Anybody who says that the oil companies "price gouge" are pinheads.

The BBQ Pit
181

Oh come on folks, it’s not that hard to do at all. First, balance the budget, which you could do by getting rid of a few useless agencies (example: the Dept of Education. The feds take money from citizens, funnel it through the DoE back to the states, along with crushing unfunded mandates. How does this make sense to anyone*? How much money is wasted just administering this? Let the states do it themselves) and expenditures (example: the omnibus farm bill. Kill it! Kill it! Kill it!). Then tell every government agency that their budget is cut by 10%. ANY organization, I don’t care if it’s the Elk’s Club or the U.S. Army, can cut 10% out of their budget without hurting anyone too badly. Hell, government agencies are so full of waste they could probably do 20% without raising a sweat. That gives you a roughly $1 trillion/year surplus. In 10 years the deficit would be history (5 if you use the more ambitious 20%) and everyone in America gets a tax break (or $3000 each as an economic stimulus package. :stuck_out_tongue: ). QED.

*It “makes sense” because it allows lobbying groups to influence how the money is required to be spent. :rolleyes: :rolleyes: :rolleyes: :rolleyes:

182

Cutting budgets is game plan 101 when it comes to macroeconomic thinking, and in practice (at least it should be, I’m talking to you GWB). The next thing to do is to raise taxes.

Simple? No, not at all. However, cutting budget is way easier than cutting taxes, though both are extremely difficult and I don’t trust the collective government to get that right (which is why I believe in minimal government).

Cutting budgets is a risk politically, and given our society, we’re only risking putting someone in who will do exactly what we didn’t want in the first place. I know, it sounds counter-intuitive, but that’s how I see it. The governing individual that cuts that pork out, get lobbied against, and loses campaign funds, and then suddenly finds himself out of office for doing economically the right thing. Politicians can whether the storm, but it’s not worth the headache especially with lobbyist proclaiming doomsday scenarios.

Raising taxes or, even worse, creating this legalized theft of “windfall taxes” which is so open to subjectivity is even worse because of the immediate impact to the economy and the backlash from unintended consequences. Are we going to go after restaurants and clothing designers because of their outrageous profit margins? I don’t think it’s fair that this kid down the street from my side business is making essentially the same money I’m making from detailing cars (notwithstanding the fact that he’s actually working, and I’m just signing checks) with no formal education. Should I tax him out of existence because I don’t think his work is any better than the mexicans on the other side of town, thus, undeserving of all that profit?

183

[QUOTE=Richard Parker]
. We all agree that the record profits–and we’re talking about the highest profits in the history of the United States–are not the result of Exxon’s hard work or innovation. At best, they are the result of Exxon’s “prudent investment,” by which we mean their mere presence in the market. .
[/QUOTE]

Exxon explores and drills well all over the world, including some of the most inhospitable spots imaginable. Thousands of roughnecks engage in some of the most backbreaking labor imaginable to operate those wells. They build them. They build and operate massive labor intensive pipelines. They operate massive refining plants, and chemical plants. Still other employees drive trucks or pump gas. Imo if you are to look at labor intensive industries, oil production, refinement and transportation would have to be pretty high on the list. It’s not like they make doilies.

For long spans of time the company languished as oil prices remained stubbornly low yet costs increased. In this hostile environment you could have bought Exxon stock in '97 and sold it for a loss in '03. In the faces of increased costs Exxon merged with Mobil in the hopes of scaling efficiency, performing one of the most massive and masterful integrations in corporate history while taking a massive gamble to increase capacity in a saturated market. Unable to build new refineries, Exxon performed billion dollar upgrades on their existing refineries while they were running all with the hope of positioning themselves properly should the oil market turn.

Again, IMO, you’d be hard pressed to find a better example of hard work, commitment, and the taking of prudent risk than Exxon. It is exactly because of hard work and intelligence that they are in the enviable position that they are in.

So, no, we do not all agree.

184

[QUOTE=Scylla]
Exxon explores and drills well all over the world, including some of the most inhospitable spots imaginable. Thousands of roughnecks engage in some of the most backbreaking labor imaginable to operate those wells. They build them. They build and operate massive labor intensive pipelines. They operate massive refining plants, and chemical plants. Still other employees drive trucks or pump gas. Imo if you are to look at labor intensive industries, oil production, refinement and transportation would have to be pretty high on the list. It’s not like they make doilies.
[/quote]

This paragraph misses the point entirely. I might toil every day digging gold in my backyard and doing so quite profitably. But if my gold doubles in value because the President builds a golden ship and sails it into an iceberg, we would say that my profit doubled not as a result of my labor.

The argument behind windfall profits is that we can conceptually distinguish an upturn in the market from a windfall. Why is it not possible to distinguish the two?

Well, no. In point of fact, that is at least half false. Even if they’ve been very intelligent and hard-working in positioning themselves, they have made the most money in the history of any US corporation because of, among other things, our policy of saber-rattling at Iran and the war in Iraq.

Good. I’m glad we’ve established that. Now we can debate the underlying points on which we disagree instead of pretending that discussion of profit margins is relevant.

185

I think the OP forgets a very real result of higher gas prices - they rarly go down as much as they go up.

Let’s say oil is $50/barrel and gas sells at $3.00/gallon. A rise to $70/barrel results in a gas price of $3.50/gallon. Oil goes back down to $50/barrel and gas sells at $3.30/gallon.

186

I think those in this thread that think the upstream or downstream oil industry is uncompetitive or has high barriers to entry are sadly mistaken.

In the downstream, anybody can open a gas station, and in fact, it’s done all the time. There are some barriers to entry in building a refinery in the United States due to red tape, but that’s not a problem that’s going to be solved by a tax of any sort.

Upstream also has few barriers to entry. Startups spring up all the time, and venture capital mineral energy funds are particularly hot at the moment, although a lot of the action in the States is natural gas focused. If you don’t believe me, open an Oklahoma City phone book and see how many oil producers there are who you’ve never heard of.

Competition is fierce in upstream; check out a bid round for prospect acreage in the Gulf of Mexico, or anywhere in the world for that matter. Just because a good is price inelastic doesn’t mean there isn’t competition.

Exxon only produces 3% of the world’s oil. Compare that to the big dogs in pharmaceuticals, electronics, or cars for a little perspective.

187

[QUOTE=T_SQUARE]
I think those in this thread that think the upstream or downstream oil industry is uncompetitive or has high barriers to entry are sadly mistaken.
[/quote]

Sadly mistaken? Spare me.

And crushing independent gas stations is done all the time by major refiners. From the LA Times:

Understatement of the week. From gasandoil.com quoting IBD:

I’d say that $2B is a pretty high cost of entry.

Exxon’s refinery capacity is about 6M barrels per day. In 2006, the entire US refinery capacity was 17.34M b/d. That’s perspective.

188

[QUOTE=NDP]
At the risk of drifting off-topic, that’s easier said than done. Just where do you propose we cut spending?
[/QUOTE]

Oh, come on, haven’t you seen that odious “what if firefighters ran the world” advert? “The budget? Cut it!” :rolleyes:

189

[QUOTE=Maeglin]

Exxon’s refinery capacity is about 6M barrels per day. In 2006, the entire US refinery capacity was 17.34M b/d. That’s perspective.
[/QUOTE]

I don’t think you should compare exxons global refinery capacity with the US total refinery capacity.
Exxon US has just a shade under 2m b/d refining capacity, against a US total of 17.3
Exxon global has 6.3m b/d refining capacity against a global throughput (sorry not actual capacity number, which would be higher) of 73m b/d.
One thing that should be considered when considering the major oil companies profits is that the are essentially 2 different companies. The upstream end and the downstream refining and chemicals end.

Upstream Exxon made 82 billion in sales of oil and gas with costs of 21billion and taxes of 37 billion, leaving 24 billion in profit.
Down stream and chemical revenue was in the order of 310billion, with 14 billion net income. Of the 296 billion dollars in costs, 200 billion was in purchasing crude for the refineries and refined products from other refineries to sell.

Basically the money is being made upstream, and downstream profit margins are OK.

190

And I’m at the very end of the stream, so I get whatever shit floats my way

191

Will somebody please just tell me what is the price gas should be? I mean if “we” know it is too high, surelky we must have osme idea of what is the “correct” price? What is it?

192

[QUOTE=NaturalBlondChap]
I don’t think you should compare exxons global refinery capacity with the US total refinery capacity.
Exxon US has just a shade under 2m b/d refining capacity, against a US total of 17.3
.
[/QUOTE]

This is absolutely true. I took the 6m to be a US number for some reason. Later I will find out what the US capacity of, say, the five biggest refiners is. I think that will be a more informative metric, anyway.

193

[QUOTE=Maeglin]
This is absolutely true. I took the 6m to be a US number for some reason. Later I will find out what the US capacity of, say, the five biggest refiners is. I think that will be a more informative metric, anyway.
[/QUOTE]

over in this thread on post 49

I posted that informations, copied below.
And on review of that thread I think SUNRAZOR owes me a key lime pie.
<<<<
Class, -number of refineries, -number of players in class, -total crude capacity

Major - 50 - 10 - 9,601 Kbbl/day
Refiners - 25 - 4 - 3,575 Kbbl/day
Independents - 64 - 49 - 4,161 Kbbl/day

That is to say the majors own about 1/3 of the refineries and have 60% of the processing capacity split between 10 companies (this may be fewer I need to check who Sunoco, Sinclair and Suncor changed name to and who brought them)

The Refiners (the likes of valero) are the big refiners who do not get involved in Exploration and production and tend to own large refinery complexes but do have a link to a retail outlet (diamond Shamrock, Citgo etc) or sell unbranded

The independents are the smaller independent refineries who probably do not have a retail outlet.

My take would be - yes a majority of crude refining capacity is held by the majors, but even then it is split across at least 8 groups. The rest is a significant amount of production across a lot of different companies.
<<<<

194

[QUOTE=NaturalBlondChap]
Whilst I think PSA are a useful method by which countries with minimal capital and good reserves can attract IOCs in, the country does not always get favorable conditions.
[/QUOTE]

A country who enters into a PSA can always say we won’t enter into a PSA. The country is the one with the guns after all. PSA’s will reflect the relative risk that a company will take by exploring and producing in a country. Would you invest a lot of money into Venezuala right now with the knowledge that Chavez might nationalize your investment at his whim? Not likely. So, if you did you’d make sure that the money you spent was minimal, that the government paid for most of the investment, and that your potential profit was maximized. Sure it sucks for the average guy on the street, but whose fault is that?

[QUOTE=gonzomax]
Oil companies get breaks from us from the top to the bottom. Tax breaks, subsidies,land deals etc. We give breaks to the biggest profit makers of all time. How can that make sense.?
Besides we give these subsidies to them ,when they should go to alternative energy sources.
[/QUOTE]

International Oil companies operate, surprise, surprise, internationally. Governments are thus competing for a company to invest with them. As was noted previously, the amount of taxes, spending, and jobs created that a multi-billion dollar investment makes is a windfall for the governments involved. Yet, a company only has so much to invest and wants to minimize its risks and maximize its profits. If you don’t offer incentives and the next jurisdiction does, then the money that the government collects will go to another government who is willing to be less, shall we say, greedy?

[QUOTE=The Flying Dutchman]
There’s a reason they are pouring billions into Alberta to develop the tar sands.
[/QUOTE]

Emphasis on the billions. The oil sands takes billions of up front costs before one barrel of oil is produced. Companies are betting that what they will make from that production will offset the cost of their investment. If they find a better place to put their money they will do so and no investment will take place at your location. Alberta changed their royalty rates and some companies are now spending less money than they initially had decided on. That being said the price of oil and the stability of Alberta are still attracting huge amounts of investment. But is it as much as if the royalty rates hadn’t changed?

[QUOTE=RedFury]
A company basically doubles its profit and does nothing to do so. And people think that’s a good thing? :confused:
[/QUOTE]

So when the price of oil drops because the oil companies do ‘nothing’ are you willing to give the money back that you’ve taxed from them earlier?
As an aside the cost of develpment in the oil sands in Alberta is through the roof for a number of reasons one of which is the cost of labour due to not enough people to do the work. There are many others. So, to say that profit has doubled without any other factors coming into play is ridiculous.
Ask yourself this: Has production doubled along with profit? If yes, then what is th issue? If no, yet the amount a company is spending has increased tremendously to remain at that level of production to keep the same margin of profit.
eg. Oil sells for $10 yesterday, today it sells for $20. My margin is the same 10%, so I made an extra $1 from yesterday, for a total of $2 today. So, where is the other $9? That is the cost of replacing my production by exploring, or implementing new technologies. It may also go to higher taxes paid. Any number of things that add to the cost of producing that barrel of oil.
At the facility where I work in the ME, we make money hand over fist. The facility was built when oil was ~ $10-$12 a barrel. So, you could say we make out like bandits. Yet, where does that money go? Into finding new oil to replace the oil that is declining rapidly at this location.
People know that oil production is declining yet they don’t translate that knowledge to the oil companies themselves. Yeah, I may be sitting on the proverbial gold mine now, but with a decline of 10% a year, it isn’t long before there is no mine left. If you want to stay in business you have to do something to offset that.

195

http://journeytoforever.org/biofuel_library/sevensisters/7sisters14.html
Pinheads like the chairman of Gulf and Gerald Ford were so stupid they saw the danger of the cartels. The fact that you dingbats don’t simply shows how well you accept propaganda. You must learn to ask questions and doubt.
This article talks of the formation of the opec and oil corporation control. It exists and it is anathema to capitalism. Oil companies have no interest in competing and have arranged matters so they do not.

196

[QUOTE=Uzi]
A country who enters into a PSA can always say we won’t enter into a PSA. The country is the one with the guns after all. PSA’s will reflect the relative risk that a company will take by exploring and producing in a country. Would you invest a lot of money into Venezuala right now with the knowledge that Chavez might nationalize your investment at his whim? Not likely. So, if you did you’d make sure that the money you spent was minimal, that the government paid for most of the investment, and that your potential profit was maximized. Sure it sucks for the average guy on the street, but whose fault is that?

[/QUOTE]

Absolutley, I was pointing out that countries that enter into PSA are normally in a weak negotiating position thus do not always get the best deal, that life and business. Looking at some of the PSAs in Azerbaijan, Kazakhstan and Russia, these were set up when prices were much lower and the economics were not so sparkling but the oil cos went ahead and invested. Now with the current price of oil and the huge increases in costs associated with the development the deals look a bit like the majors are really scrwing over the countries that entered into the deal. However if one were to adopt that view then it would be ignoring history and the environment when the PSA was originally set up.
All this talk about PSA arose from a quote by Greg Plast from BrainGlutton which seamed to imply some sort of link between PSAs and OPEC. As far as I can see very few majors operate under PSAs in the middle east OPEC countries (barring Iraq)

197

[QUOTE=Gangster Octopus]
Will somebody please just tell me what is the price gas should be? I mean if “we” know it is too high, surelky we must have osme idea of what is the “correct” price? What is it?
[/QUOTE]

I don’t really think there’s any true way of knowing what it “should” be.

On the other hand, the NYMEX spot price for a gallon of gasoline on 4/18 was $2.97 per gallon.

Combine this with taxes, additive costs, transportation costs, marketing costs, etc… and it’s not at all unreasonable that gas costs $3.40 a gallon.

If anything, considering the futures market, that $2.97 means that we’re not quite seeing a base price of $2.97 before all else is added in. It probably means that we’re looking at a higher-than-$3.40 gas price sometime in the future.

198

[QUOTE=gonzomax]

Pinheads like the chairman of Gulf and Gerald Ford were so stupid they saw the danger of the cartels. The fact that you dingbats don’t simply shows how well you accept propaganda. You must learn to ask questions and doubt.
This article talks of the formation of the opec and oil corporation control. It exists and it is anathema to capitalism. Oil companies have no interest in competing and have arranged matters so they do not.
[/QUOTE]

Who are you refering to when you oil corporation control? If buy oil corporartions you include the likes of Saudi Aramco and PDVSA and the other national oil companies of the OPEC nations then sure, OPEC can influence the price and the NOCs are parts and parcel of the governments of the OPEC countries

If by oil corporations you mean the western international oil companies then your citation does not surport your assertion that oil companies have no interest in competeing. It certainly talks about the formation of OPEC, it does not talk about the major oil companies. OPEC and the majors are very different groups of people and they really don´t like each other very much.

199

Windfall taxes misses the point, There are zero forces acting on the down side of the equation. Oligarchies have no downward pressure on the price side since competition has been removed . They charge whatever the traffic will bear.
Once there were 7 sisters. These were the oil company price fixers of a few years ago. There are less now. Mergers have brought the number down . They wield incredible international power. When Iran had a fledgling democracy going they made a mistake. They threatened to nationalize the oil . Strangely the Shah a friend of the oilmen came in. Problem solved. Of course the middle east still remembers the Peacock Throne and the Shah. Oil political power is American political power. These corporations are dangerous to the hope for peace in the world. They absorb billions of dollars in tax money and yet feel no responsibility for America.

200

[QUOTE=Airman Doors, USAF]
Want to see a scary number? Check this out:

So, what corporate welfare do they receive? Is it in any way comparable to that? I see that asserted a lot as well, but that’s usually where it ends.
[/QUOTE]

Check out ‘Oil Depletion Allowance’.