The obscene profits of "Big Oil"

Here we go again. Our legislators in Washington are pandering to the stupidity of the American public. Because our populous is so despicably uneducated about basic economic principles, politicians put forth bills like the one the House passed yesterday.

By a vote of 281 to 141 the House of Representatives passed The Federal Price Gouging Protection Act, an anti-price gouging bill targeted at the evil oil companies who are charging “unconscionably excessive” prices. Friends, if you believe that our current gas prices are due to record oil company profits or price fixing at the hands of “Big Oil,” then you have fallen into the trap that politicians have set for you.

Our representatives know that if they can convince you that “Big Oil” is the real criminal, and that they will punish the oil companies for stealing your money, it will make them look very good. It is yet another reelection ploy.

Price gouging legislation has never done anything to lower prices. In the past, similar legislation has only served to limit supply, which makes the problem WORSE.

Right after Hurricane Katrina, the demogoging of “Big Oil” was all over the airwaves. Media personalities blamed the sharp rise in gas prices on oil company greed, record profits, and George Bush. It was all a calculated strategy to hurt the President and demonize oil corporations. And, it was a strategy based on the fact that the majority of the American public is too ignorant to see through the bulls**t.

Due to this demogoging, the Federal Trade Commission began an intensive study of oil company business practices, allegations of price fixing, and the effectiveness of price-gouging legislation. In their final report, they stated that:

“The lack of consensus on which conduct should be prohibited could yield a federal statute that would leave businesses with little guidance on how to comply and would run counter to consumers’ best interest

Holding prices too low for too long in the face of temporary supply problems risks distorting the price signal that ultimately will ameliorate the problem.”

To put it simply, the FTC is saying that such legislation would force oil companies to set prices artificially low. Such, artificially low prices would be counterproductive when the demand for gas spiked, such as it did in the aftermath of Hurricane Katrina.

Supply and demand cannot work when outside forces, such as the iron fist of the Federal Government, involve themselves in the process. When the Government is allowed to decide how much money you are allowed to make on the commodity you are selling, it erodes the foundation of the market. Not to mention the fact that it sets a bad precedent for the amount of power that we grant to our elected officials.

Regarding the so-called price fixing by oil companies, the FTC report also found:

No evidence to suggest that refiners manipulated prices through any means, including running their refineries below full productive capacity to restrict supply, altering their refinery output to produce less gasoline, or diverting gasoline from markets in the United States to less lucrative foreign markets. The evidence indicated that these firms produced as much gasoline as they economically could, using computer models to determine their most profitable slate of products.

No evidence to suggest that refinery expansion decisions over the past 20 years resulted from either unilateral or coordinated attempts to manipulate prices. Rather, the pace of capacity growth resulted from competitive market forces.

No evidence to suggest that petroleum pipeline companies made rate or expansion decisions in order to manipulate gasoline prices.

No evidence to suggest that oil companies reduced inventory to increase or manipulate prices or exacerbate the effects of price spikes generally, or due to hurricane-related supply disruptions in particular. Inventory levels have declined, but the decline represents a decades-long trend to lower costs that is consistent with other manufacturing industries. In setting inventory levels, companies try to plan for unexpected supply disruptions by examining supply needs from past disruptions.

No situations that might allow one firm – or a small collusive group – to manipulate gasoline futures prices by using storage assets to restrict gasoline movements into New York Harbor, the key delivery point for gasoline futures contracts.

So, this report, which was published last year, firmly states that price-gouging laws only serve to make the problem worse, and that there is no evidence that price-gouging is even happening!

Do our Representatives know about this report? Yes. They commissioned it. They know about it, and they are ignoring it. Why? Because, the average American citizen doesn’t know about it.

Most people are still convinced that “Big Oil” is the bad guy. They are the greedy ones robbing us blind. The Government is there to protect us!

If that defines your thinking process, then I have some facts to reveal to you.

First, let’s find out about the money we are spending at the pump. Where does that money go? Whose pocket does it go in?

Well, a majority of it goes to the actual production of the gasoline. This money pays for the crude oil, the transportation and refining of that oil, and the delivery of the gasoline to your local pump. This is NOT profit. This is just the basic cost of doing business.

Now, out of all the money that is left, how much goes into the pockets of the oil company. Out of every dollar you pay for gasoline, how much is “Big Oil” profit?

Out of every dollar, only 10 cents is oil company profit. So, where does the rest go? Why it goes to the supposed savior of the American public…the Government.

Yes, yes. While they are busy trying to convince the American people that they are protecting them from the evil oil companies, the Government takes in between 26 cents and 68 cents on every dollar that you pay for gasoline.

The federal taxes on that gasoline (after you calculate the taxes on transportation, importing, refining, etc.) equal 18.4 cents out of every dollar. The state taxes range between 8 cents and 50 cents on every dollar.

What has the Government done in the production of that gasoline that grants them access to that money? Nothing! They have done not one iota of work to earn that money. But, they seize it nonetheless.

Now, who’s gouging the American people?

The truth is that, while the media touts oil company profits as “record” or “obscene” profits, the amount of profit that they take in is really not that much. Consider their profit margin (If you don’t know the difference between a profit and a profit margin, then look it up). Currently their margin is around 9%. This is below the profit margin of many other industries.

Also, let’s just look at a hypothetical situation. Let’s take the highest reported Oil Company profit on record. In 2006, ExxonMobil earned $39.5 billion in profits. Sounds like a huge amount of money, right? They are ripping us off! They should give some of that back!

OK. What if they did? What if they gave back every penny of that profit? Currently, there are approximately 190,000,000 licensed drivers in the United States. If ExxonMobile divided their record profits among these 190,000,000 drivers, how much would each person receive?

$39.5 billion / 190 million = $207.89.

If they divided every penny of their annual profits among American drivers, each person would receive $208. That’s for an entire years worth of gas! Per week that works out to about $4.

Do the math. Assuming you fill up once a week, your gas would be a total of $4.00 cheaper every time you filled up. Of course, that means that ExxonMobil is left without 1 penny of profit. They are left with no capitol to expand their refining capacities, to hire more workers to produce the gasoline, or to deal with shifts in the market. They are left without any ability to provide gasoline to you the following year.

But, don’t worry. You stuck it to the evil oil company and got your $4.00 discount!

“Big Oil” is not the problem. The environmentalist who protests the building of new refineries is the problem. The Government who takes 50 cents on every dollar in tax money is the problem.

They claim to protect you, but they are the source of the trouble. They are the ones making “obscene profits” on gasoline. Then they pass bogus laws that will only make the problem worse.

And, the American public eats it up. They are far too ignorant to understand the truth.


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