Friday, April 28, 2006

Oil Company Profits :: The Scorpion and the Frog

Ok. So someone is going to have to help me here because I need it. I do not know enough about the oil business to really get why every one is so pissed off at the big oil companies for making record profits. I know that most of the heart burn is over how you feel when you fill up. I feel it too...but I'm not really understanding why the oil companies are synonymous with evil these days. This must be because everyone else knows something I do not.

They are selling their product and we are buying it. If we don't like it, we should find alternative methods of transportation, travel less, car pool, buy a more fuel efficient car, invent alternatives, seriously investigate and believe in other fuel options, etc. I guess I hesitate to really criticize a company for making profits and growing as much as they can. That's a primary goal and one of the key concepts of business. Says the scorpion: "It's my nature..."

So what is the root of the issue here? Unless someone clues me in on the big secret, I will continue to be upset at high gas prices (while not blaming the oil companies), do what I can to lower their impact on me (I drive a hybrid), and try to move on with my $30 tank of gas. I would love to see us lose our dependence on foreign oil - or oil for that matter - but that only happens when each of us stops complaining and actually starts doing something about it.


SINEDDIE said...

you are not alone.
if i understand it right...the cost goes up and down , partially based on how the oil gets here...taxes, routes, tarriffs, whatever. it seems like the per barrel price is somewhat random and the big companies can re-coop thier cost, by whatever margin the want, from us- the consumer.
of course, i may be wrong.

retired said...

Wow spoken like a true conservative I am impressed!

Here is the political scenario as I have seen it. Big oil is being attacked because of their association to the Bush administration. Remember we went to war for oil only! That is why we have the new free supply of oil coming from Iraq that has lowered our price of oil right!?!?! Ok enough of the partisan outrage.

Bill O'Reilly (no idea if I spelled his name right) has been on an attack against the big oil companies and here is why: It cost Exxon Mobil around $20 per barrel to produce oil domestically. US oil companies currently import 65% of the oil they refine. So 35% of the oil these guys refine is passed on to you at the world market price of $70 per barrel that is a pure profit of $50/ barrel of US produced oil! In any other industry this would be considered smart business O'Reilly and others are claiming that this is profiteering at a time of war.

If the US allowed drilling in places like ANWAR it would lower the world market prices because the US would no longer be the largest importer of foreign oil. In fact we may become an exporter. (I know this may come as a surprise but I am a huge conservationist. I grew up in the great outdoors. I do feel that you can drill for oil in places like ANWAR and minimize all if any environmental damage with effective oversight.)

Also the other option I think would dramatically improve the local and the national economy would be to require flex-fuel cars that run on the fuels produced from grains. Don’t let the big oil pundits convince you that the technology is not there because all the major auto manufacturers make flex fuel vehicles now! They all have to if they want to sell cars in Brazil!

The argument has also been made that there is not a great enough supply of grain to fuel the country. That is because the world market price for agriculture products has been declining over the past several decades as third world countries become more self sustaining. The US government has several programs that fall under the category of price supports. Basically the US government pays to keep market prices at a domestic minimum to keep US farmers farming. This is the single largest welfare program in the US which is a huge drain on the US economy. I personally know several farmers who make literally millions of dollars every year from the government for not planting approximately 60% of their acreage!

If you create a demand for agriculture products farmers start planting the unused land, the government eliminates the welfare programs associated with price supports because farming is now a viable economy, the government receives windfall tax profits from the now thriving agricultural based economy, the government also saves the billions of dollars they spend on price support programs, they then reinvest the windfall savings into the countries infrastructure allowing business to prosper for the next 100 years.

My economic analysis described above is purely my own but if any of you know an economist I would be very interested in having my theories tested. If they work, maybe we can together pressure enough congressmen to change the world!

wilablog said...

Well, you lost me at "Bill O'Reilly." Just kidding.

I find subsidies from the government a questionable practice and wish I knew more about various policies/industries that include subsidies (farming, rail, etc). So I can't criticize the policy you are pointing out here but my gut reaction is that the root change you are suggessing would be very difficult to start and the change would cause a lot of people pain. It is a "barrier to entry" issue. It's possible that a major crises may be the only way to spur people to action in this case.

Personally, I believe that Bush and the Republican party have missed the boat on this one. They should be calling for a massive investment in technology into alternative fuels similar to the scale and scope of the space program. An initiative like this would affect every aspect of our economy and culture (from industry to education). Instead, I think we get lip service, pennies, and not much more.

And I seriously doubt that drilling in ANWAR would have no affect on the ecosystem. But to be fair, you used the word "minimize" - which is an ambiguous term that I will just leave hanging out there...

And I definitely would not trust big oil to police tehmselves - just look at the coals they are raking us over now. Damn big oil companies...