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Record high profits for oil companies ?

Aktinide Komplex

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Today, on CNN.com, I viewed an article (with pictures) concerning George W. Bush's visit to a Missouri gas station. He was there to speak with 'the people' regarding his expectations of America's oil companies; namely that they reinvest their record high profits (due to record high gas prices) into alternative fuel source research. Now.. don't get me wrong; I am by NO means a fan of the Bush administration and I wholeheartedly disagree with Bush's rejection of taxation on "windfall profits". However, wether Bush is in legion with America's rich or not, he has a point (which he probably made by accident). One acknowledgement any business owner operating his establishment under our laissez faire economic system must make is that, in turn for our government trusting them to conduct business in a fair and befitting manner, they must be held partially responsible for the well-being of our economy by doing what they can to ensure it's functionality. The Enron fiasco is a perfect example. You mess up, you pay the price. What is truly unfortunate is that even though these corporate dogs are using the 'war on terror' as an excuse to boost profits, we can say and do nothing because every aspect of our lives is affected in some way by the ability of a truck, plane, ship or other transport vehicle to move about. It would seem to me that the ONLY weapon we have against this ridiculousness is investing our money into alternative fuel source research. If America's oil kings won't take charge, then America's non-committee rich will have to do so. Does everyone agree with me? I realize this post will come off as a rant but I beleive that it is important for us to invest whatever we can into alternative fuel. The federal government will do nothing to control oil-based economics until it either runs out soon (a possibility which is debatable in the first place) or their assets are lost somehow. I just don't know what else we can do.
 
Aktinide Komplex said:
Today, on CNN.com, I viewed an article (with pictures) concerning George W. Bush's visit to a Missouri gas station. He was there to speak with 'the people' regarding his expectations of America's oil companies; namely that they reinvest their record high profits (due to record high gas prices) into alternative fuel source research.

The government should tax them and use the money for alternative fuel research...but not because the oil companies are doing anything immoral or illegal. Our dependence on oil has simply become a national security issue. I would support a 100% sales tax on gasoline.

Aktinide Komplex said:
Now.. don't get me wrong; I am by NO means a fan of the Bush administration and I wholeheartedly disagree with Bush's rejection of taxation on "windfall profits".

There is a fine line between "windfall profits" and normal profits. In fact, the line is so fine that it doesn't exist. And everytime the government tries to decide what level of profits are appropriate for businesses, the economy is worse off for it.

Aktinide Komplex said:
However, wether Bush is in legion with America's rich or not, he has a point (which he probably made by accident). One acknowledgement any business owner operating his establishment under our laissez faire economic system must make is that, in turn for our government trusting them to conduct business in a fair and befitting manner, they must be held partially responsible for the well-being of our economy by doing what they can to ensure it's functionality. The Enron fiasco is a perfect example. You mess up, you pay the price.

Enron intentionally violated many laws and cooked their books. The anger at oil companies today is simply resentment of their charging a higher price than consumers are used to, even though the higher price is perfectly fair since people are still buying gasoline.

Aktinide Komplex said:
What is truly unfortunate is that even though these corporate dogs are using the 'war on terror' as an excuse to boost profits,

And this represents a fundamental misunderstanding of the nature of economics, to say nothing of the relationship between business and government. Suppose I own an oil field, and suppose I have been apolitical my entire life. Suddenly this war on terror comes along, and my oil is worth more because the worldwide supply is less. Why the hell would I want to sell it for less than what it's worth?

Aktinide Komplex said:
we can say and do nothing because every aspect of our lives is affected in some way by the ability of a truck, plane, ship or other transport vehicle to move about. It would seem to me that the ONLY weapon we have against this ridiculousness is investing our money into alternative fuel source research.

Agreed. We need to immediately fund a Manhattan Project for energy independence so that we aren't beholden to dictatorships. Nuclear, solar, and hydrogen power would be the primary interests, but wind and water power could play a role as well.
 
Aktinide Komplex said:
these corporate dogs are using the 'war on terror' as an excuse to boost profits,

All of us who have to buy gas and heat our homes feel the pinch when we do so. Consequently, that is an easy attitude to adopt - but it is wrong to do so, IMO. Honestly, neither you nor I nor anyone in the media has enough information at our disposal to make an accurate judgement as to whether that is a truthful statement or not. For that reason, we should welcome examination of the oil companies by Congress, though that has its own risks, as I'll discuss later.

Now, having said that, let's also recognize that the current high oil prices are indeed producing quite a wealth transfer - from us consumers to the oil companies - as witnessed by their increasing profits. But that doesn't necessarily mean the oil companies are doing anything wrong. I've used this analogy before and it seems to work for most people, so lets try it again. The year is now 1970 and you have just become a landlord: you've purchased an apartment building or some other rental property. You paid some cash and financed the rest with a 30-year mortgage.

Fast forward in time to today. Your apartment building is now generating much larger rates of return for you, more than ever before, and you have more money in your pocket than ever before. Why is that? Over the years, you have paid off your mortgage and kept up the maintenance on the property. Its now paid off and your expenses are just maintenance and taxes and the occasional EPA mandated upgrade (asbestors removal, for example). In the meantime, your rents have marched inexorably higher with the pace of inflation. In other words, you invested in something a while back, its now paid for and the prices you receive for its use have been steadily increasing.

Thats a simplification, of course, but the same principle holds true in the general sense for the oil companies. They haven't built any new refineries since the '70s, paradoxically, partly due to gov't mandated restrictions and regulations. Consequently, except for their required spending on maintenance and upgrades and expansions, those facilities are, in effect, bought and paid for.

With, in a relative sense, low fixed costs (refinery plant and equipment bought and paid for) and the demand for their product being somewhat inelastic (at least in this region of the curve), higher prices and increasing demand (consumption continues to trend higher, especially globally), the result is an expansion in overall profit margins. Hence, increased earnings. The financial description for this is increasing operating leverage.

Kandahar has asserted that:

The government should tax them and use the money for alternative fuel research...but not because the oil companies are doing anything immoral or illegal. Our dependence on oil has simply become a national security issue. I would support a 100% sales tax on gasoline.

He is absolutely correct in that our dependence on oil is a national security issue and the largest part of these increases in profits should be re-invested in R&D, exploration and other activities that will first, increase our supply of non-political-risk oil, and second, ease our dependence on oil from any source in the long term.

I disagree a bit with taxing the oil companies to do this, but thats because I distrust Congress to do the right thing with those funds so derived. Once they get their hands on the money, it may or may not be used for energy investment purposes. Even when it is, it is too likely to doled out on the basis of political patronage and favoritism.

The only group with the expertise and the profit incentive to properly invest these monies is the oil and energy companies. Shouldn't public policy be structured so as to make sure these increased profits lead to increased energy investments, instead of leaving it to the whims of a bunch of porkers?
 
To an extent, I agree with you. My main concern regarding this entire issue is that if America were not as it were, there is a good chance the oil industry could be socialized or outright annexed by the federal government. Big Oil does not take this into consideration because, well, let's face it, that's just not going to happen. I agree that there is nothing wrong with an established corporation seeking profits and benefiting from them, though I feel that in light of the situation abroad and its effect on the oil industry, a certain level of social responsibility should be observed. Outright socialization would theoretically force an oil company to analyze possible impact on the national economy before making any kind of move, but we know that it's not necessary. Would it really be so hard to sacrifice that third house in the hamptons ? Attempting to balance prices with their impact can only help a company like Mobil Exxon, whose image will continue to deteriorate as long as we've got access to information about their earnings. Social responsibility is a big issue nowadays, especially since so many corporations seem to to be outright laughing at it. I know that in Europe, fuel prices have always been about as high as they are here now, and I know that it would be beneficial for us to get used to it, but using war as a distraction to skyrocket prices in a matter of a few years does NOT smack of social responsibility. Rapid change affecting millions of people is not the way to go. American individualism does not have to go as far as allowing the owners of a business to be so filthy rich just because they earned it "and that's that", not when it affects the ability of your average working class person to support themselves. I don't see anyone asking for handouts, but I do see people trying to provide for their families and still live fairly comfortably. America is a powerful nation who has always played her cards right for the most part and as a people we have earned that right.
 
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Aktinide Komplex said:
Social responsibility is a big issue nowadays, especially since so many corporations seem to to be outright laughing at it. I know that in Europe, fuel prices have always been about as high as they are here now, and I know that it would be beneficial for us to get used to it, but using war as a distraction to skyrocket prices in a matter of a few years does NOT smack of social responsibility. Rapid change affecting millions of people is not the way to go. American individualism does not have to go as far as allowing the owners of a business to be so filthy rich just because they earned it "and that's that", not when it affects the ability of your average working class person to support themselves.

You've made some quite large assumptions and extrapolations in this post.

> Corporations "laughing at social responsibility"? Would you mind citing an example or two? Exactly what are you talking about?

> "using war as a distraction to skyrocket prices"?? Remove the idea that anyone can manipulate prices enough to "skyrocket" them from your consciousness. The oil market is simply too large and too competitive for any one company to manipulate prices. A cartel (e.g., OPEC) can influence prices, a country with significant influence or strategic location (e.g., Iran and the Straits of Hormuz) can influence markets. But not manipulate in the sense that you have suggested.

> "American individualism does not have to go as far as allowing the owners of a business to be so filthy rich just because they earned it..." Oh? What economic system would you prefer that our country adopt? That statement sounds very much like you would prefer a system that returns all capital to the state and entrenuership plays no role. And btw, take a look at who the "filthy-rich owners" of these oil companies are: millions of Americans are the owners of these publicly-held oil companies, many of whom depend on their dividends checks as a major source of their retirement income or as components of their 401ks for future retirement.

Sure, a few execs may get very well compensated, after 43 years of service in the case of the XOM CEO Lee Raymond. But how would you compare his productivity to that of say, Katie Couric at $85,000 per day, or Julia Roberts (who at least donates millions to charity, e.g., Katrina Relief), or a professional athlete? If you're going to make value judgements as to who deserves what, then lets include everybody.

You've made a series of very uninformed and sophomoric arguments.
 
Usually when people write about "oil companies gouging their prices" they usually have no business sense and they don't have all the facts.

For one thing It's the blasted Arabs who are raising the price of oil, not the oil companies. It's s***holes like Iran that raise prices. Bitch at them!

There are also high taxes on gas. Take $3 a gallon, for instance. 8% of that goes to the oil companies, while 60% goes to the federal gov't. The rest is divided between the local and state gov'ts. So who's gouging the oil prices now? Not Exxon or Shell! It's the dagone gov't reaching into the oil profits!

Also, some have heard of "supply and demand", but don't understand it; even though it is very simple. We have a high demand for oil, but very little supply of it. And here's why: (1)- The environmentalists won't allow us to drill in ANWR, Alaska for it. (2)- most of what we are allowed to drill for here (in TX and AK) goes straight to the Orientals. (3)- We haven't been allowed to build an oil refinery in 20-30 years, and guess where most of our refineries are? In New Orleans, and that got flooded out last year.
 
For those of you that support "windfall profits", consider this. If such a tax is forced onto oil companies, what do you think they'll do, just sit around price gouging while sending millions off to the government? Of course not. Instead, they'll slow down production, wait a year or two until the tax is thrown out and then do the same thing they did before. The oil isn't going anywhere boys.
 
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