Thursday, December 08, 2005
Big Oil
I hate this topic because most Americans, living in the world center of capitalism, mess up on it all the time. Here are some fun facts to recall:
1) Over the past 25 years the Oil companies in the U.S. have paid over 2.2 trillion dollars in taxes and that, my friends, is 3 times what they made in profits during the same time frame. Want to be mad about the price of oil? Be mad about how much tax the government puts on it!
2) Check out the financial statements for "big oil" and take a look at how much profit is made for ever dollar in sales. It not usually more than 10 cents on the dollar; that is pretty modest considering McDonald's fast food does about 14 cents and, my old company, Citibank was above 25 cents in profit for every dollar in sales.
3) My favorite, often heard on the news, "I know it is gouging because the price is different here versus the place down the street." Oil is a commodity and the price is very dependent on how you buy it! So usually, the discount places buy in the spot market where they Waite for a down turn in the price and then catch as much as they can. Unfortunately that doesn't work when the price is rising consistently. Bigger places own their own supplies and can try to smooth things out. Then there are the folks buying futures to try and even out the price. Are there individuals who try to take advantage? Sure. Is it evil and systematic? Forget about it. It is called a market economy and it usually is very good at correcting itself.
Valuable commodities, like Oil and Gold, shift greatly depending on uncertainty. Every market is driven up when the future is not clear or the status quo is challenged. Commodities such as Oil, Gold, Silver, Chrome all have this trait.
Lastly, the Congressional Research Service (CRS) studied the last time we had "windfall taxes" and found that the 1980s windfall profits tax depressed the domestic production and extraction industry and furthered our dependence on foreign sources of oil.
1) Over the past 25 years the Oil companies in the U.S. have paid over 2.2 trillion dollars in taxes and that, my friends, is 3 times what they made in profits during the same time frame. Want to be mad about the price of oil? Be mad about how much tax the government puts on it!
2) Check out the financial statements for "big oil" and take a look at how much profit is made for ever dollar in sales. It not usually more than 10 cents on the dollar; that is pretty modest considering McDonald's fast food does about 14 cents and, my old company, Citibank was above 25 cents in profit for every dollar in sales.
3) My favorite, often heard on the news, "I know it is gouging because the price is different here versus the place down the street." Oil is a commodity and the price is very dependent on how you buy it! So usually, the discount places buy in the spot market where they Waite for a down turn in the price and then catch as much as they can. Unfortunately that doesn't work when the price is rising consistently. Bigger places own their own supplies and can try to smooth things out. Then there are the folks buying futures to try and even out the price. Are there individuals who try to take advantage? Sure. Is it evil and systematic? Forget about it. It is called a market economy and it usually is very good at correcting itself.
Valuable commodities, like Oil and Gold, shift greatly depending on uncertainty. Every market is driven up when the future is not clear or the status quo is challenged. Commodities such as Oil, Gold, Silver, Chrome all have this trait.
Lastly, the Congressional Research Service (CRS) studied the last time we had "windfall taxes" and found that the 1980s windfall profits tax depressed the domestic production and extraction industry and furthered our dependence on foreign sources of oil.
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