As someone trying to figure out how this board operates, can anyone explain why this is in the BBQ Pit and not Great Debates? Is it because the thread originator called his potential debating partners pinheads?
Let that be a lesson to you, Airman. When you’re helping your kid with her 5th grade science homework and (say) want to explain an atom or the solar system, don’t you dare muck about with beach balls and marbles in the living room. You had better construct a ball the size of your house, and have your kid hold a speck of dust ten miles away. Or better yet, just plop a college astrophysics textbook in her lap.
The oil companies are not the same as individual investors. They’ve passed literally 100% (actually more like 200%) of the increased cost of investing and operations onto consumers, which would turn your theoretical into something like this:
You can make 400 dollars by charging your customers 1000 dollars, or you can make 500 dollars by charging your customers 1200 dollars.
The oil companies are not assuming any additional risk, doing any additional work, making any additional innovations, or investing any additional money, in order to make profits that are rising much faster than the rate of inflation on the sale of a necessary commodity. There’s no way to explain this reasonably, unless you’re willing to admit that it IS price gouging, and that free economics are more important than stabilizing the price of essential commodities. I can stomach that argument much more easily than “the oil companies are being totally fair, and not price gouging!”
That’s why I go to Chevron. Same price, but I get the Techron!
Sure they are, insofar as they need to decide where best to invest their money. If extracting/purchasing and refining each additional barrel of oil gets them a progressively smaller return on investment, at some point they (just like you) would decide that it’s better to just put their money in the bank. And then guess what? Less gasoline is in the market to address rising demand, and prices go up even more.
I trust you have a cite for this?
Sigh. Despite Airman’s valiant effort, you still don’t grasp that yes, they are investing additional money. It’s called “cost of goods sold”.
And what’s this about a “necessary commodity”? Why can’t you walk to work, you gas-guzzling profligate? 
The sigh is pretentious and annoying, especially after you completely ignored the counter I made to Airman’s assertion.
Oil companies have passed every cent of the cost of goods sold onto consumers. They are not investing any more of their money to extract, process, or ship it to us. Consumers are paying for every single increase to the cost of goods sold, and are paying even MORE than the increase in cost of goods sold to maintain a profit margin.
So, again, oil companies are not doing anything (unless controlling access to a commodity is “doing something”) to warrant an increase in their profits, but are seeing profit increases nontheless. There is no way around that argument.
I trust you have a cite for this?
My brother does reservoir modelling for oil ompanies: how much is in an oil reservoir, how much will it cost to extract, etc.
You’re starting from a false premise. You’re confusing the market price with the extraction cost. What you need to do is to find out how much it costs per barrel to extract the oil. This ranges from near zero in Saudi to $lots elsewhere. Fields go in and out of profitability as the oil price changes. Then you need to add in overheads and other expenses like exploration costs. Note that the latter are substantial and very risky. You can drill two boreholes in close proximity and one may come up empty and the other oil.
After that you have refining (again, significant) and transportation costs. And after all that you’ve got to pay for the service station.
Oh, and you’re in competition with other oil companies so you cannot stick any old price on your product.
Basically. The OP is pissed, so he put it here. It also allows responders to swear to their hearts’ content. Sometimes the Pit is sort of like Great Debates, only with (somewhat) fewer cites and more nerd rage.
There are also people who do most of their debating here because they find GD intimidating… and people in GD who won’t post here because they don’t like the foul mouths and general rudeness of a lot of the Pit dwellers.
Then there are the times when someone will post a thread here that isn’t all that vitriolic initially, but, due to the nature of the topic (e.g. SUVs, smokers’ rights), they know it’s inevitable that someone else will respond with a scathing post that’s bound to make a mod move it to the Pit, so they just cut out the middleman.
Make sense?
Excellent point. Non-oil companies do not pass on cost of goods sold to consumers, they have accounts at Fairyland National Bank where they can draw magical money that comes from nowhere to pay their bills. I don’t know why oil companies actually expect the purchasers of their product to pay the cost of the product, it’s silly.
T_SQUARE, I would say that excess profits do have an actual economic meaning, but I’ve always heard it in relation to monopolies. A monopoly directly controls supply and extracts profit from customers that a competitive market would be unable to. That additional profit is called excess, profit or monopoly profit. I don’t believe it applies here.
What about the notion that the American taxpayers fund wars so we can continue to have oil? How does that fit into the overall accounting? I don’t see Exxon raising any armies.
The only potential problem I have with oil company profits these days are the various tax breaks, credits and incentives that the companies have gotten. I’m not trying to argue that the breaks are necessarily wrong, or that it’s obviously time to end them. But I don’t think it’s improper to consider whether such are actually in the public interest. IOW, when a company is facing record profits I think that it is not unreasonable to demand that it prove that it needs and deserves the various breaks that it is getting from governments.
Of course, I’m so thoroughly unAmerican that I think that government subsidies of sports arenas are boondoggles, and should be abolished, too. Compared to that, any breaks for oil companies seem the very light of reason: after all the economy would grind to a halt without oil. It would continue, more-or-less just the same without professional sports*.
*I grant this is hyperbole. Professional sports are a multi-billion dollar industry. Eliminating them would probably be enough to create a full-fledged, no-question-about-it depression. But food and other services would still get to population centers. Without petroleum products, the cities would starve, and the economy would come to a crashing halt. Comparatively, even that depression I mention would be small potatoes.
The costs of exploration and extraction are built into the initial price of a barrel of oil. You can’t claim them twice. Not that I believe that oil companies are gouging (much), or that gouging should be illegal.
The only trouble I have with the oil companies is that the cost of the foreign policy decisions made by the US should be part of the equation. If we have to spend several billion dollars a day to maintain what passes for stability in the Middle East region, shouldn’t the people and companies who benefit the most from that pay more of the price?
Pinhead is a bit strong, but I guess not for the pit, but otherwise **Airman ** is correct that the companies are clearly not gouging.
However, they are the beneficiaries of many tax breaks and forms of corporate welfare. I suspect it is not unreasonable to consider this to be the proper time to take back this Federal Money and redirect it into alternate fuel options and subsidies to clean up coal generation.
We should be addressing the issues of both Global Warming and Independence from foreign oil far more aggressively than we are and this federal money would be a nice chunk of change to start.
Jim
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.
I was thinking more in terms of refining and distribution network. Anyway.
Dr. Bernanke? Is that you?
Here’s one cite. A proposed $18 billion in Federal tax credits for exploring alternative energy sources. This is a limited time tax break, but you can’t say it’s insignificant compared to their tax burden.
I really don’t know whether it’s a good idea or a bad one. I don’t have the details to judge the matter. But I don’t see a thing wrong with questioning whether it’s necessary, now.
You know, I’m no huge fan of the oil companies. They irk me.
However, if the price of gas bugs me so much, I figure I should do something in my personal life so that I don’t buy as much gasoline.
Really not that hard to figure out.
Easy enough if you live in an area with decent mass transportation. For the rest of us, driving to work is a reality and the cost of moving, or trying to find alternative employment within biking distance is prohibitive.
Considering that the CEO of exxon-mobil made 25 million in 2005, and that is only one exec, I think there might be a little fat to cut there to help us out. Like it or not, energy is not the same as any other commodity. For most people in my area it is a necessity of life if you want to have a job and keep a roof over your head. Many places still burn fossil fuels for electricity as well, and in central florida with a huge senior population, going without air is just isn’t feasible.