When gas prices rise, should the oil industries profit margin rise as well?

[Guest $iLk]

http://fpc.state.gov/documents/organization/51075.pdf

Food for thought... I haven't quite comprehended all of the data, but it seems to suggest that the oil industry has been reaping profits of 20% or more greater every year since 2002.

[LostInSpace]

There's ever growing demand and these companies know it. However, there hasn't been a new refinery built in the U.S. since 1976. Funny that.

[Kalshion]

Blame the enviromentalists.. they keep protesting and claiming it'll destroy the enviroment.. funny really when those same idiots drive vehicle's that polute the air and yet they don't protest that... hipocritical...

[jamotto]

quote:

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Originally posted by Kalshion:

Blame the enviromentalists..

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There are two more reasons as well

[*]Refineries are not particularly profitable

[*]Government red-tape.

[Wolferz]

Let's not forget that the lion's share of the price of a gallon of gas is state and federal excise taxes. Ya won't see them repealing that.

[Guest $iLk]

Georgia repealed theirs for a month. It's irrelevant as they are charging $6.00 a gallon either way.

[Darkling]

quote:

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Originally posted by $iLk:

http://fpc.state.gov/documents/organization/51075.pdf

Food for thought... I haven't quite comprehended all of the data, but it seems to suggest that the oil industry has been reaping profits of 20% or more greater every year since 2002.

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You really should read what it is that you are quoting. Net income has increased by 20% but the profit margins are only 9% in this industry. As a matter of fact, in the refining industry, net operating margins were -2% in 2002, why? Because adjusted for inflation, Gas is selling for the same price it did in the early 80's, that's right 20 years ago! yet today we live in a MUCH higher level of regulations and red tape then we had back then. So you tell me, if it looked like you were going to be losing 2% on every dollar put into a business, would you expand capacity? Heck NO. Let's face the truth, once all this blows over, Gas will be back to selling for around 2 bucks a gallon, which is about 30% less (adjusted for inflation) than what it was selling for 20 years ago, I know that's not an industry that I want to be in.

Wow you go though a ton of red tape, beurocrats, bullshit, environmentalists, and once you get to the level where you're makeing a 9% Operating Margin, Woohooo!!! WINDFALL profits, let's go back to killing the industry!

And by the way, just to drive home the difference between a 20% net operating margin, which is what you're making it sound like the Oil companies are making and a 20% rise in profitabliity, let me make this comparison.

If I was making 4% but now I'm making 5%, that's a 20% rise in profitability. Just because now, I'm making a 5% profit margin, doesn't mean I'm making a ton of money, I could put it in the bank and make more than that.

[Guest $iLk]

I've read some of it Darkling... but I do find it hard to comprehend all the data without taking a closer look at everything.

I don't know that price gouging is occurring, or if the 'free market' is in control, or if the oil giant's monopolies are simply fixing price controls.

In some instances, real dollars coming in is equal to > 100% increases each year despite consumption rising only marginally.

[Soback]

Alright, lets say that the oil companies are operating at 20% profit margin.

Hmmm...where do you think that 20 percent goes? How about building new wells, new equipment, new prospecing. That 20 percent means that the company can theoretically expand by 20% so that the growing consumption, meaning YOU, can put gas in your tank, heat your home, cook your breakfast, and buy new tires for that winter season. Do you want them to sell gas to you at break even price? And when the well runs dry, then what? Or how about when the demand grows? THINK. Where are they going to get the money to prospect, drill new wells, and buy new equipment if not from that 20%?

Another point, do you really think that they ententionally charge as much as they do per barrel of crude? Do you think that they would purposly charge you so much so that you couldn't afford their gas? That would put them out of bussiness. THINK. If nobody buys their gas, what good does it do them in their storage tanks as opposed YOUR fuel tank, or the gas that your stove runs on, or your house heater, the rubber products that YOU buy, ect....

STOP jumping on this bandwagon. THINK for yourself, the stupid people yell "the oil companies are killing us with their prices, thier profits are unfair", and every sheep on the planet joins in and starts bleeing, never bothering to actually THINK for themselfs what would THEY DO without those same oil companies, and what would the oil companies do without that profit margin. While those that do think, KNOW. Know that those sheeple who can't think and understand would devolve without the oil companies and their profits which allow them to expand, and go back to living in caves, heated with burning wood.

But then again, the envoromentalists would put a stop to that quick enough. Burning wood is bad for the forest, causes global warming, and as bad as second hand smoke.

[Guest $iLk]

Guy, I'm saying that their profits are INCREASING by 20% each year. So it's 20% one year, 40% the next, 60% the next.

And I am thinking for myself - that's why I posted a government report instead of Foxnews or Newsmax trash that some take as the gospel.

And read everything that I've written. I'm jumping on no bandwagon. As I've stated:

quote:

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I don't know that price gouging is occurring, or if the 'free market' is in control, or if the oil giant's monopolies are simply fixing price controls.

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I find it curious that along with prices increasing dramatically, that profit margins are increasing at an even greater rate. i.e. the Gas companies aren't pricing just to reap the same profit for selling the same amount of gas. They are pricing to double their profit as well. So a huge chunk of what we are paying *could* simply be a 'fix' that the oil industry is hoping to strain the average American to the breaking point in order to make more money.

That being said - post-Katrina pricing I'm not even going to begin to analyze due to real problems and needs to stop consumption.

I'm speaking about the gas price increases prior to Katrina. Obviously with the price of oil rising, gas prices needed to rise. But it is my contention that the oil industry has been increasing prices too high to take advantage.

If the costs of a barrel of oil rise a dollar, and the supply doesn't change, it is my contention that only the prices needed to recoup that dollar and profit the same or a little higher should be made.

That's the way the rest of the economy works.

[Soback]

First, I wasn't talking about you $ilk. You hear that statement about the oil companies from a lot of people, and I was just basically ranting.

Second, the price fluctuation fluctuates due to supply AND demand. Either one can influence the price. Lets say they pump out 100 barrels a day, and people consume 50 barrels a day. Well the oil would be cheap, in abundance. Now lets say people started consuming 90 barrels a day. Now the supply didn't change, they haven't drilled new wells, and it still costs the same to pump that oil out, however, now it's harder to come by a barrel of oil, the prices go up slightly since the supply still is higher than consumption. NOW, lets say the population started consuming 200 barrels a day, and the US oil compnies can't keep up, (I can go off on a spree blaiming government red tape, enviro mentals, and a plethora of other reasons), their costs to pump the oil are still the same, BUT they are working at full capacity, to satisfy only half the demand. The rest is IMPORTED which drives the price higher because of whatever OPEC or any other foreign power charge for their oil + transportation costs, WHY should US company charge the same as they did before when the demand was lower for their 100 barrels if they can charge more and YOU will still buy it? It's the law of supply and demand. That's why the prices are going higher and higher, ESPECIALLY around the huricane hit area.

A lot of gas stations there will be selling their STOCK and will not be receiving new deliveries for a WHILE. Thus effectively out of bussiness. OR even if they do recieve new deliveries, those will be delivered from farther away, so you can add the cost of that transportation to your tag. Also, remember that supply side, well guess what, now we (home companies in US) are not extracing as much as we used to, now EVEN MORE oil is imported because the internal supply dropped (Which barrel of gas costs more? OPECs, or the one delivered from GULF coast? I don't know, but I my bet is on OPECs). Then the demand side kicks in, and the rarity of availabe product (refined fuel). THAT'S why the price hit $6, a gallon, NOT because the oil companies are sitting there and thinking "Hey, let's charge up the wazzooo to those poor hurricane hit bastards". If I go up to the gas station, and want 10 gallons, and there's 100 others to offer the same price, and the gas station owner only has 50 gallons to sell, well guess what, he will sell it at the highest possible price, IT'S NOT FIRST COME FIRST SERVE, it's WHAT YOU ARE WILLING TO PAY. He will charge ONLY so much as 5 people out of those 100 would be willing to pay (10 gallons per person in this example), it would do him no good to charge lower because then he would be out of gas with little profit and out of product to sell, it would do him no good to have the price too high as nobody would buy that fuel, and it does him no good for that fuel to sit in his storage tanks.

Anyway, to wrap it up. The price will be climbing UNTILL people will not be buying it anymore at such a price, OR you will start to see serious economical consequences of such high prices. If there's oil however, you can trust the retail side to sell it for as cheap as possible, and still make profit, rather than for it to sit around collecting dust so to speak. Remember, when the fuel sits and doesn't bring in the dough, their people still need to be paid, equipment maintained, new wells prospected and build, ect...

[ 09-04-2005, 01:14 PM: Message edited by: Soback ]

[Grizzle]

It appears the oil profits tend to go more towards shareholders and mergers/aquisitions at this point. Not a lot being reinvested towards producing more oil/refined products.

An excerpt from this this report:

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Conclusion

Since oil price increases began in 2004, the oil industry has earned increased

profits. These profits might have resulted from other factors in addition to the

increased price of oil. A key factor in increased profitability might be the tightness

in the U.S. gasoline market, a factor related to the lack of enough refinery capacity

to meet U.S. demand for petroleum products.

If oil and petroleum product prices are to decrease, supply will likely have to

increase relative to demand. Expanded supply results from investment in the various

stages of the oil industry production process, from exploration and development of

new oil fields to increased refinery capacity. If the underlying economic parameters

and the regulatory environment are not encouraging, investment might not be

undertaken. Historically volatile prices and profit levels coupled with a tight

regulatory environment contribute to industry uncertainty.

Other legitimate uses for earned profits include paying higher dividends and

retiring outstanding shares, acquiring assets through merger and acquisition, and

investing in new product areas. These uses of profit may benefit shareholders and

strategically position the firm in the global market, but they do less to expand the

supply of oil and products on the market and thereby reduce prices for consumers.

As a result of significant time lags that tend to occur in the oil industry, it may

be too soon to know whether or not investments in the industry, if taken, will result

in the increased supply of oil and petroleum products needed to reduce prices and

consumersÔÇÖ costs.

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The down side to all of these high prices is (as Soback pointed out somewhere in his voluminous post) the market has proven it will bear $2 to $2.50 a gallon without much trouble, don't expect the prices to drop below the $2 mark ever again.

Time to start crackin' on alternative energy sources.

[Guest Remo Williams]

I would be happy if it was even close to $2 the lowest I've seen it in the last few years here in CA was about $2.60 for the most part of this last year the average is about $2.80.

If it droped down near $2 I would fall out from shock.

[Raziel]

I feel old. I can remember when people would scream bloody murder if gas went over a buck. o.o

[LostInSpace]

quote:

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Originally posted by Grizzle:

Time to start crackin' on alternative energy sources.

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I've been saying that for the past 20 years. Can you imagine if the government and private sector whole heartidly put all their efforts into this these past twenty years what fuel technology we'd have now. Instead, as usual, everyone waited 'till the horse bolted.

[Guest Remo Williams]

Yeah I know you guys have it bad over there as far as the price for fuel, and I feel for you. I don't know how you all do it and still put food on the table. It would flat kill me to have to pay those prices not because I don't have the money, but well to put it plainly I'm a tight wad. LOL! My wife damn near has to hold me up at gun point to get any cash.

I was refering to a gallon and here since we pay alot less for fuel it seems like highway robbery when it spikes up above $3 a gallon.

[John Prezioso]

quote:

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LOL! My wife damn near has to hold me up at gun point to get any cash.

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LOL! My wife has one, so I can't be too much of a tight wad!

But comparing Euro's prices to US prices is a little shaky for a number of reasons, not the least of which is the type of cars Euro's drive.

If our gas prices got as out of control here in the US, we would have no choice but to drive the same wheeled shoeboxes our friends across the pond drive!

[Marvin]

quote:

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Originally posted by Raziel:

I feel old. I can remember when people would scream bloody murder if gas went over a buck. o.o

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Try thirty-five cents.

And you filled 'er up at a service station ... meaning the attendant worked the pump and, while the gas flowed, washed your windshield and checked the oil.

[jamotto]

quote:

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Originally posted by Marvin:

Try thirty-five cents.

And you filled 'er up at a

service

station ... meaning the attendant worked the pump and, while the gas flowed, washed your windshield and checked the oil.

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On the old hickory stump again I see

[Darkling]

quote:

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Originally posted by nomad:

... So why don't you guys simply design a bit more efficient cars ? I mean just a decrease of 10% in fuel consumption could already lower tensions on your energy market.

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Because we Americans want it both ways, you see we want to drive the BIGGEST, most MASSIVE Vehicles on the planet, look at the runaway success of the HUMMER, a 6 Passenger Monstrosity that gets 4 miles to the gallon. Also don't talk to us about using more fuel efficient Diesels, we Americans only tolerate those things in "Work" vehicles like pickups. We want QUIET Engines, not the clickety clack of diesels. So of course if we have to yell and scream, clamp down on those EVIL oil companies and MAKE President Bush lower gas prices, well that's just what we'll do. Please don't talk to us about these Magical "Market Forces" how all our MASSIVE consumption of this diminishing resource is the primary cause for the price increases. We know that the Oil Companies are paying off the guy who invented the Carberator that gets 100 Miles per gallon and shut down the company that was going to make a car that ran on water. Just give us what we want or we will SCREAM!

[Soback]

quote:

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Originally posted by Darkling:

We know that the Oil Companies are paying off the guy who invented the Carberator that gets 100 Miles per gallon

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Actually it was about 65mi/per gallon

[Charles Lindsey]

Who is really to blame for high gas prices?

[Grizzle]

quote:

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Originally posted by Cmdr Chavik:

Who is really to blame for high gas prices?

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Not to mention those huge gas guzzling SUV's that place even more stress on the supply. Perhaps if gas prices were tied to the MPG of your vehicle people might reconsider. Getting 4 MPG will cost you 6 bucks per gallon, get 30 MPG costs you 1 buck per gallon. Ha, I'm dreaming and I know it.

[Darkling]

If they applied the Gas Guzzler tax and current fuel regulations to SUV's then you might see better fuel economy coming from these things. I drive a Toyota Sequoia, which I admit is pretty bad on gas, I get around 14MPG on average, but part of the problem is that they WON'T even offer a Diesel Engine option because, of course, deisel Engines cost a few thousand more to produce, but come on, I paid almost 50K for that vehicle, what's a few thousand more? If there were some sort of regulations in place, they would have done it, since Diesels get around 50% better Mileage.

The only other thing though is that Diesels are noisier, you hear that clicketey clack sound from them, but that doesn't bother me. I know that it does bother some people though.

[Soback]

quote:

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Originally posted by Grizzle:

quote:

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Originally posted by Cmdr Chavik:

Who is really to blame for high gas prices?

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Not to mention those huge gas guzzling SUV's that place even more stress on the supply. Perhaps if gas prices were tied to the MPG of your vehicle people might reconsider. Getting 4 MPG will cost you 6 bucks per gallon, get 30 MPG costs you 1 buck per gallon. Ha, I'm dreaming and I know it.

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Gas prices ARE tied to MPG. The less you get, the more you buy. Why should one pay lets say $5 a gallon if his car gets 15mi, and other pay $2 a gallon if his car gets 30. It makes no sense. What does make sense is them paying for the ammount they buy, with the guy using more, needing to buy more, therefore PAYING more, obviously.

A year (or two) ago, in Oregon, the government gave HUGE tax breaks for people who bought cars getting high mileage per gallon. What they realized when tax time rolled around is that their TAX REVENUE from gasoline sales dropped through the floor. The rats panicked, how would they pay for their social programs? And so the idea was born. Instead of charging state tax by the gallon of gas purchased, they started taxing people by the mile DRIVEN. So it doesn't matter if you drive a gas guzzling 10 mpg car, or a 50 mpg one, you drive up, punch in your licence plate, and your current miles on odometer. The tax is calculated based on your last and current odometer reading. Welcome to the looting socialism system, where they take from you, any way they can. The ODASITY to tax someone based on the DISTANCE THEY TRAVELLED of their own accord. By the same token of thought, next on agenda, taxing the distance travelled by bicycle, and then taxing the distance travelled by foot, that of course involves attaching tracking devices to each individual, but that's just a minor detail.