Oil Companies Defend Profits To Congress

[onedomino]

That fails to take into account that Exxon/Mobil had the highest profits of any corporation EVER two quarters (I think maybe three quarters now) in a row... all the while when people can't afford to heat their homes or buy gas.

This is a public trust issue and shouldn't be left to a behind closed doors policy that suited Cheney and his buddies.

What is unlimited about eight percent? Investment is a function of ROI. Reduced investment will lead directly to decreased oil supply. Less oil on the market will cause prices will rise even further. The Bush energy policy has been a disaster. But no more so than Clinton's. Neither of these Administrations did anything of significance to develop alternative supplies of energy. Is that Exxon-Mobile's fault? We are utterly dependent on what oil companies produce. They are making eight bucks per hundred. Do we want them to keep producing it? Then we will not reduce further the energy industry's relatively weak eight percent ROI. Instead we should provide incentives for energy companies to build nuclear power plants and coal gasification plants. Further we should make rational the government regulations that are constraining oil shale development. Or we can complain about high oil prices, scapegoat the energy companies, and continue to allow our foreign policy to be distorted by our addiction to imported petroleum.

 

[acludem]

Oil Prices are this high because the Bush Administration and the FED have so badly mismanaged our economy. They've spent us into oblivion funding their neo-con war, allowed corporations to profiteer at the expense of their employees and the entire country, and have done absolutely nothing to help with the energy problems.

The dollar is devalued and investors then buy up oil to protect themselves. The only reason oil hasn't gone up higher is because demand has decreased (and will continue to decrease if the price stays this high).

The best way to increase the value of dollars is to raise interest rates, but raising interest rates will exacerbate the sub-prime lending problem and hurt people who are in debt (which includes a sizable chunk of the American people).

So the FED unfortunately is damned if they do and damned if they don't.

acludem

 

[cbi0090]

Guys and Gals, I hate to break the news to you but the oil companies are small fry compared to the soveriegn companies that truely control the prices. Their profits sounds like massive amounts to us but it's pocket change for these countries.

 

[Toro]

Oil Prices are this high because the Bush Administration and the FED have so badly mismanaged our economy. They've spent us into oblivion funding their neo-con war, allowed corporations to profiteer at the expense of their employees and the entire country, and have done absolutely nothing to help with the energy problems.

The dollar is devalued and investors then buy up oil to protect themselves. The only reason oil hasn't gone up higher is because demand has decreased (and will continue to decrease if the price stays this high).

The best way to increase the value of dollars is to raise interest rates, but raising interest rates will exacerbate the sub-prime lending problem and hurt people who are in debt (which includes a sizable chunk of the American people).

So the FED unfortunately is damned if they do and damned if they don't.

acludem

The Fed is partially responsible for rising oil prices, but oil prices are rising in all currencies, so it is more than just dollar debasement.

Iraq may have added $5 to the price of oil at most. This has little to do with neocons and Bush.

The simple fact is that demand is rising faster than supply. The fast growing emerging nations, particularly China and India, are driving demand. That is the main reason why the price of oil is rising.

 

[Paulie]

Oil Prices are this high because the Bush Administration and the FED have so badly mismanaged our economy. They've spent us into oblivion funding their neo-con war, allowed corporations to profiteer at the expense of their employees and the entire country, and have done absolutely nothing to help with the energy problems.

The dollar is devalued and investors then buy up oil to protect themselves. The only reason oil hasn't gone up higher is because demand has decreased (and will continue to decrease if the price stays this high).

The best way to increase the value of dollars is to raise interest rates, but raising interest rates will exacerbate the sub-prime lending problem and hurt people who are in debt (which includes a sizable chunk of the American people).

So the FED unfortunately is damned if they do and damned if they don't.

acludem

I've got to say, this is a pretty good analysis. Although, raising interest rates is certainly not "the best" way to increase the value of the Dollar.

 

[JimH52]

And still we give them tax breaks....

but is anything else to be expected when your VP devises energy policy behind closed doors with oil company lobbyists?

And By Golly! Those secret meeting worked didn't they? Look at the profits DICK'S buddies are pulling, They should be very proud.

 

[Gunny]

But oil companies make less percent profit on revenue than most other industries; about eight percent. Shareholders have a right to expect at least that much return on their investment. Energy companies are easy to criticize but they are not the principle reason that oil is more than $100 per barrel. Government over-regulation, the depletion of easily developed oil reserves, increased world energy demand, and the declining value of the dollar are important reasons why oil is $100 dollar per barrel. Energy companies are making eight bucks per hundred. What if we slashed the profit in half, what effect would that have besides reduce the capital available for energy development and decrease shareholder investment?

Did these oil companies not post record profits the past couple of years in a row? I'm having a hard time feeling sorry for them.

At the same time, I agree on the government over-regulation. Whatever people can't or won't do without, the government makes sure they tax the Hell out of it.

Somebody's going to have to do without, and right now it is neither that fatass government nor the shareholders. It's the people that are paying thrrough the nose to commute to work so they can afford their gas. You know, the same people it always is .... the middle class.

 

[Gunny]

Oil Prices are this high because the Bush Administration and the FED have so badly mismanaged our economy. They've spent us into oblivion funding their neo-con war, allowed corporations to profiteer at the expense of their employees and the entire country, and have done absolutely nothing to help with the energy problems.

The dollar is devalued and investors then buy up oil to protect themselves. The only reason oil hasn't gone up higher is because demand has decreased (and will continue to decrease if the price stays this high).

The best way to increase the value of dollars is to raise interest rates, but raising interest rates will exacerbate the sub-prime lending problem and hurt people who are in debt (which includes a sizable chunk of the American people).

So the FED unfortunately is damned if they do and damned if they don't.

acludem

So much for an intelligent conversation.

 

[Care4all]

But oil companies make less percent profit on revenue than most other industries; about eight percent. Shareholders have a right to expect at least that much return on their investment. Energy companies are easy to criticize but they are not the principle reason that oil is more than $100 per barrel. Government over-regulation, the depletion of easily developed oil reserves, increased world energy demand, and the declining value of the dollar are important reasons why oil is $100 dollar per barrel. Energy companies are making eight bucks per hundred. What if we slashed the profit in half, what effect would that have besides reduce the capital available for energy development and decrease shareholder investment?

but walmart makes about 3.5%, what makes you say 8% which is more than DOUBLE walmart's is not excessive for something that is a darn necessity?

 

[Toro]

So much for an intelligent conversation.

I say its pretty accurate, except for the first paragraph, where the Fed should get most of the blame and the incorrect interpretation of Iraq in the second sentence.

 

[Toro]

but walmart makes about 3.5%, what makes you say 8% which is more than DOUBLE walmart's is not excessive for something that is a darn necessity?

The average profit margin of US large companies has been roughly 6%. Over the past few years, it has been over 9%.

Energy is 16%-18% of total profits, so energy has been roughly average compared to other companies.

 

[Warner]

If it was a situation where we absolutely needed to get the oil to survive, then I'd say go for it. But it's an issue where I think the loss far outweighs the benefits if it's only being done to ease our dependence. 5% for only 22 years isn't much of an ease.

Oddly enough though, the majority of the citizens, mostly native Alaskans, in the ANWR areas support the drilling. I've always thought that was strange. I'd expect them to be more preservationist about their natural habitat. Perhaps because they realize the economic benefits to them especially.

Citizens of Alaska get a share of oil revenues. Native Alaskans get even more. It's all about the bling!

 

[Warner]

The price of crude has shot up because of huge increases in demand, thanks to the exploding economies of India and China.

The reality is that 77% of the world's oil reserves are exclusively controlled by foreign national oil companies (NOCs). By contrast, Lukoil controls 1.21%, Exxon-Mobil controls 0.62%, and Chevron controls 0.59%. In total, independent oil companies control about 6% of the known reserves. That's far from a monopoly, and would make it pretty difficult to price gauge.

But just for fun, what sort of profit is US big oil turning? As an industry, 8.3%. Of course, keeping that same profit percentage as input costs rise results in higher profits from a nominal standpoint. So yes, the companies now turn 30 cents a gallon in profit instead of 10 cents a gallon.

How does 8.3% compare? The beverage and tobacco industry turns 21.6%. Pharmaceuticals? 18.8%. Computers? 14.5% Even the apparel industry turns 8.5%! How unreasonable is 8.3%??

Furthermore, who owns these huge profits from independent oil companies? Well, as you may know, shares of public companies can be bought and sold by all Americans! The oil industry is no different - 14% are held in IRAs, 23% by individual investors, 27% in pension plans, 29.5% in mutual funds and 5% is held by other institutional investors.

Those greedy corporate insiders? 1.5%

It's the demand, stupid!

Oil is a commodity, not a finished good. If you invest in building a new computer, you risk some other company coming out with a better computer and you'd be stuck with sub-standard units. If you release a new clothing line, the fashion trend may go in another direction and you're stuck with a bunch of shirts you cannot sell. With oil there is no such risk. The great majority of oil company profits are based upon buying oil and re-selling it at very little or no risk. So it has to be considered against other commodities not finished good when looking at what are reasonable profit levels.

 

[TopGunna]

Oil is a commodity, not a finished good. If you invest in building a new computer, you risk some other company coming out with a better computer and you'd be stuck with sub-standard units. If you release a new clothing line, the fashion trend may go in another direction and you're stuck with a bunch of shirts you cannot sell. With oil there is no such risk. The great majority of oil company profits are based upon buying oil and re-selling it at very little or no risk. So it has to be considered against other commodities not finished good when looking at what are reasonable profit levels.

That's a very good point. Oil demand is very inelastic in the short term, and the demand for the other goods can be quite fickle, as you've pointed out.

The flip side of that is the oil market has much greater product uniformity. For almost all consumers, a gallon of 87 octane gas is the same, whether you purchase it from Exxon, Citgo, Shell, or wherever. Whereas certain clothing designers can charge $700 for a pair of designer jeans, and people will pay for it, despite the availability of similar quality jeans for much less.

Still, your point is a good one. Anyone know what sort of profit Pepsi makes on its Aquafina sales?

 

[BaronVonBigmeat]

If only the public arena could boycott gasoline like the truckers are doing. Those poor guys. What I don't understand, is how you take a by-product of gasoline and charge more for it than the gasoline itself. This is proof that fuel is high because we'll pay for it, and that the oil industry is swimming in pools of money. They're holding the country hostage.

There is a new EPA mandate for low-sulphur diesel, which in turn enables super low emission diesel autos like europe has. This kicked in last year, thus the jump in prices relative to gasoline.

Drilling ANWR would only kill natural area

No, it wouldn't. Oil and gas extraction is a wee bit more advanced than it was in the days of wooden derricks and gushers spraying oil all over the ground.

I understand that... but, the dollar is not the only currency to see a price increase. Gas prices have increased in euro as well. As we all know, the value of the euro is not on the decline.

Aside from India and China demanding more oil, the euro is a fiat currency and it is declining too. The US dollar is being inflated fast, the euro is being inflated not quite as fast, and the supply of oil is either flat or being depleted, depending on whether or not oil is actually a fossil fuel.

If we're going to be conditioned to accept alternate energy, the market is going to have to be willing to cater to our desires. Right now, no one is desiring what Shogun likes to call "super charged golf carts". And he's right about that.

In order to make super charged golf carts, you need super charged batteries. Lithium batteries or supercaps. Adequate batteries did not exist even five years ago. However, we now see startups like Tesla making electric sports cars, along with a couple other companies. The bigger companies are watching closely, and are moving to plugin serial hybrids--basically, electric cars that happen to have a backup generator.

As Bob Lutz (of GM) said, the rise in gas prices has done more to spur development than any government mandate. It was hard to sell people on expensive whiz-bang Buck Rogers cars when gas was $1.25 a gallon.

WHO forces anything? Would an option of non-petroleum cars really be FORCING new tech onto the fat pigs in the FORD ceo circle? Conicco-Phillips?

NOtice that my idea hinges on letting tye masses decide what they want to drive. Right now, you simply don't have a choice beyond driving a gas-powered vehicle or being told too ******* bad.

You can convert a gas car to electric if you're okay with a 20-30 mile range.

You can't buy an electric from a major manufacturer, because they only do mass-produced cars, and the masses really don't want an electric car until the batteries are dramatically improved.

You can however buy an electric from a niche manufacturer; however the trouble is, government regulations mean you can't drive it much of anywhere. Safety regs also effectively screen out startup companies. Tesla spent more time passing gov't tests than they did actually designing the car.

 

[BaronVonBigmeat]

Also, let's consider what would happen if the oil companies didn't raise prices. Let's say they set a price ceiling. Normally governments set these, but the result is the same either way: shortages, ie 1970's gasoline lines.

You can run public service ads until you're blue in the face. You can ask people to carpool and take mass transit. This is all basically futile. People hear this, nod their heads, and go back to doing what they were doing before.

If you want people to actually change their behavior and conserve scarce resources, you raise prices. There's no way around it. These higher prices of course will lead to increased profits. Especially for a non-elastic good like gas, where a 10% price hike only yields maybe a 1% reduction is useage.

But again, those giant profits change behavior, just like high prices at the pump did. There is a frenzy of oil exploration, for starters. Oil companies rush to crank out more product before their competitors do. There's also a ton of research money being poured into alternative energy. If it wasn't for all the other bad economic news lately, this would be widely touted as the Hot New Thing, like internet stocks were 10 years ago.

Really though, we ought to be angry at decades of gov't-pushed sprawl development, which means A) in most of the country, you MUST rely on a car; and B) your standard of living can change significantly based on small changes in the gas price. Both mass transit and increased walking are only possible when you lay out towns the way we used to.

 

[jreeves]

Also, let's consider what would happen if the oil companies didn't raise prices. Let's say they set a price ceiling. Normally governments set these, but the result is the same either way: shortages, ie 1970's gasoline lines.

You can run public service ads until you're blue in the face. You can ask people to carpool and take mass transit. This is all basically futile. People hear this, nod their heads, and go back to doing what they were doing before.

If you want people to actually change their behavior and conserve scarce resources, you raise prices. There's no way around it. These higher prices of course will lead to increased profits. Especially for a non-elastic good like gas, where a 10% price hike only yields maybe a 1% reduction is useage.

But again, those giant profits change behavior, just like high prices at the pump did. There is a frenzy of oil exploration, for starters. Oil companies rush to crank out more product before their competitors do. There's also a ton of research money being poured into alternative energy. If it wasn't for all the other bad economic news lately, this would be widely touted as the Hot New Thing, like internet stocks were 10 years ago.

Really though, we ought to be angry at decades of gov't-pushed sprawl development, which means A) in most of the country, you MUST rely on a car; and B) your standard of living can change significantly based on small changes in the gas price. Both mass transit and increased walking are only possible when you lay out towns the way we used to.

By over regulating higher gas prices you will eliminate a significant market factor.

 

[Care4all]

Also, let's consider what would happen if the oil companies didn't raise prices. Let's say they set a price ceiling. Normally governments set these, but the result is the same either way: shortages, ie 1970's gasoline lines.

You can run public service ads until you're blue in the face. You can ask people to carpool and take mass transit. This is all basically futile. People hear this, nod their heads, and go back to doing what they were doing before.

If you want people to actually change their behavior and conserve scarce resources, you raise prices. There's no way around it. These higher prices of course will lead to increased profits. Especially for a non-elastic good like gas, where a 10% price hike only yields maybe a 1% reduction is useage.

But again, those giant profits change behavior, just like high prices at the pump did. There is a frenzy of oil exploration, for starters. Oil companies rush to crank out more product before their competitors do. There's also a ton of research money being poured into alternative energy. If it wasn't for all the other bad economic news lately, this would be widely touted as the Hot New Thing, like internet stocks were 10 years ago.

Really though, we ought to be angry at decades of gov't-pushed sprawl development, which means A) in most of the country, you MUST rely on a car; and B) your standard of living can change significantly based on small changes in the gas price. Both mass transit and increased walking are only possible when you lay out towns the way we used to.

I agree that higher prices will make us reduce OUR consumption....WHICH IT HAS....our consumption in the usa the past few months has been REDUCED GREATLY......but the prices of gasoline and oil and has STILL NOT come down in price...even with less demand from us....????

So, whether we reduce our consumption or not prices will NOT go down and oil and gas will NEVER be cheap again....so NOW WHAT? We got decades before alternatives even supplement some of our gigantic need.

As far as suburban sprawl....

Do you really think that everyone in the usa could even FIT in all the cities that we have...? Would you really want us all to be all rounded up in one place? Do you really think that this growth outside of cities with businesses and individuals really hurt us instead of being one of the major contributors to the gdp growth of the USA?

I don't see it as an overall negative....the jobs that came from the sprwl are uncountable, there are so many!!!! yes, it did make us reliable on the car which at this time is a negative, but the positives over thae last few decades helped the usa more than it hurt, imo.

Care

 

[Ravi]

Off topic somewhat, but we have been having a drought for a couple of years which resulted in water restrictions which resulted in everyone using less water which resulted in less revenue for the local government. So of course to alleviate the loss of revenue everyone's water bill is going up 15%.



I imagine that would be the reaction of the oil companies as well.

 

[Warner]

Two comments:

1) The whole electric car thing is a joke. These cars are not more energy efficient, they are less efficient, they just change the source from the pump to the power plant. You still have to generate the power to charge the batteries. If the power plant is burning oil, and the loss through transmission is over 50% (which it is), this is a big looser.

Furthermore the hybrid cars are a loosing proposition when it comes to the environment. While they do move the (air) pollution out of the cities, the consequence is huge pollution at the point of battery production and at the point of disposal. In the end it is a huge net loss to the environment. The nickel-zinc battery production process is extremely bad for the environment.

What we need is much more efficient vehicles. Only those who have a legit need for a gas guzzling vehicle should be driving one. 16 mpg SUV's are obscene.

2) I agree a hard ceiling on gas prices would be a mistake. However an excess-profits tax to prevent oil companies from taking huge windfalls is probably not a bad idea, as this would encourage the oil companies to reinvest that profit in exploration and R&D.