There is something of a mixed signal that comes through with these numbers. For many of us, who are not accountants, the reports of billions of profits per quarter can sound excessively, even insultingly high.
However, the oil companies tell us that profits that are not distributed to shareholders (a small detail that news reports often glide over) are plowed back into capital expenditures.
Capital expenditures are costs to a company to create improvements. For an oil company, improvements could mean exploration, upgrading refining facilities (say, after a hurricane), and so on. Gosh, that sounds reasonable.
Look at the Conoco chart on investment that goes with this article. It's enough to make any free marketeer proud to be an American. Do you feel better now? They want you to.
Except, unfortunately, it's horse hockey.
Slate, hardly a liberal vanguard on free market issues, published an excellent article debunking the oil giants' damage control:
The American Petroleum Institute has been running full-page advertisements in the New York Times this week that show where a hypothetical dollar spent on gas at the pump goes: 19 cents for taxes; 26 cents for refining, distribution, and service stations; and 55 cents for the crude oil. The ads also cite a PricewaterhouseCoopers study that shows the industry in 2005 "earned 8.5 cents on every dollar of sales." These figures are intended to elicit sympathy for the poor gas companies, struggling to get by with their 8.5 percent margins. Don't fall for it. Integrated companies like ExxonMobil—which pump crude, refine it, and sell it—capture 81 cents of every dollar spent on gas. [ed. emphasis] And 8.5 percent is a pretty good margin for a capital-intensive, high-volume business like oil. ExxonMobil's profits last quarter were $8.4 billion on sales of $89 billion—about 9.4 percent of sales.
To elucidate this slightly, ExxonMobil will get profits from their subsidiary refining companies, for example, that don't factor into their calculus of profit at the pump.
To make it 100% clear -- ExxonMobil and their ilk are participating in setting the price of a barrel of crude high, linking to middle east and central asian oil market manipulations. If they lowered their commodity price for a barrel of crude, they would drive down the world market (and risk every barrel getting snatched up by the Chinese, I suppose...). But they have a choice of how to set those prices. They've just ceded it to OPEC and such.
Slate's final comment:
This most un-Clintonian of industries has resorted to a Clintonian tactic. Jad Mouawad of the New York Times reported that Ken Cohen, vice president for public affairs at Exxon, held a conference call with reporters this week. "Obviously it was a good quarter for us," Cohen said. "We understand that people are quite upset with the price they're paying at the pump, and we empathize with that." As another oil man once put it: "Message: I care." It didn't work for him, either.
Is the price at the pump too high? Is yoking the profits of domestic oil to the profit margins of OPEC oil a form of war profiteering?
Depends what your definition of "is" is.
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Comments: 4
So Christopher, what you're saying is that you want to put Bush directly in charge of Big Oil, not just doing what he can to help them? I'm not sure that's the right solution.
Plus, if you think Enron going down in flames hurt a lot of retirees and such, think about the impact of nationalizing a sector that has more pension and fund investment than just about anything else in traditional industry.
http://www.wsws.org/articles/2008/apr2008/gas-a30.shtml ] in a grab to Nationalize them as "Utilities", a better solution begins with understanding the forces and the factors that govern the marketing of oil. Let me start by saying, THERE IS NO SUCH THING AS EXCESS PROFITS! Since I am giving Senator Obama the benefit of the doubt, believing he is indeed an intelligent man, I can only conclude that he is purposely attempting to mislead the public. I say "attempting" because the more intelligent people will see through his ( and Senator Clinton ) deception.
http://www.gather.com/viewArticle.jsp?articleId=281474977347779
Anyone promoting the idea of grabbing "excess profits" do not understand the American economy, nor our free enterprise system. Obama isn't qualified to run a hot dog stand and yet we see all these fools lining up to take on his dreams which are simply unrealistic and will never actually be implemented.
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