imported oil rises, the price of gasoline rises, even though the cost of gasoline produced from oil pumped on U.S. soil has not increased.

The increased profit on domestically-originating gasoline is a WINDFALL. The WINDFALL PROFITS made from the gasoline produced on U.S. soil is the subject of the "Windfall profit tax" discussion.

When are these Wizbang! writers going to get off the Republican "talking points" and read and undestand the issues... for a change?

and why are the blogs spons... (Below threshold)
Lee:

and why are the blogs sponsored by the Republican VolPacs so interested in protecting the profits of oil companies?

Oil produced on U.S. soi... (Below threshold)
James Cloninger:

Oil produced on U.S. soil is considerably cheaper than oil imported from outside the US these days. When the cost of imported oil rises, the price of gasoline rises, even though the cost of gasoline produced from oil pumped on U.S. soil has not increased.
The increased profit on domestically-originating gasoline is a WINDFALL. The WINDFALL PROFITS made from the gasoline produced on U.S. soil is the subject of the "Windfall profit tax" discussion.

Lee:
First, the oil commodities market is a fungible market, and traders don't care whether the oil is domestically produced or not. Traders (not the oil companies) set the market price.

You moan about the WINDFALL profits, yet you are strangely silent about the period during the 80s when the bottom fell completely out of the oil industry due the crashing of the price of oil. Production (domestic) dropped dramatically. It was far cheaper to buy the oil off the market than to expend money to drill here (and to deal with the regulatory-enviromental lobby headaches that it involved.) Oil companies lost lots of money then.

You also seem to think that this profit is going to be tucked under some CEO's queen-sized mattress to be saved for a rainy day. Well, no, sunshine, it is used for more exploration/refining.

Need I also remind you that when the oil company profits go up, so do the shareholder's stocks and dividends. Many, MANY, 401-Ks and retirement plans are involved in such stocks. What hurts the oil companies will ultimately hurt shareholders, and those whose retirement incomes are invested in such stocks.

Finally, the oil companies make their profits not solely on gasoline/petrol, but also other energy efforts, jet fuel, plastics (you realise that plastic comes from hydrocarbons such as petroleum?)

And we don't produce as much domestically as we could anyway, thanks to above regulatory-enviromental lobby matters. And, again, demand has skyrocketed in Asia (particularly India and China--that's some 12 billion people over there). Even a high-schooler can figure out that when demand rises, and supplies stay the same or decrease, prices rise. Solution: Decrease demand (through fuel efficiency, though that won't make much of a dent considering the Asian market is not interested in efficiency) or increase supply (via more domestic drilling, offshore and on land, and we know who's gonna stop that, don't we?)

Could Russert be any more s... (Below threshold)
Kirk:

Could Russert be any more stupid? This is a free market Timmy, people don't set prices in a free market. Duh!

Also to add, a profit of 8-... (Below threshold)
James Cloninger:

Also to add, a profit of 8-9% is hardly impressive, let alone a windfall.

If you take a look at this chart(scroll down):

http://www.freemarketproject.org/news/2005/news20051102.asp

...you will note that for all except three years, government taxes far outpaced profits, and these are at the pump taxes, not counting the usual corporate income taxes on top of that. If anyone has been making money hand-over-fist in oil money, it's been our government.

From the same article:
"    For its part, Exxon has reported that it had new capital investments approaching $15 billion in 2004, which went toward new exploration and production as well as refining capacity and research for new energy technologies. "

     Also, Exxon spokesman Mark Boudreaux told the Free Market Project that "ExxonMobil has added 384,000 barrels per day of refining capacity in the United States through expansions, technology, and operational improvements over the last 10 years."

     "The average refinery size in the U.S. is about 125,000 barrels per day [Oil & Gas Journal numbers]," Boudreaux said. "So that means we have in effect built the equivalent of three new grassroots refineries over the last decade."

     Building and expanding refineries isn't cheap. The Cato Institute's Peter Van Doren and Jerry Taylor wrote on June 4 that a large refinery can take $4 billion to $6 billion to build."

That Billion with a "B". And that's for ONE refinery.

Now, sure, you can punitively "windfall tax" the shit out of Exxon. That ain't gonna help with the gas prices, in fact, it will exasperate things even more. No more refineries or new exploration, supply does not increase, yet demand will continue to rise. Result: HIGHER prices.

Frankly, the price of gas/gallon has been way underpriced for the longest time, especially during the late 80s-90s. We are damned lucky we got that gas so cheap. The market has pretty much corrected, so don't expect to be seeing $1.50 prices very soon, unless the world is FLOODED with crude.

"First, the oil commodit... (Below threshold)
Lee:

"First, the oil commodities market is a fungible market, and traders don't care whether the oil is domestically produced or not. Traders (not the oil companies) set the market price."

And the profit on gasoline produced from domestically-produced oil takes a huge jump - a windfall.

"You moan about the WINDFALL profits, yet you are strangely silent about the period during the 80s when the bottom fell completely out of the oil industry due the crashing of the price of oil. Production (domestic) dropped dramatically. It was far cheaper to buy the oil off the market than to expend money to drill here (and to deal with the regulatory-enviromental lobby headaches that it involved.) Oil companies lost lots of money then."

Why are you changing the subject. We were talking about the windfall profis received by the oil companies during the last 3 months. Nothing that has happened in the past, especially 25 years ago, entitles the oil companies to windfall profits now -- do you really have the nerve to suggest that we OWE the oil companies? Lol! Whose paying your salary?

You also seem to think that this profit is going to be tucked under some CEO's queen-sized mattress to be saved for a rainy day. Well, no, sunshine, it is used for more exploration/refining."

That's Mr. Sunshine to you... and since everyone pays taxes on profits, including you and me, so should the oil companies. We arent' talking about tax incentives for exploration -- we're talking about Windfall Profits, moonbeam.

"Need I also remind you that when the oil company profits go up, so do the shareholder's stocks and dividends. Many, MANY, 401-Ks and retirement plans are involved in such stocks. What hurts the oil companies will ultimately hurt shareholders, and those whose retirement incomes are invested in such stocks."

Lol! - What are you doing -- cutting and pasting straight out of the VolPac newsletter? So everyone should pay too much for gasoline so that the shareholders cna receive a better profit - be sure to put that into the Repubulican platform!

(wait a minute -- it already is... never mind)

We're only talking about Windfall Profits on gasoline -- remember?

"And we don't produce as much domestically as we could anyway, thanks to above regulatory-enviromental lobby matters. And, again, demand has skyrocketed in Asia (particularly India and China--that's some 12 billion people over there). Even a high-schooler can figure out that when demand rises, and supplies stay the same or decrease, prices rise. Solution: Decrease demand (through fuel efficiency, though that won't make much of a dent considering the Asian market is not interested in efficiency) or increase supply (via more domestic drilling, offshore and on land, and we know who's gonna stop that, don't we?)"

The price of oil is rising worldwide. Yes, even you have that one figured out -- but here the issue is Windfall Profits on gasoline produced from domestic production.

there was a lot of the same... (Below threshold)
Lee:

there was a lot of the same noise and misdirection, and then:

"Frankly, the price of gas/gallon has been way underpriced for the longest time, especially during the late 80s-90s. We are damned lucky we got that gas so cheap. The market has pretty much corrected, so don't expect to be seeing $1.50 prices very soon, unless the world is FLOODED with crude."

At last, the truth. You've got that right at least. The Republican oil man in the White House has set this nation up to be screwed. We will have $3+ gasoline forever. It's only going to get worse.

The screwing of America has begin full-tilt, and the amazing thing is... if you're dumb enough to click on those ads on the left rail of this blog, and do an even dumber thing and donate money to these wolves, you are paying for the privilege of being screwed, and helping them screw your fellow Americans in the process.

What did this country ever do to you to deserve that kind of treatment?

Are Russert and Durbin trul... (Below threshold)
cubanbob:

Are Russert and Durbin truly stupid or willfully stupid?
Perhaps the Secretary should have asked Russert if NBC is making a "windfall profit" when it charges more for it's higher rated shows than for it's lesser rated shows?
If the Lee's want to be Exxon's partners in the profits by way of windfall profits taxes, do they want to be their partners when the next profit bust happens by way of guarantee minimum profit surcharges? Somehow I doubt that.
Besides is it not a lefty talking point that high prices aid conservation and decrease pollution?

Lee, you missed the big pic... (Below threshold)
Kirk:

Lee, you missed the big picture that James was making. The oil companies don't determine their profits. This is market economics, oil companies have no control over their prices therefore they have no control over their profits. Since prices are not set by anybody, all you can do is blame the invisible hand.

"Lee, you missed the big... (Below threshold)
Lee:

"Lee, you missed the big picture that James was making. The oil companies don't determine their profits. This is market economics, oil companies have no control over their prices therefore they have no control over their profits. Since prices are not set by anybody, all you can do is blame the invisible hand."

Oh, when it comes to blame I think I've made my point....but you know -- the real subject of the post on which we're commenting is --

-- Windfall Profits on gasoline refined from domestic production.

Sorry, I just had to do that. It's that whole "big picture" deal right back at ya', pal. We can discuss how much; we can discuss what is fair -- but let's stay focused here, ok?

It doesn't matter who determine's the profit -- we're discussing taxing it; regardless. The "blame" is moot.

It doesn't matter who de... (Below threshold)
Kirk:

It doesn't matter who determine's the profit -- we're discussing taxing it; regardless. The "blame" is moot.

But Lee, the profits are already taxed. So, I'm confused on what your point is.

I'm losing sight of the dis... (Below threshold)
jc:

I'm losing sight of the distinction between socialism and capitalism anymore. How can oil be called a private industry when the government makes more than 7 times as much profit as the oil companies? As China privatizes industries and we tax them to death at what point do we pass each other and we become the socialist country and them the capitalists?

hey LeeAll first t... (Below threshold)

hey Lee

All first time buyers that have been shutout of the housing market because of huge increases in price (and windfall profits for home sellers that make the oil companies look like a lemonade stand run by Lucy Van Pelt) certainly have been hurt by greedy homeowners.

"Blame" is moot. When are you proposing taxing those "windfall" profits?

Darleen: Have you re... (Below threshold)
Kirk:

Darleen: Have you read a word in this post? You say "greedy homeowners." What do you mean by this? Homeowners don't set their prices, the market does.

I posted this in the wrong ... (Below threshold)
James Cloninger:

I posted this in the wrong thread before, let's see if I can do better here:

To counter Lee's rather short-sighted arguments:

And the profit on gasoline produced from domestically-produced oil takes a huge jump - a windfall.

Exxon (to pick one company) had a $11 billion dollar increase in profits...a big jump to be sure, however:

http://money.cnn.com/2006/04/27/news/companies/exxon/

"...they've also returned lots of the profits to shareholders.
Exxon returned $7 billion to shareholders in the form of dividends and share buybacks in the first quarter of 2006, a 67 percent increase from the prior year."

As I've mentioned, more profits results in more money going back to shareholders, many of which are retirement funds.

Also in the article:

"In its earnings statement, the company [Exxon] said it spent $4.8 billion on capital investment and exploration projects this quarter."

As I also mentioned, the profits don't sit under a mattress (or on it for the CEO to laciviously roll around in, they are used to fund further projects to (gasp) earn MORE profit! Horrors!

In other words, what's the fucking problem with making some money, especially after LOSING money after nearly a decade?


Why are you changing the subject. We were talking about the windfall profis received by the oil companies during the last 3 months. Nothing that has happened in the past, especially 25 years ago, entitles the oil companies to windfall profits now

1. It has everything to do with the subject, if you consider making a tidy profit after suffering profit losses for YEARS a "windfall". And, yes, with all the investement that the companies have made in exploration/drilling, etc, and the BILLIONS of money that they've spent on it, damn right they have the right to earn some of it back.


-- do you really have the nerve to suggest that we OWE the oil companies? Lol! Whose paying your salary?

2. If you are willing to buy the product at the price set, yes you OWE the company, unless you are suggesting that they give it away for free.

3. Paychex pays my salary, which has nothing to do with the subject at hand (talk about changing subjects)


That's Mr. Sunshine to you...

Be grateful that I didn't use my second, more scatological title instead...take what you can get.


and since everyone pays taxes on profits, including you and me, so should the oil companies.

And they DO, you half-wit:

http://www.taxfoundation.org/news/show/1321.html

"It is important to remember that net income reported on financial statements, is the result of subtracting income-based taxes from corporate gross earnings. Before shareholders receive a return on their investment, the government takes its significant share off the top...During 2005, these three companies paid a combined corporate income tax burden of $44.3 billion on their reported gross earnings. Compared to last year's combined corporate income taxes of $29.7 billion, their burden for 2005 has increased by 49.2 percent and follows the overall trend of escalating corporate tax collections in the United States. In addition to corporate income taxes, the same companies paid or remitted over $114.5 billion in other taxes in 2005, including franchise, payroll, property, severance and excise taxes."

There's also a handy chart at the link, showing that the average Corporate Income Taxes of ConocoPhillips, Chevron and Exxon Mobil per Share Exceed 69 Percent of Net Earnings per Share

Read the article carefully before you spout off such unbelievable nonsense.



Lol! - What are you doing -- cutting and pasting straight out of the VolPac newsletter? So everyone should pay too much for gasoline so that the shareholders cna receive a better profit - be sure to put that into the Repubulican platform!
(wait a minute -- it already is... never mind)

1. I don't know who VolPac is, and if it exists I challenge you to find said cut-and-paste, with URL (you will note I have been citing my sources here).

2. Define "too much." What is too much? $1.00? $2.00. My aunt in Esher pays about 70p/litre...that's about $4.50/gallon, of which 70% of it is due to road tax. Consider yourself lucky you are only paying $2.70 here.


We're only talking about Windfall Profits on gasoline -- remember?

As I stated, the profits announced by Exxon, come not ONLY from gasoline/petrol. They are TOTAL profits, which include plastics, etc. AT&T doesn't JUST do long-distance service anymore either.


ME:
"And we don't produce as much domestically as we could anyway, thanks to above regulatory-enviromental lobby matters. And, again, demand has skyrocketed in Asia (particularly India and China--that's some 12 billion people over there). Even a high-schooler can figure out that when demand rises, and supplies stay the same or decrease, prices rise. Solution: Decrease demand (through fuel efficiency, though that won't make much of a dent considering the Asian market is not interested in efficiency) or increase supply (via more domestic drilling, offshore and on land, and we know who's gonna stop that, don't we?)"

SUNSHINE:
The price of oil is rising worldwide. Yes, even you have that one figured out -- but here the issue is Windfall Profits on gasoline produced from domestic production.

1. Of course I figured it out, I use logic, not some left-tract whining talking point.

2. No, the issue being pushed in the media is "windfall profits" in general, not specifically from domestic sources. And, by the way, all of our gasoline is domestically produced, pretty much...that's where the refineries are, HERE.

You don't have to like paying more for your gas than you did 2 years ago, neither do I, but welcome to the free market. It could be much worse: In the 70s, thanks to a shortage of crude AND GOVERNMENT PRICE FREEZING, the overall price rose even higher (in 70s dollars), long queues, odd/even day rationing, and a 10 gal limit on gas (when at the time, most tanks took 20 gals and got, at best, about 10 miles/gallon.)

So, save your complaints until you see that sort of nonsense happening again.

At last, the truth. You'... (Below threshold)
James Cloninger:

At last, the truth. You've got that right at least. The Republican oil man in the White House has set this nation up to be screwed. We will have $3+ gasoline forever. It's only going to get worse.

Obviously you don't know your history, when Reagan abolished the price freezes in the 80s, initially the prices went UP! Then, OPEC began to flood the market with crude, driving the prices down to the basement. We were producing far more fuel-efficient cars then, and our demand for oil went down, the Saudis couldn't sell their crude at the previous price-freeze prices. Demand went down, supply went up, prices dropped. Econ 101.

Lee,Come on man, J... (Below threshold)
mantis:

Lee,

Come on man, James has addressed your points, but apparently you need to be beaten over the head with it to understand. The windfall tax on domestic oil was tried in the 1980s, with drastic results. It only proved to stifle domestic production (20-year low as of 1988) and increase our dependency on foreign oil, and the tax yield was nowhere near the revenue anticipated. The windfall tax on domestic oil was a burden on taxpayers, on industry, and helped to increase our dependency on the Middle East. Cloninger did not change the subject, he was pointing you to the results of what you propose. 'Those who cannot remember the past are condemned to repeat it.'

And yes, I'm a lefty, but I'm a free-market lefty (on most issues except for those crucial to social well-being, like education and health care). And let me just throw some (possibly) unexpected red meat to the conservatives here: regarding the windfall tax on oil production, Carter was dead wrong, Reagan was absolutely right, and economic history has proved this thru and thru.

I for one like high gas prices, they only serve the environmental cause (if not the cause of radical environmentalists).

Ok, I took to long, and Jam... (Below threshold)
mantis:

Ok, I took to long, and James covered it, but still...

Lee, you missed the big ... (Below threshold)
James Cloninger:

Lee, you missed the big picture that James was making. The oil companies don't determine their profits. This is market economics, oil companies have no control over their prices therefore they have no control over their profits. Since prices are not set by anybody, all you can do is blame the invisible hand.

Well, I tried to give a little insight into how global markets work, but obviously Lee has decided to remain woefully ignorant about basic market econ. Even IF all of a sudden tomorrow, the government was to sweep in and take all of the profit away, it's not going to make the price come down. All it means is that the incentive to build refineries and drill here domestically is wiped out. Result: IMPORTING CRUDE AND GASOLINE, resulting in HIGHER prices (after all, the companies will have to recover their lost income somehow, and the first thing they will do (after moving all their operations out of the country) is raise the price of gasoline to recoup.

Problem gets monumentally bigger.

James: I appreciate ... (Below threshold)
Kirk:

James: I appreciate your detailed reply to Lee's radical left diatribe, but I'm afraid you veered a little off subject.

MR. RUSSERT: But that's a decision by the oil companies.

MR. BODMAN: No, it is not. That is a decision--those are--oil is traded every minute of every day, and it's traded basically 24-by-seven. And it's, it is determined in marketplaces in New York and London and Tokyo, all over the world. That's the, the--the oil companies do not determine the price of oil; the producers determine the price of oil.

The whole point of the post is that the oil companies do not set the price of their product - be it oil or gasoline. I feel that you are overcomplicating the issue and confusing people. If we are to reach out and bring other people into the fold we need to keep things simple and explain how the free market works. Apparently it's a hopeless cause with media hacks like Tim Russert, but I truly believe that we can reach people like Lee.

mantis:And yes,... (Below threshold)
James Cloninger:

mantis:

And yes, I'm a lefty, but I'm a free-market lefty

Since we agree, even though we are opposite sides of the spectrum politically, that must mean the End Times are upon us. :)

Ok, I took to long, and James covered it, but still...

I left out the windfall tax of the 80s in my points, I'm glad you pointed out that THIS HAS BEEN FUCKING DONE BEFORE! It only butresses my point.

The whole point of the p... (Below threshold)
James Cloninger:

The whole point of the post is that the oil companies do not set the price of their product - be it oil or gasoline. I feel that you are overcomplicating the issue and confusing people. If we are to reach out and bring other people into the fold we need to keep things simple and explain how the free market works. Apparently it's a hopeless cause with media hacks like Tim Russert, but I truly believe that we can reach people like Lee.

This has not been the first time that it's been explained how market forces work. Perhaps I went a little too much in depth, but I do like to explain things somewhat thoroughly. If Lee can't grok it by now, or is too lazy to do some research, well, I hope he doesn't have to run a business.

I left out the windfall ... (Below threshold)
mantis:

I left out the windfall tax of the 80s in my points, I'm glad you pointed out that THIS HAS BEEN FUCKING DONE BEFORE! It only butresses my point.

It thought you were implying that here:

You moan about the WINDFALL profits, yet you are strangely silent about the period during the 80s when the bottom fell completely out of the oil industry due the crashing of the price of oil.

But no matter. Happy to help.

It thought you were impl... (Below threshold)
James Cloninger:

It thought you were implying that here:

Yes, but you explained WHY the bottom dropped out more succinctly.

Since we agree, even tho... (Below threshold)
mantis:

Since we agree, even though we are opposite sides of the spectrum politically, that must mean the End Times are upon us. :)

Hey, I'm a lefty; that means I'm a no-good secular humanist/darwinist. I don't believe in the End Times. Hedonism for all! ;)

Lee: I was thinking ... (Below threshold)
Kirk:

Lee: I was thinking about how to explain the market to you so you can understand it. I'm not quite sure what your background is, but let me give it a shot:

Have you ever seen the oil companies raise the gasoline prices? No, of course not. You drive up to the pump and the price is what the price is.

So, who is setting the price? You can't see who is setting the price yet the price has changed.

Now, let's try this. You are driving down the street and see a building. The building is there, but what put it there? Easy, right? A builder. The mere fact that there is a building proves the existence of a builder.

How about if you visit a museum and see a painting? What made the painting? Obviously it was a painter.

But, you don't actually have to see the builder building or the painter painting to know that they exist. The mere existence of the building and painting is proof of the existence of the builder and painter.

Likewise, that fact that there is price for gasoline proves beyond a doubt that there is an invisible hand controlling the market.

Does this help? I'm never quite sure how to approach the subject as I meet many different people on the internets, each with a difference level of education and exposure to the marketplace.

Now, let's try this. You... (Below threshold)
mantis:

Now, let's try this. You are driving down the street and see a building. The building is there, but what put it there? Easy, right? A builder. The mere fact that there is a building proves the existence of a builder.

How about if you visit a museum and see a painting? What made the painting? Obviously it was a painter.

But, you don't actually have to see the builder building or the painter painting to know that they exist. The mere existence of the building and painting is proof of the existence of the builder and painter.

Wow, I've never heard "intelligent design" arguments applied to economics. Kirk, you wouldn't be a total nutcase, would you? Let's look at your latest post:

This must end. People must not be allowed to speak ill of our president in a time of war. But, it is not enough to just muzzle the voices; we must also remove all symbols of dissent.

Wizbang, welcome to crazytown. Just follow the link.

Ok, nevermind, Kirk's site ... (Below threshold)
mantis:

Ok, nevermind, Kirk's site is obviously a joke. I'm retarded.

Some interesting graphs and... (Below threshold)
jc:

Some interesting graphs and stuff here:

http://tinyurl.com/c9er5

Sure the website is Conoco-Phillips but most of the interesting graphs are from Business Week.

Hey I'm the decider, and I'... (Below threshold)
Frank C.:

Hey I'm the decider, and I've decided that the majority of the 20 people using this blog are speaking out of their butts.

so see ya.

There is one problem with a... (Below threshold)
jpm100:

There is one problem with analyzing the price of oil as pure Supply and Demand 101. Supply and Demand 101 assumes that just anyone can join the ranks of suppliers. They can't.

OPEC consciously and deliberately controls supply. If you increase supply yourself, like drilling in ANWAR, OPEC will adjust production so the global demand set essentially a similar price.

I saw Durbin interviewed by... (Below threshold)

I saw Durbin interviewed by Neil Cavuto about a week ago on this subject. Cavuto confronted him with the cost per gallon of oil company profits vs. taxes. Durbin completely avoided the question, as if taxes were the God-given right of government.

To our legislators, taxes are holy beyond all possible questioning. Term limits are looking better all the time.

EdMcGon hits the nail on th... (Below threshold)
docjim505:

EdMcGon hits the nail on the head: our lovely elected officials think of tax money as their's by Divine Right and aren't about to give any of it back.

The government is FAR more responsible for the pain that we feel at the pump, both directly through the exorbitant taxes they collect and indirectly through excessive regulation. In order to duck the responsibility, they are pulling the old trick of finding a scapegoat, and the oil companies are about as good a target as anyone could ask for.

BTW...James Clonin... (Below threshold)
docjim505:

BTW...

James Cloninger,

Good posts. Good info. I fear you're wasting your time, however; Lee seems to have fallen hook, line and sinker for the class warfare rhetoric of the libs. Oil companies are making a profit!!! HOW DARE THEY!!!

And, as Darleen asks, what do people like Lee and Sen. Turban want to do with the proposed windfall taxes?

"Senate Republicans on Mond... (Below threshold)
maggysturn:

"Senate Republicans on Monday hurriedly abandoned a broad tax proposal opposed by the oil industry and business leaders, another sign of their struggle to come up with an acceptable political and legislative answer to high gasoline prices."
From AP wires May 2, 2006

Can you conservative apologists say "flip flop"?

Why do Republicans hate Ame... (Below threshold)
vietvet:

Why do Republicans hate American so much?

Could it be that the world ... (Below threshold)
astigafa:

Could it be that the world at large is coming to the realization that Tim Russert is a witless shit?

We should be so lucky.

P.S. If we can solve the hy... (Below threshold)
astigafa:

P.S. If we can solve the hydrogen equation, the energy companies will become producers, and will therefore make more profits.

Rah! Yah! Go! Our Team! Nothing like influenza, caffeine and sleep deprivation to give you a buzz.

Darleen: Have you ... (Below threshold)
Darleen: Have you read a word in this post?

I think she was being ironic to make a point to Lee.

Why do Republicans... (Below threshold)
Why do Republicans hate American so much?

We don't hate "American." We hate stupidity. You're only projecting our hatred for you as being hatred for all of "American."

Imagine for an instant that... (Below threshold)
DJ:

Imagine for an instant that "Big Oil" does get hit with a multi billion dollar windfall tax, what then?

Tax the hell out of them for the foreseeable future? Well.. guess who pays for a businesses taxes, that would be you and I as the role of customer. Corporate tax in my book is a misnomer, as it's money thats derived from the sale of the products the corporation makes. Corp. gets hit with a higher bill, price on product goes up to pay that bill.

Instituting a windfall tax would be like uncle sam increasing the amount of tax on a gallon of gas.

Mantis nailed this one on the second post. This is polical grandstanding to get votes in an election year. Everyone hates paying 50 bucks to fill up their Camry or Accord, and big oil is the biggest target for politicians to spout off about.

the oil companies do not... (Below threshold)
sean nyc/aa:

the oil companies do not determine the price of oil; the producers determine the price of oil. Bodman

this is a funny quote because the oils companies are the producers. so the oil companies are determining the price after all.

and this gets back to the breakdown of the price of gasoline:

Based upon a $3.00 gallon of gasoline, the average break-down is as follows.
Gasoline Retailer $.01 cents per gallon
Oil Company $.08 cents per gallon
Refining $.29 cents per gallon
Marketing/Distribution $.32 cents per gallon
Taxes $.59 cents per gallon (state and federal)
Cost of crude $1.71 per gallon (delivered)

so the oil companies are making 8 cents on the cost of gasoline, AND whatever profit they took in selling the crude in the first place. This is the major disconnect for most people. So they are getting profits on both ends, the production of crude and the sale of gas.

I don't know exactly how oil trading works on the floor of the NYSE, but the oil companies are selling crude to traders, who do what with it? Nothing as far as I can tell. The crude moves on to the refinery (still owned by oil companies) where it is processed into our favorite hydrocarbon derivatives, one of which, gasoline, is moved onto gas stations (still "owned" by oil companies, individuals might own the building and property, but the company owns the name and the contract to ensure the location gets supply). So really, the oil/gas never leaves the oil companies' hands.

It seems like the traders are there just to ensure the oil companies would keep producing oil, which of course they would as long as they were making ANY profit. All companies want to determine: what is the maximum price they can sell their product that the market will bear? That is the driving force of capitalism. Clearly, the oil companies have found that amount and don't intend to go below ~$70/bbl anytime soon.

I personally don't care that much about the price of gas considering I fill up my 12 gallon tank once or twice a month, but it's funny to see everyone defending the oil companies when they are clearly screwing the average person. The price could just as easily be $50/bbl and the oil companies would still be making a healthy profit.

Oh and James Cloninger, I've heard conflicting reports about oil company profits, ie that they've always made them, just in varying amounts. I'm not sure they've ever lost money as an industry. Some individual companies might have had some problems, but there were always some making profit. Again, the essence of capitalism, competition drives out the weaker companies.

"Likewise, that fact tha... (Below threshold)
Lee:

"Likewise, that fact that there is price for gasoline proves beyond a doubt that there is an invisible hand controlling the market."

Oft-repeated, copied straight out of the "Let's all be idiots" handbook, but still irrelevant.

I for one like hig... (Below threshold)
Mac Lorry:
I for one like high gas prices, they only serve the environmental cause (if not the cause of radical environmentalists).

I agree that high gas prices will be beneficial to the U.S. in the long run, but maybe not to the environment in the short run. As gas prices go north of $4 and even $5 a gallon U.S. consumers will finally get out of their gas hogs and drive smaller high mileage vehicles. As high energy prices slow the economy, there will be tremendous political pressure to drill everywhere there might be oil or gas. We may even start to mine our oil shales as Canada is currently doing with their oil sands. The push for new nuclear and coal power plants will likely offset any environmental benefit of increased use of wind and solar energy. While nuclear energy has benefits such as no CO2 and less environmental radiation than coal, it's still considered bad for the environment by many.

About the time the Democrats take control of the government in the normal pendulum of power, the energy crises will likely make them choose between their long time environmentalists lobby and the voting masses. Energy may be to the Democrats what Iraq has been to the Republicans.

Heres a little fo... (Below threshold)
Tincan Sailor:


Heres a little food for thought,I have a
friend who had an ARCO-am/pm mini mart in
california,well one morning I drop by for
some b/s and coffee and saw painters at
work changing the stations colors I went in
and said what gives,he said I don't need the
S O B's I got a better deal from an indpendent
they don't want 15%of my total gross like
ARCO,yes that was 15% every thing in the store
being a friend of the oil companys is like
having SON OF SAM AS YOUR BEST FRIEND....

"being a friend of the o... (Below threshold)
Lee:

"being a friend of the oil companys is like
having SON OF SAM AS YOUR BEST FRIEND...

...but it is not their fault TS. The invisible forces of greed made them do it.

[email protected] sean nyc/aa... (Below threshold)
ed:

Hmmm.

@ sean nyc/aa

so the oil companies are making 8 cents on the cost of gasoline, AND whatever profit they took in selling the crude in the first place. This is the major disconnect for most people. So they are getting profits on both ends, the production of crude and the sale of gas.

sigh. ...

...

...

...

If the oil company sold the crude oil then where did they get the gasoline from?

Let me try again.

How is it possible for me to both SELL a barrel of crude oil AND to refine it into gasoline AND sell the gasoline?

Wouldn't the purchasers of the barrel of crude oil object when I take that SAME barrel, refine it and then SELL the gasoline?

...

I need another cup of coffee and some aspirin.

Without getting into the qu... (Below threshold)

Without getting into the quagmire of whether or not oil companies are profiting immorally from these recent record profits, I'd like to point out one small fact. A few comments in this thread have said the US government "profits" from the sale of oil. That is incorrect. The US government taxes oil.

The revenue generated from those taxes goes into, among other things, building and upkeeping America's roads and highways, and mass transit initiatives. Some goes into the general budget, and could help provide schools, policemen and firemen, courthouses, prisons, healthcare, and any number of other public needs.

These taxes also serve to reduce the amount of gas that is used by not allowing it to be so inexpensive that the public wastes even more of it than we already do. That reduces environmental pollution and extends the availability of oil reserves by slowing its use.

Check out this link for more info:
http://www.artba.org/economics_research/reports/gas_tax_history.htm

The big money in the oil bu... (Below threshold)
Mac Lorry:

The big money in the oil business is not from refining, transporting, or retailing the products such as gasoline, diesel and other fuels, it's from the production of crude oil. In the U.S. it costs less than $15 per barrel to produce crude from existing wells on land, but it's sold for over $70 a barrel in the current market. The cost of production is relatively stable, so when high demand drives up the market price of oil, the results are windfall profits. The question is are windfall profits good or bad? Well that depends on what companies do with the extra money and that depends on the projected demand for oil.

In an era of growing demand those companies who can supply more crude oil will make more money, but to supply more they have to invest more in exploration and production. Even so, companies have to have areas available for exploration and production, otherwise no new supplies can be found. The U.S. government has a stated goal of reducing dependence on foreign oil. To accomplish that goal the government must let oil produces keep the windfall profits and open more areas to exploration and production.

A windfall profits tax and continued restrictions on oil exploration only hobbles domestic production and increases our dependence on foreign oil. I guess some would rather use the windfall profits tax revenue to fight future wars for oil rather than see a few oil company executives become stinking rich. Yet it seems ok with them if the leaders of leftist and terrorist nations become stinking rich selling us oil.

I support repeal of the special tax breaks that were enacted to entice oil companies to invest in exploration and production of domestic crude; as those incentives are no longer needed. However, the same bill should also open up new areas to exploration and production.

How is it possible for m... (Below threshold)
sean nyc/aa:

How is it possible for me to both SELL a barrel of crude oil AND to refine it into gasoline AND sell the gasoline?

ed, this is a great question that I don't know the answer to and it also gets back to a point I raised as well. Who exactly are the traders buying the for? If I want to invest in oil, what the hell am I gonna do with a barrel of it.

The way it seems to work is that the investors are "buying" the oil from oil companies, not to actually get their hands on the product, but to ensure they keep pumping; they're essentially buying the next barrel that has yet to be pumped. Just like investing in a company, you don't invest to get the product, you invest because you believe the company does good work and you want them to continue making their product. They get money from you, the investor, and then they sell the product and get money from the consumer.

And that raises another point. You can invest in oil companies and computer companies and health insurance companies, etc. but there are very few products that can be invested in like oil, and there's the rub. Hell, I wish you could invest in "computers" and we'd all make big bucks cause you know computers are keep selling. But oil is different, you can trade oil even though you, the investor, never actually do anything with it (in its crude form). And the oil companies are making bank cause they can pump it for $X/bbl, sell it for $X+Y/bbl and never let you touch it.

So I don't think this answers your question, but I was essentially asking the same thing. The oil companies have a good racket and pretty much have a stranglehold on the market by controlling the flow of oil from platform to pump.

"The cost of production ... (Below threshold)
Lee:

"The cost of production is relatively stable, so when high demand drives up the market price of oil, the results are windfall profits. The question is are windfall profits good or bad? Well that depends on what companies do with the extra money and that depends on the projected demand for oil.

Ding! You win the prize for actually admitting that there are windfall profits being made.

"To accomplish that goal the government must let oil produces keep the windfall profits and open more areas to exploration and production."

I disagree. I say trax the winfdfall profits, and incent the development of alternatives. We're running out oil, the job we have in front of us is getting off the oil teet and into alternatives. Windfall profits should be subject to a windfall tax to further this goal.

"I support repeal of the special tax breaks that were enacted to entice oil companies to invest in exploration and production of domestic crude; as those incentives are no longer needed. However, the same bill should also open up new areas to exploration and production."

Ah, the "Alaska is pristine so let's rape it" argument. You suggest that the windfall profits should be reinvested, but want to do away with exploration incentives. Doesn't your neck hurt from the whiplash?

...but regardless. Everyone saw right through the "here's $100 for each of you -- can we give our oil buddys billions in return?" Republican push - and American sentiment is certainly still far away from draining more Alaskan oil. Americans want long-term solutions, not excuses to allow oil companies even greater profits.

Instead of pumping more dinosaur juice from the ground, the political juice in this country is going into pushing the dinosaurs out of Washington, and rightly so. This thread clearly demonsrates the extent to which Republican idealogy is concerned not with the welfare of the American people, and not with the economy either (Which I find surprising), but lies solely with the big money interests that grease the political wheels in Washington.

As others have pointed out, the high price of gasoline is here to stay. Finding ways for oil companies to sell us more high-priced gasoline isn't the answer.

Russert is an obvious idiot... (Below threshold)
frankfucszeroiq:

Russert is an obvious idiot!

I disagree. I say ... (Below threshold)
Mac Lorry:
I disagree. I say trax the winfdfall profits, and incent the development of alternatives. We're running out oil, the job we have in front of us is getting off the oil teet and into alternatives. Windfall profits should be subject to a windfall tax to further this goal.

You're betting the government can wisely direct future energy development, but history shows that's a sucker bet. Too many players pulling in different directions with no long term consistency. The result is the U.S. would likely become even more dependent on foreign oil and energy prices would be even higher.

If you want to solve the energy problem just get the government's fat ass out of the way and let the market and free enterprise handle it. If you also want breathable air, drinkable water and farmable land, then government must set some limits. However, the limits we have now on places like Anwar and the continental shelf are political, not scientific. No extremist view, left or right, is going to work. It's going to take a pragmatic view to provide this nation with energy and protect the environment as well.

As oil prices continue to rise, market forces will automatically spur conservation and the development of all viable energy alternatives. What those alternatives are depends on the political landscape, which itself will be greatly influence by high energy prices. Politics may prevent development of hydroelectric and oil shale resources, but I expect will allow more nuclear, coal, and yes, oil exploration along with wind an solar. Science may eventually give us nuclear fusion, but until then we will likely need to use all available resources to meet this nation's energy needs. Politicians who take the pragmatic view are the ones who will be elected.

Ah, the "Alaska is... (Below threshold)
Mac Lorry:
Ah, the "Alaska is pristine so let's rape it" argument. You suggest that the windfall profits should be reinvested, but want to do away with exploration incentives. Doesn't your neck hurt from the whiplash?

You don't have to rape a woman to have a relationship with her. Same for Alaska. With windfall profits and a strong market for oil there's no need for government tax incentives to spur exploration. I don't see the sense in imposing a windfall profits tax and then giving companies back some of their own money to entice them to explore. Big oil didn't get big by being stupid, but stupid is the hallmark of big government programs.

If the oil companies are ge... (Below threshold)
mak44:

If the oil companies are getting 9cents/ gal of profit after all costs, and if sales are basically static, their net profits should remain relatively stable, regardless of the raw material costs if that is all they are passing thru.

On this basis, while product cost might increase radically, profits would only increase wildly if there was a wild jump in demand at any cost and the number of gallons sold jumped radically from the Q before.

This is not the case, because consumption is up on a y-o-y basis about 1.6%. Oil's profits are up wildly beyond a sales increase of 1.6%.

You'd have to be David Copperfield to pull off their profit increases while not gouging thru some back-door mechanization.

Think of it, the largest profits ever, based on a piddly margin on relatively static sales. If it looks like, smells like and shits like price-gouging it just may be so in spite of an over-simplified law of "Supply & Demand."

So you see Kim, your knee-jerk slams at Russert & Durbin are a tad oversimplified because you are prepared to parrot a simplistic S&D excuse for any profit increases.

Given your impaired sight & smell, I'd have to decline any dinner invites. When they say " we're having shit on a shingle," it must mean dinner at your house.

[email protected] sean nyc/a... (Below threshold)
ed:

Hmmmm.

@ sean nyc/aa

ed, this is a great question that I don't know the answer to and it also gets back to a point I raised as well. Who exactly are the traders buying the for? If I want to invest in oil, what the hell am I gonna do with a barrel of it.

What I was trying to point out is that there is a logical hole in what you're trying to say. If you sell the barrel of crude oil then you cannot profit from refining it and selling the gasoline. Not without buying back that barrel of crude oil for even more money than you sold it.

Now this might be what you're trying to describe but I'd suggest the field of oil futures, risk management and commodities trading is a bit more complex than that.

Many say we will see $3.50/... (Below threshold)

Many say we will see $3.50/gal this summer. If you factor in Iran, who knows how high it could go. Everyone knows America MUST get off the oil. After September 11, 2001 I expected our President to call on Americans to GET OFF THE OIL. I was expecting a speech like the one JFK gave that motivated us to reach for the moon. As you know, this never happened. Eventually I realized that the only way this is going to happen is for us to do it ourselves. To that end I created this idea and have been trying to make it a reality..

The EPA is offering a research grant opportunity that I believe is a perfect fit for this idea. I have sent an e-mail to a hand picked list of university professors who have experience with government research projects. I'm looking to form a research team to apply for the EPA grant, conduct a social-economic experiment and surveys to determine to what extent the American public will support it, project the economic potential of WPH, and identify logistical, social and political obstacles as well as opportunities.

All government grants are awarded based on merit of the proposed research. I believe WPH has merit but your help is needed to verify it. You can help by posting your feedback. Let the professors and the EPA know what you think about WPH. Do you think this idea is worth pursuing? We need to know if Americans will support a plan like this.

Do you have any ideas to improve the plan?

Share any and all of your thoughts.

Tell your friends and family about this Blog post and ask them to post their thoughts on WPH

http://wepayhalf.org

Thank you

Craig

If the oil companies are... (Below threshold)
cstmbuild:

If the oil companies are getting 9cents/ gal of profit after all costs, and if sales are basically static, their net profits should remain relatively stable, regardless of the raw material costs if that is all they are passing thru.

Okay, lets try this:
Oil companies make GASOLINE from the OIL.
Gasoline profits are approx $.09/gal of GASOLINE.
Oil Companies also sell the oil they produce. Often times they sell it to a company/division they own in part or completely. This is called VERTICAL INTEGRATION. (Now someone will scream "UNFAIR, NO COMPETITION", but that is complete BS. Why should an oil company sell its oil to its own division for less than the market price? Just so you can have cheaper gas? That is creating an "artifical price" that cannot be sustained because of a lack of SUPPLY.

With the increase in the market price for oil, which is determined by the traders based on supply & demand AND the potential for a disruption in supply, the oil companies make an additonal profit selling the oil (produced in the USA) to the refineries and then they make a profit selling to BASF for use in plastics or ADM for use in food or make, etc. Each division MUST make a profit or they will be phased out, shutdown or sold off.

The oil companies are not making as much of a profit on the oil bought from the middle east. There is, of course, a mark up for risk, insurance, transportation, profit, CORPORATE TAXES, accountants, and the Cost of Doing Business ie, salaries, exploration, leasing rights, royalties, (who pays the shipping company, the truck driver, etc).

The demand for oil BASED products have increased every year. The more oil-based products the higher the demand.

Everyone is keying on the cost of a gallon of gasoline and that is not where the oil companies are making these so called windfall profits. I don't care how you look at it a profit margin of 8 to 15% is not a windfall!

And for those of you who say the 80s were a survival of the fittest time for oil companies, you reap what you sow. Oklahoma's economy was clobbered by the elimination, through closure, bankruptcy or mergers, of these companies. And guess what? No one cared at the time. Gas was cheap and it was "survival of the fittest". No need to support the little oil company. Now you bitch because there is "no competition in the oil industry". (I say BS, but continuing that thought..) Gee, how'd that happen?

Mr. Lee was fine when gas and oil was cheap and companies died off, that was a free market, but now the free market is such a great thing. Typical of those, both Demo and Repub, who don't understand economics.

Someone posted that it cost... (Below threshold)
cstmbuild:

Someone posted that it costs only $15 to produce a barrel of oil domestically. This is a completely misleading statement. Does this cost factor in the orignal cost of the well? What about dry holes? Is this simply the cost of getting the oil out of the ground? What about shipping it? Disposal of saltwater? Cleanup of site after pumping dry? Evironmental spills (accidents happen)? Refining? Storage? Hell, I bet oil companies are paying several $'s/barrel in royalties alone!

See below for example:

It costs Coke about $.10 to produce a bottle of soda. Yet you pay $1.25 to $2.50 for a bottle out of the machine. Why doesn't Coke have record profits? Isn't that a 12-25% profit margin? Guess what, there are additonal costs associated with getting the product to the market which increases the total cost per bottle or in the case of big oil, per barrel!

Provide me some more details on this $15/bbl and we'll see......

Cstmbuild,All true... (Below threshold)
Mac Lorry:

Cstmbuild,

All true and that's why I gave such a high figure of $15 a barrel. Also, federal tax law allows oil companies to take a depletion allowance to offset their costs as a well is depleted. The domestic production of crude is where the windfall profits come from.

Worm :"These taxes also ser... (Below threshold)
Les Nessman:

Worm :"These taxes also serve to reduce the amount of gas that is used by not allowing it to be so inexpensive that the public wastes even more of it than we already do. "

Hey, then maybe we should give MORE profit to Big Oil. Maybe we should demand that the oil companies charge us more for gas, so it'll force us to use less. So why is everyone complaining about the price of gas and 'windfall' profits, if they're so 'good' for us?

Senator :"You guys are paying too much for gas."
Non-Senator : 'So whatta ya going to do about it, Senator?'
Senator : "We're going to raise taxes on oil companies. That'll learn 'em."
Non-Senator : 'Uh, that will help get the gov't more money, but how will that help us citizens?'
Senator : " Er...it won't. But it helps me look like I'm doing something!"

Gosh, I'm glad the gov't is looking out for us. We're so stupid. I for one welcome our gov't overlords.

Oil prices, baseball steroid use, flag burning, the heartbreak of psoriasis, etc..., all the shit that the feds shouldn't be poking their noses into is exactly the first thing they love to get involved with so they can look like they are doing something useful.

cstmbuildWhat's yo... (Below threshold)
mak44:

cstmbuild

What's your background for all the econ analysis you gave. Most of what you outline are the costs at any given point in the process from well to gas tank or BASF or Dow or DD. Since the profits come after taxes & costs, your explanation still does not answer the question.

Regardless of all the various products XOM may produce and suppliers that are supplied, unless the volume of oil sales increased dramatically, there would not be the profits surge in the last 2 quarters. But the volume of oil moved hasn't spiked extremely because the supply has been strained to the max for some time. Profits are not resulting from increased production of anything.

If XOM reaps some of their revenue because the oil they actually own is now priced at $75/bbl, then indeed, it is a windfall.

Moreover, I have heard one industry analyst estimate a $10/bbl premium resulting from hedge funds & speculation & another $10/bbl estimated for ME & other geopolitical instability. Sounds like a helluva a profit from risks not even realized.

If the risks materialize, one would think that there will be no outrageous spike in oil since that risk-cost has already been assigned, but that will not be the case. The current ungoverned speculation will simply use $75/bbl for a platform to $100 or $125/bbl should any of the feared risks materialize.

Just wait til the 1st tropical depression 1500 miles off the coast of Africa gets named and we'll see another outrageous blast-up of oil prices to account for the increased risks of a potential hurricane. At what point does the upward spike cease when all the risk factors have been factored in? I suspect when the world economies have been bankrupted and the world is awash in severe economic recession.

My, how the old law of S&D can have such a beneficent effect on 6.5 billion people.

Could it be that we are at the dawn of a new age of our sacrosanct Capitalism, Predatory Capitalism?

cstmbuild<i... (Below threshold)
cstmbuild:

cstmbuild

What's your background for all the econ analysis you gave.
Answer: Degree in Ag Econ/Business and Marketing. Also, self-employed small business owner. Custom home builder, btw. High oil prices are NOT good for me.

Most of what you outline are the costs at any given point in the process from well to gas tank or BASF or Dow or DD. Since the profits come after taxes & costs, your explanation still does not answer the question
Answer: Actually, it does. First, I was pointing out that there are additional costs associated with oil, not just the hard costs from 1 well that is producing. (Again, exploration, dry hole, overhead, improved technology, etc)
Second, you said it your self, low supply/high demand. Demand has increased greatly because of China and India. If China is bidding at a premium, then China gets the bid. The "premium" becomes the new "going price" and everyone starts paying more and more. The cycle continues until the end user says "I'm not paying that!" That point has not been reached. (I do apologize for this being over-simplified, but if you want highly detailed analysis then look for an economist's paper on oil supply and demand.)

Moreover, I have heard one industry analyst estimate a $10/bbl premium resulting from hedge funds & speculation & another $10/bbl estimated for ME & other geopolitical instability. Sounds like a helluva a profit from risks not even realized.
Then why aren't you asking for a windfall profits tax on hedge funds, speculators and various mutual funds? (They are adding NO value, while adding roughly 15% to the cost of oil/bbl, but you aren't screaming for their heads! If you look at the supposed $25 cost/bbl produced in the USA, then you are talking about an increase of 40% for these speculators!) That comes to $35/bbl, counting the $15/bbl mentioned earlier, FOR oil produced in the USA. How much additional for oil produced internationally? What happens to investments (RISK) if Venezuala or Egypt or Saudi Arabia or Mexico nationalizes the oil equipment and investments in their countries? It has happened before...and you say for risks never realized! What about storms? Terrorist attacks (lose of an entire tanker of oil for example)? Nationalization? Kidnappings? Bodyguards? Hazard pay?

If the risks materialize, one would think that there will be no outrageous spike in oil since that risk-cost has already been assigned, but that will not be the case. The current ungoverned speculation will simply use $75/bbl for a platform to $100 or $125/bbl should any of the feared risks materialize.
Wrong. The risks that materialize take care of the current "risk ratio". An additional risk ratio is added for the current/preceived risks.

All risk factors are never factored in. That isn't realistic. Do you want to factor in a nuclear attack by Iran on Egypt? How about $300/bbl, you willing to pay that to have all risks factored in?

Oil and gas is still cheaper, in inflation adjusted dollars, than it was in the 80s.

A side note: Are the copper and wire industries making ridiculous profits or are they price gouging? The cost for electrical wire has increased by 100% in the last 2 weeks! Can you contact your senator for me?

cstmbuildI can ima... (Below threshold)
mak44:

cstmbuild

I can imagine that for you the cost of copper is an issue.

For most people, that cost is one-time issue, at least on a rather extended periodic basis for most home owners.

Fuel for transportation is an ongoing daily requirement that never reaches an end point. Next to oxygen, it is as nealy necessary for 21st survival.

I can imagine that for y... (Below threshold)
cstmbuild:

I can imagine that for you the cost of copper is an issue. For most people, that cost is one-time issue, at least on a rather extended periodic basis for most home owners.

So, as long as price gouging effects only a small number of people or at least not mak44, then it is okay? (BTW, I was just being sarcastic on the copper thing, but you really proved my point. I don't think they are gouging.)

Fuel for transportation is an ongoing daily requirement that never reaches an end point. Next to oxygen, it is as nea(r)ly necessary for 21st survival
Yes, mak44, this is called DEMAND. You have two choices:
1) Reduce demand
2) Increase supply
There are different ways to do both, but neither will occur quickly and this is why conservatives keep bringing up the obstructionism of the liberals, environmentalist and democrats over the last 30+ years. We could have increased production, in the USA, of both crude oil and refined products. But new refineries were blocked, no drilling on government land, no drilling in the ocean, no drilling in ANWR, etc.
As the public demands more fuel efficient cars the auto makers will begin producing more of them, thus reducing demand. The government has tried to force the issue, but it is ALWAYS demand that determines what and how much gets produced.

There are very energy efficient (EE) ways to build new homes (my specialty), but the general public is not willing to pay the extra $'s required. Even though I can have their total monthly outlay less when compared to Mortgage payment plus utility bills of an inefficient house versus an efficient home.
Strictly an example of how the public drives what is built/manufactured/produced, even though the government is offering a $2,000/home tax CREDIT for every EE home (must be 50% more EE than an IRC home) that is built in '06 and '07. There is no limit to the amount of credits that can be claimed in a year. Why isn't Pulte homes building every house this way? Because the DEMAND isn't there.
Now, if utility bills keep going up...well that is a different story.




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