No Sympathy for the Devil
There's a lot of hot talk these days regarding the cost of gas. Politicians are getting all worked up and demanding investigations. Even the "Free Market" GOP is making a show and vowing to investigate price gouging. The oil industry says it's not their fault. This is simply the result of supply and demand and we're all at the whim of the market. Bullshit. There's a very simple way the oil companies can reduce gas prices: reduce their profit margin.
If you believe guys like John Felmy, chief economist for the American Petroleum Institute, the oil industry has no control over rising gas prices. "The reasons for high gasoline prices are very clear: the high cost of crude and the high cost of manufacturing gasoline," said Felmy. He says the image of oil companies shaking down the American consumer is just an unfortunate misunderstanding. And he says it all with a straight face.
We're but a week from reports of Exxon's CEO, Lee Raymond, hauling in a $150 million retirement payout. That's a lot of cash to regular folks like you and me, but don't think for a moment Raymond had ANY say over that compensation package. Perish the thought. Raymond claims to have never even negotiated his salary ever in his career. No, this King's ransom was foisted on him by the Powers That Be at Exxon, nevermind that HE was the Executive Power That Was.
Just the same, Raymond says his payout was reward for Exxon's success in recent years. And who can argue with that? The company posted a $7.61 billion profit in the second quarter of 2005, which was a 32% rise in profits. But that wasn't even a record quarter. It was their THIRD highest quarter. Additionally, Exxon's refining and marketing profit rose 34 percent, to $2.02 billion. So their profit rose by a third on the area that gets mentioned most as the cause for high gas prices: refining.
It's hard to feel bad for these guys who claim at every turn to be victims of circumstance, isn't it? Am I heartless? I don't know, but it seems to me that Exxon, et al., could do their part as good corporate American citizens by trimming their profit margin a hair and maybe cutting back the CEO payouts by a few million bucks or so. There's nothing wrong with making a little money for providing a service but at what pint to start to feel like your just shafting your neighbors?
Comments
First off, let me point out that my eyes roll every time I see the ever-increasing numbers on the local Mobil sign, so I'm equally as unhappy as those who don't work as execs at oil companies.
That said, cutting prices by having these guys taking less money misses the real point which is that oil is a finite commodity and one of these days those countries that have the primary reserves truly are going to be nothing more than giant sand dunes.
What we need here are not temporary fixes to bring the price of gas down by 25 cents a gallon, but a national energy policy that is going to have a substantive effect. There are all manner of technological solutions that can help reduce the amount of fuel used. Even General Motors--yes, GM--is right in its campaign regarding the use of E85. Note how the critics roll out talking about how inefficient it is: yes, compared to a gallon of high-test, it is, but when that runs out, where does that get you? (Admittedly, a gallon of E85 has 15% gasoline.) The latest knock on hybrids, which are ideal for better MPGs in cities but suck fumes on the highway, is that the cost of manufacturing them is greater than conventional cars. True, but guess what: the electricity that is generated to run those manufacturing processes is probably generated by coal plants, and the last I checked, cars don't run on coal. And the next time someone rolls out with the "cost justification" argument for hybrids vs. standard cars, ask them how they cost justified, oh, their clothes. Chances are excellent they could have gotten a better deal on something other than that they're wearing.
The oil companies are not the solution. If they temporarily cut prices, then the demand will go up. What we probably need is possibly even a--prepare to gasp--tax on top of the crazy high prices if and only if those monies are used to improve our transportation infrastructure.
Gotta run--I think I need to get a second mortgage to fill up the H2.*
*Disclaimer: I do not own an H2.
Posted by: Mac | April 25, 2006 5:32 PM
I totally agree, Mac. I'm just pointing out how rediculous their argument is that rising prices at the pump are driven soley by the rising costs of crude and refining. If that were true, their profits would remain flat, but we all know that ain't the case.
Posted by: Derek Phillips | April 25, 2006 7:41 PM
According to the AP, Bush has "called for the repeal of $2 billion in tax breaks for profit-heavy oil companies" (he also wants to "waive air quality laws").
Posted by: Jake![[TypeKey Profile Page]](http://poljunk.gloriousnoise.com/nav-commenters.gif)
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April 26, 2006 9:56 AM
Can you believe that we even have $2 billion tax breaks for oil companies? Jesus...
Posted by: Derek Phillips | April 26, 2006 10:08 AM
Derek, is your point then that oil companies should not have the ABILITY to make whatever profit possible? If so, we are talking about fucking with a market economy that works about as good as anything ever invented in history. Besides, they are a heavily regulated industry, generate jobs and technology, and take risks in order to make a profit just like any other business. They just happen to sell an in-elastic commodity.
Mac is right in suggesting taxing gas MORE would curb behavior... This would hurt the oil companies too.
But it's not the oil companies anger over this that politicians fear, but Bobby Joe and Mary Sue voter that do not want to be forced to change change their habits and will vote people out on their ass.
As far as subsidies, we do this for milk producers... have you noticed the price of a gallon of milk lately. It is artificially high and hurts struggling families.
Just think if we ran our cars on milk... we'd still be fucked!
Posted by: Eric Rojas | April 27, 2006 2:18 AM
There you are, the Free Marketeer!
I think it makes sense to have moderate regulation on essential products and services. What those regulations are, I'm not quite sure yet. I'm interested in what's being bandied about as a "windfall tax" on comapnies who post such incredible profits, especially when they get massive subsidies. I can't believe a free market Joe like yourself isn't outraged at THAT.
And I've been meaning to ask Free Market types if they believe there is any such thing as gouging? I mean, if people will pay outrageous prices, even in a time of crisis, then isn't the service/goods provider just playing the available market? When is it not OK?
Posted by: Derek Phillips | April 27, 2006 9:14 AM
Good point about gouging and subsidies. The oil business is a dangerous game and deemed necessary to all things American, so it is not surprising they producers can negotiate subsidies.
The problem with the gouging theory is, people wake up every day thinking there is a super duper crisis (read excitable news media) and rush to the pump before prices go up... then gas station owners are flooded... and raise the price.
Even if there is no immediate rush of the lemmings, news reports on Katrina, for instance, suggested over and over that it would put upward pressure on oil/gas prices. Most reports suggested we basically would dry up.
Now, if your the cheapest gas station on the block, and you get rushed... what would you do? What would you do with prices if the hurd was knocking your door down for GloNo swag?
BTW... your commentary is consistent and exhausting... I have no clue how you do it.
Posted by: Eric Rojas | April 28, 2006 1:18 PM