Thursday, April 27, 2006

bad big oil?

It seems multitasking Americans are at it again switching constantly between denial and anger over rising prices at the pump. When they are aware that there is a problem, specifically the moment at which they pay for fuel, they turn their rage towards big oil. This pervasive irritation is made obvious by the hurried attempts of our leaders to address the issue. We think we are being swindled and those in Congress and the Bush administration are ready to come to our rescue.

Senator Barbara Boxer, a California Democrat who sharply criticized oil executives appearing before Congress in November, struck again on Friday. She called on the Bush Administration and the Federal Trade Commission to "put an end to gouging," then suggested that FTC stood for "Friend to Chevron."

Republican Judd Gregg, chairman of the Senate Budget Committee said, "I believe it is time to take a serious look at reinstituting an excess profit tax on oil companies"

Democrats complaining about big business is nothing new but republicans calling for a tax increase? This must be serious. Both of these are examples of the ignorance of those in government. Don’t be fooled into thinking that the increase in the price of gasoline is a scam being put over on Americans by the big bad oil companies. You’ll look as silly as the idiots in Washington.

The price of crude oil has more than doubled in just over 2 years.

Gasoline prices here in Charlotte, NorthCarolina have risen roughly the same.

If the price of your raw materials doubled what would you do?

Perhaps the oil companies are working together to fix prices? Thomas Sowell reports that just isn’t the case.

“The Supreme Court's recent 8 to 0 decision (Justice Alito not yet participating) shot down a claim that oil companies were colluding in setting prices. That claim was upheld by the far-left 9th Circuit Court of Appeals but neither liberals nor conservatives on the Supreme Court were buying it.”

When’s the last time all of those folks agreed on something?

But what about the “record profits” we keep hearing about from sound clip bullhorn of mainstream media? “Oil industry awash in record levels of cash” says MSNBC. Are we really being gouged? Hardly. From the Jeffery J. Brown via Energy Bulletin we get a better explanation.

“Oil prices are up substantially since mid-February. …careful examination of recent supply data provided by the US Energy Information Agency (EIA) suggest… oil importers are bidding against each other for available total petroleum (crude oil + product) imports.

Since the week ending
2/10/06, average daily US net petroleum imports have fallen about 15%, down about two mbpd. Since the week ending 2/24/06, on a smoothed, four week running average basis, average daily US net petroleum imports have fallen about 8%, down about one mbpd. (A comparable time period last year showed about a 2% decline.)

This sharp decline in net US petroleum imports corresponded to the beginning of the recent run up in oil prices.”

It turns out MSM reporters are either ignorant of the facts or lazily looking for an easy story. Just like our representatives in Washington who want to be seen defending our wallets in an election year. As we peak or plateau in global oil production in advance of the coming decline, supplies of crude will be tight and hypersensitive to disruptions and speculation. These are the symptoms, the coughing, sore throat and sneezing associated with the underlining ailment. In truth we’re being to feel the effects of peak oil but no one in government or MSM is willing or able to correctly diagnose the disease.

The profits margins of big oil are inline with those of other U.S. corporations. Many other companies are making bigger profits than those in oil. For example…

“Newspapers, part of the media that criticize oil profits, heavily outperformed Exxon in 2004. “The average 2004 operating margin of publicly owned newspapers… was 20.5 [percent],” the Los Angeles Times cited industry analyst John Morton in its Nov. 24, 2005, paper.

What do you say to that MSM?

The Mail Tribune of Oregon reports more accurately on the state of profits in the oil sector, “The industry says among oil companies that have reported earnings this quarter, profit margins have averaged nearly 9 percent, which is just below the average across all U.S. companies that have reported results this quarter. Exxon Mobil had a profit margin of about 10 percent.”

Free Market Project says, “While Exxon’s profit is large in terms of absolute dollars, but so is the company. In 2005, profits for the world’s largest oil company were only 9.7 percent of its revenues, up from 9.6 percent of revenue in 2004, and far less than the 2004 Bank of America profit margin of 21.6 percent or Johnson and Johnson’s 18 percent, according to data from Forbes magazine. points to more big winners. “The net profit margin of the pharmaceutical drug manufacturing industry is 16.9%. For example, Merck and Pfizer have net profit margins of 20.4% and 15.5%, respectively.”

"The money center banking industry, which includes Wachovia, CitiGroup and Banc of America, reports a net profit margin of 16.6%. Microsoft and Oracle have margins of 30.8% and 23.4%.”

What was the profit margin for Exxon in 2005 again? Answer 9.6%. And the average among companies in the oil industry reporting for the first quarter of 2006? Answer, “net profit margins are 9.1%.”

Listen, I don’t like big oil. I think history will prove them and their industry as one of the most wasteful and destructive associations in human history. And I certainly don’t suggest trusting everything they pronounce but hell, The Hershey Company has a better profit margin than Exxon. Trying to blame the rising cost of gasoline on gouging by Big Oil is silly and unfounded; not to mention it takes the spotlight off the coming crisis. Peak oil is arriving. Wake up to the reality and then help others do the same.


crz53 said...

Profit margins, duh! Why didn't I think of this? Great post. I'll be sure to reference it next time someone complains about how we're getting screwed by the oil companies.
Out of curiosity, I wonder what the cost of gas in other countries has done relative to the U.S.? I know that as a rule most other industrialized nation pay way more than we do per gallon, but has there cost gone up similarly to ours? Hmmm...
- Mike Lorenz

Anonymous said...

What!! You're no longer a communist?

nulinegvgv said...

I have never been in favor of state-supported communism. I did however loan my lawnmower to a neighbor this past weekend. His has broken and I’ve offered to share mine with him as an alternative to him buying another lawnmower. I didn’t ask for anything in return. I hope Senator McCarthy doesn’t hear about this.