edited

[Tom Schindler]

The oil industry does not have to deal with competition like other industries do.



First off gas and oil is gas and oil. We can not look at a gallon of BP gas and say it looks better then Shell gas does. They both do the same thing. We can not say it performs better either. If it does, mainly it is because we think it runs better.



They claim tier 1 fuel is better then other fuel. I say BS. I use whatever crap I can buy the cheapest and I don't care who makes it.



The problem I have is, how is ExxonMobil is making that much money? I don't complain about prices. You pay it, you have no choice. Is it because they have expanded into China. if that is the case, then fine.



What is thier percentages of profit? 5%, 10%, 25%, 50%, 100%? What was thier percentages of profit 5 years ago? 10 years ago?



If 10 years ago, the percent of profit was 10% and now they are making 60% profit, I have a problem with that. Are they using OPEC prices as a tool to rip us off?



If 10% profit was OK 10 years ago, why isn't it OK now?



I don't care that they make more money then any other company in history. I do have a problem if they are making the high profits because they can. Gas is gas. Sure there are differences, but it is still gas. it is not like they have to do a complete redesign for gas every few years like the computer industry, auto industry, and clothing industry does.



The gas made today will work in cars made 20 years ago. Will the software made today work in computers made 10 years ago?



I am willing to bet, the gas made 10 years ago will work in cars made 10 years from now. Do you think software made today will work in PC that will be made 10 years from now?



Profit is not a dirty word. Sticking it to us because they can, that is wrong.





Tom

 

[Thomas Rogers]

Q says:

Welcome to capitalism. Rates rise and so does a thing called inflation. That's why we get pay raises. Every commodity rises in price, every year.

Actually, ever hear the word "recession"?



And, not every commodity rises in price even in an inflationary year. Remember my sage advice: use words like EVERY, ALL, NONE and NEVER in a claim very carefully.



Anyway, like I said before: Good for Exxon! Profits aren't an evil thing!



But, when the cost of a stable increases approx 50% in a few months then the money to pay for it has to come from somewhere.



Your statement would imply that everything went up in price, even incomes, and that just wasn't the case during that period at least not to the same degree as fuel prices. So, as I said, with consumers faced with paying much more at the pumps had to come up with the money to pay the increases, and that money had to come from somewhere. That means less consumer spending elsewhere, or less personal savings, or increased consumer credit debt. Do you AGREE or DISAGREE with that general assertion, Q? Please explain your answer sticking to the point of the assertion if you disagree. Thanks.



Sorry if I am sounding like a broken record.



Later Q.



TJR

 

[Johnny O]

* Last I heard, the government makes more money from a gallon of gas than the oil companies.

* Witness the lefties' idea about somehow taxing people by the mile because they'll take in less gas tax money if everyone is driving hybrids.

* Politicians in both parties keep kicking the can down the road and refuse to deal with the problem long-term (for different reasons, but the end result is the same--nothing gets done about it).

* My gross profit margin in my company is 13%.

 

[Thomas Rogers]

>> You're just wrong TJR, admit it for once. Gas prices had exactly NO impact on consumer's wallets. We adjust. That $15 extra a month did nothing to your pocket. Didn't do

>> anything to mine. People still going into debt, or not. Credit cards companies making money, or more.



I admit I am wrong all the time.



But, when you say it has NO impact, please explain. No means NONE. My definition of "NO IMPACT" would be that "I have the same amount of money to spend on things OTHER THAN GAS as I did before!"



Take my case for example. For me, it was closer to between $60 and $80/month extra to gas up one vehicle in Aug 05 than in Aug 04; and I drive very little. My wife drives a little more than me so for her it was closer to an extra $80/month during that same time.



So that is between $140 to $160 a month MORE to fuel our cars during that month as compared to the same time the previous year.



We still had to drive the same amount per month, or needs didn't change. Sure, we could have changed our habits, maybe, but that isn't the point.



That money had to come from somewhere. I haven't had a pay increase in over 19 months, and I am not alone in that one. Even if I had a 3% pay increase, and on average everything else (as you claim) increased in cost accordingly, that 50% increase in gas prices has me with less money in my wallet or savings, or more debt on my credit card IF EVERYTHING ELSE stays the same or increases accordingly.



Q also said:

Here's the way it works. If you are now all of a sudden not able to afford the luxuries of life now that gas prices are too high, as you claim, do ya think other companies would lower prices to get you to buy ? Huh? Why yes! There's that capitalism in action! Supplay and demand. Marvelous thing, capitalism!

Why are you taking this so emotionally and personally.



I never said NOT ABLE to afford the luxuries of life. Read my post. I said, if the cost of a necessity increases disproportionally with the cost of living (Gas did in Summer 05), then to continue to purchase that commodity a consumer must: a) forgo some other non-essentials; b) save less; c) take on additional credit



Of course, that assumes they continue to purchase gas at the same rate as before...if they can and do cut their consumption, then I guess that amount of gas they stopped buying was the non-essential.



I am NOT saying that it killed people, I am just saying the money, which could very easily have been between $100 to $200/month, per family, had to come from somewhere.



And, like true capitalist fashion as SOME industries grow others constrict. I am not necessarily saying that happened here, but I am sure we can find evidence that it did.



Summer travel was down, RV sales down, SUV sales down, summer vacation/tourism spending down.



All of those are DIRECTLY proportional to the rise in gas prices, so as Exxon prospers GM falters. But there are those indirect decliners, those related THROUGH my wallet. My family and I dined out less in the 2nd half of 2005 in order to keep our budget. I doubt we were alone. Did it leave less money in my wallet, to your point...NO. Less in my savings...no. But It DID mean less money THROUGH my wallet into the local restaurant economy.



That was always my point. And it is based on simple math, logic, and personal experience, so if I am wrong, show me where my math and logic are wrong.



And, for review, my logical assertion based in math facts is:

if the cost of a necessity increases disproportionally with the cost of living then to continue to purchase that necessity a consumer must: a) forgo some non-essential purchases; b) save less; c) take on additional credit d) some combination of a, b and/or c

You keep talking about capitalism, which is an interesting topic. As I s

 

[Frank Marano]

thanks for your opinion. have a nice day

 

[Tom Schindler]

Lets not forget fuel surcharges we get charged when we buy something and have it shipped. So fuel prices bring the overall average of everything up. It costs money to ship. That extra price is added to our goods. Food, clothing, cleaning supplies, etc.





Tom

 

[Thomas Rogers]

Right Caymen,



So, is this scenario possible (speaking to no one in particular now):



Scenario: Due to disproporitionally rising energy prices it costs the restaurant more to have a "steak" shipped to them, costs them more to buy the steak, and it costs them more to cook the steak. At the same time, fewer people are coming into the restaurant because they are trying to manage their budgets as they are faced with increased energy costs.



If we assume that scenario is possible, even probable, what is a restaurant owner to do?



Should he:



a. Raise prices to offset the increased costs and decreased sales to maintain current level of profitability?



b. Drop prices in hopes to attract more customers and increase sales at least back to the prior profitability?



I suspect that some would do a, some would be b.



As a matter of a fact, several large chains (Applebees was one I think, TGIF another) introduced new, lower priced menus the past few months.



Seems the only reason they would do that is if THEY were being hurt as described in the scenario.



TJR

 

[Tom Schindler]

TJR,



How long will that person be able to hold on while charging less? How many will have to fall because of the impact fuel has done to thier business?



ExxonMobil makes more money and 5% of restaurant owners loose thier business.



Yay for ExxonMobile. They are helping the economy out.



I really want to know at what profit margin is ExxonMobil working at today? What was it 10 years ago? And then 20 years ago?



If it is the same, I am happy they are making that much money. If they are making the highest margin today, then I have a major problem with that.



They are using hig OPEC prices as a tool to rip us off.





Tom

 

[Dale Carter]

From www.boortz.com -

Yesterday the world's largest oil company, Exxon Mobil, announced their quarterly profits. They raked in $10.7 billion last quarter. That should make their shareholders happy. That brings their total yearly profit to $36.13 billion. That's a nice chunk of change.



But you know what such news means. It's time to drag the oil executives back in front of Congress...to complain about the mythical, non-existent "price-gouging." Politicians will wring their hands about how Exxon Mobil is stealing money from people...and not "giving back" to the community. All of this, of course, is thanks to the government schools that churn out people who have absolutely no understanding of basic economics.



For the less-educated, here are a few pointers:



Exxon Mobil doesn't set the price of oil, the world market does. They're just cashing in. That price is determined by supply and demand, and nothing else. Sorry. If you want oil to be cheaper, you have to drill for more of it, bring to market and drive down the price.



The oil companies are doing what they're supposed to. It is the function of a public corporation to make as much money as possible for its shareholders.



If we expect to drill for more oil...and refine more gasoline...where do people think the money to do that will come from? Reinvested oil company profits, that's where. Somebody has to pay for exploration.



At the end of the day, it is the radical environmentalists that are making oil companies rich. The tighter the supply, the bigger their profits. So now you know who to blame!.

This from me



Regarding oil company competition - The most viciously competitive markets are those with little product differentiation (mine is better than yours because it is different), such as commodities. The products are so similar that profit increases generally come from improvements in efficiency because opportunistic competitors will take market share from you if you increase your prices. This results in greater profits for them and a loss of market share for you, barring significant growth in the market. This lack of differentiation is also responsible for the huge amounts of advertising that companies put into voodoo like "techroline" and "tier 1". When there is no basic difference in products, the points of differentiation become more and more fine. Think about eggs at the grocery store.



Cartels and price fixing - If the gas sellers were a true cartel we would see advertising like the "Got Milk" campaign, rather than "Our Amo/BP/TexaShell is the best !". Two different approaches to the same problem. To illustrate my point about competition, why would gas companies spend millions of dollars to advertise if they weren't competitors? Are they stupid? Keeping up appearances? can't determine better wording than "Got Gas?" HAHAHAHA



Zero Sum - To gain profits I have to take it away from someone else. This is called Zero Sum Theory. Until we can determine if this applies to the gas/oil industry, we need mroe info, such as the profit margins (percentages) mentioned earlier in this thread. We can also get into the theories surrounding substitute and complementary products. Many markets are Zero Sum in the short term, I take a customer from you and your profits drop is Zero Sum. Over time, though, wealth creation through growth and greater efficiency, result in the probablility of greater overall profits for everyone.

 

[Thomas Rogers]

Right, Dale. Zero Sum is my line of reasoning, to a point, at least for most personal situations because most people didn't see their income increase at the same rate as fuel prices.



I do recognize that the economy, as a whole, is not necessarily a zero sum proposition because to Q's point, the US economy by and large has expanded ever since its inception, year after year. But that is the economy taken as a whole...put another way; there have been more times of inflation than recession during our country's history.



But that doesn't mean there aren't pockets or sectors of recession. Put another way, the slower the economic growth as a whole (and it has been slow the past few years), the more likely that a RAPID expansion in any one sector, especially one as large as "energy", would seem to require some "constriction" in other areas. If the economy is booming, sure everything (er, most things) would be expected to rise a little...but we haven't had booming for a few years.



TJR

 

[Michael Cacioppo]

Come on everybody play nice or there will be no cookies and a nap later today.

 

[Thomas Rogers]

I always play nice, MikeC. Always. Still, that's good advice.

 

[Jake Levin]

I think the problem here is that gas prices jumped an astronomical percentage (200-300% in some areas) based on speculation of possible supply losses. Demand did not increase dramatically throughout the country all of a sudden. The damage done by the hurricanes was not as bad as originally percieved, so yes there was a drop in supply for a short period of time. Do we know if the gas and oil companies are back to their pre-hurricane production? Prices did drop over the past few months, but they have come no where near the pre-hurricane prices and they are beginning to rise again.

Now, Exxon-Mobil shows a record profit for the fourth quarter. This is due to the higher prices we're paying at the pump and I think we can all agree on that. But net profit is equal to income minus expenses. This increase we're paying is supposed to be because they need to rebuild the damage that was done by the storms. That means they shouldn't have "record profits", they should have record sales. they should be saying "exxon-mobil sold 20 billion dollars in gas during the 4th quarter, which is 5 billion more then last year. But that 5 billion is for repairs to the oil refineries damages during this years storms"

Now on top of this the oil companies do have a strong hand in setting the price at the pump. A gas station owner has to pay for the gas first and then add his % to that.. If a gallon is going for $3.20 at your local gas station and the owner adds a 20 cent markup for his expenses then he's buying the gas for $3.00. That $3.00 was set by the oil company. Can anyone here provide us with actuall numbers as to how many barrels a day less the oil companies are producing then pre-Katrina? I don't think it's that much if any at all.

 

[Thomas Rogers]

All good questions and points, jlevin.



Which all begs the question: IF we DIDN'T have the hurricanes last year, WOULD Exxon and others have made AS MUCH profit?



If so, GOOD FOR THEM. If not, then what does that say?



We may never know.

 

[Bill V]

How typical of Boortz--blame everything on the liberals. How lame and old.



This isn't the oil companies' fault. They're just reaping the rewards of supply-and-demand. This isn't the environmentalists' fault. They're just putting some reasonable limits in place for the sake of the future liveability of this planet, which, in the long run, is far more important than who gets rich and who doesn't. This isn't the politicians' fault--unless you want them to abolish capitalism. This is simply the law of supply-and-demand at work in a capitalist environment.

 

[Dale Carter]

A little more info related to profits and the context, both of other businesses and over time.



The Washingto Post (excerpted by Dale, link to full article below)

For instance, in 2004 Exxon Mobil earned more money -- $25.33 billion -- than any other company on the Fortune 500 list of largest corporations. But by another measure of profitability, gross profit margin, it ranked No. 127.



Jay Taparia, a lecturer in finance at the University of Illinois at Chicago and an expert on interpreting financial statements, said a quarterly profit or loss can only be judged in context, given the history of the company and its long-term prospects.



"People who are freaking out about Exxon's record profit are the same people who were freaking out about AOL Time Warner's record losses" of $98.2 billion in 2002, he said. "One quarter's net income or loss doesn't mean anything."



A $9.9 billion quarterly profit is mostly a function of Exxon Mobil's size. It had sales of $100 billion this quarter, more than any other U.S. company. At its current rate of growth, Exxon Mobil will be the biggest U.S. corporation this year by revenue, bigger than Wal-Mart Stores Inc., which had $288.19 billion in revenue last year. Generally, the bigger the company, the bigger the bottom line.



Even so, many companies smaller than Exxon Mobil "earn" more, depending on what measure is used.



Most financial institutions, such as commercial banks, are routinely more profitable than Exxon Mobil was in its third quarter. For example, Exxon Mobil's gross margin of 9.8 cents of profit for every dollar of revenue pales in comparison to Citigroup Inc.'s 15.7 cents in 2004. By percentage of total revenue, banking is consistently the most profitable industry in America, followed closely by the drug industry.



Altria Group, the maker of Marlboro and other cigarettes, made 22 cents for every dollar of revenue in 2004, and pharmaceutical company Merck made 25.3 cents for every dollar of revenue in 2004.



By other measures, such as profit per employee, return on invested capital and free cash flow, Exxon Mobil is nowhere near a standout.



Oil industry analysts yesterday also pointed out that while times are good for oil companies, one of the reasons is the huge American demand for gas at a time when supply is constrained. And the cost of extracting and refining oil in the coming years is only going to increase, requiring hundreds of billions of dollars of investment. Energy research firm John S. Herold Inc. last month predicted that despite short-term increases in profits, higher costs will probably make many U.S. oil companies less profitable in the next five years, even as their revenue grows rapidly.

 

[Thomas Rogers]

BillV, I am all for capitialism and supply and demand. But when gas prices jumped 50¢ a galloon in a couple of days (I am not saying that was all Exxon), are we to assume it was because the supply went down and/or the demand went up proportionally?



Sure, I don't want the government involved either and I think the market should set the price and the government shouldn't be too concerned with gouging, etc.



But as a consumer I can and WILL bitch about it if I think I am being taken advantage of, and last Aug, I felt like I was bent over a barrel...of oil.



My options were pretty much grab socks, grin, and bear it.



TJR

 

[Dale Carter]

How "typical" of a liberal to write off a statement without responding to it's validity.

Boortz is responding to people (including some in this very site) who wish to place the blame on the big bad oil companies for ripping off Joe Everyman, when it is more accurately placed on the environmentalists, who routinely screw Joe out of his property rights and personal wealth with junk science inspired regulations. After all, everyone knows the leaders of the radical environmentalists (ELF, Greenpeace, etc.) are altruistic lovers of everyone rather than displaced anti-capitalist Marxists from the 60's and 70's. (SARCASM ALERT - LEVEL 5)



Bill V- you are correct that this is supply and demand. Boortz point is that supply has been reduced almost exclusively by the radical environmentalists. The fact that we haven't built a refinery in the US in over 30 years due to lawsuits and environmental restrictions dramatically impacts fuel costs when hurricanes knock out much of our current refining capacity. The reduction of supply doesn't increase price? That was his point, it is vlaid and it is factually correct.

 

[Jake Levin]

I think the point is that while supply and demand have an impact on the price, on items that are not considered "essential" you have a choice. Lets take an example, aa few years ago the hot ticket chirstmas gift was the tickle me elmo doll. Supply was low, demand was high so people were selling them for twice the price they were bought for in the store. Now you had a choice, pay the high prices or get something else for christmas. We don't have that luxury when it comes to oil and gas. I live 35 miles from work, there is no mass transit nnor is it realistic to walk, bike, run to work everyday. I have no choice but to pay for gas in my truck. There is no true competition for gas companies. The mobil station down the road is selling the same gas as the BP and the Enrite around the corner. So when they set prices they know that people will still pay for it b\c they don't have a choice. And then when they report record profits it's like a slap in the face.

 

[Bill V]

TJR--



No, when prices jump overnight, you're not to assume that supply and demand changed that much overnight. But you would be correct if you assumed that these are normal market forces acting on the pricing, and not price manipulation. In our local Twin Cities market, gas prices will typically drop a penny or two a day for a couple weeks, then spring back up to a "high" price again. It's not that the supply or demand changed. It's that competitive forces were driving prices down, penny by penny, until some companies realize that they can't compete at those prices, and readjust their prices upward quickly, to get to a level where they can survive because of their profit margin despite lower sales because of the high price. Other companies quickly realize that they now can also stop straining at bottom-penny prices, and also adjust upward to that higher level, such that prices across town jump as much as 30 cents over night. And then the whole cycle repeats itself--prices inch lower from competition, until the strain forces prices to refresh higher once again. It's not collusion--it's competition.



And you did have another option besides grab socks, grin, and bear it. You could have grabbed bike, grinned, and pedaled it. Or grabbed house, grinned, and moved it closer to your place of employment. Etc.



Dale--



My statement was completely valid--although possibly in need of some clarification. I wasn't saying that environmental regulations don't have an impact on the prices. I was taking issue with Boortz's claim that environmentalists are "to blame" for the profits of the oil companies. As I indicated, the environmentalists are enacting and enforcing legislation to protect the future liveability of this planet. Capitalism is a great system, but it does have its weaknesses, and one of them is that it doesn't (in and of itself) encourage the capitalists to invest in things beyond the life of the capitalist him/herself, as they have no way to profit from that. That's where groups like the environmentalists come in, to help balance that out. And yes, that protection of the future liveability has its costs. But to say that those costs are "to blame" (Boortz's own words) on the environmentalists is like saying that the pain involved with a tetanus shot is something to be "blamed" on the doctor administering the shot. It's not something to "blame" at all--if anything, the doctor (and the environmentalist) are to be credited for investing in your future health.



And for the record, yes, I did get your smiley, and the sarcasm alert. So no, it wasn't at all taken personally. I hope this isn't either.



--Bill