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

[Darkling]

quote:

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Originally posted by Grizzle:

Darkling, that's hardly the trend for the oil industry. Over the last several years the trend has been towards consolidation through multiple mergers. Market competition hasn't been and likely won't be an issue in the oil industry. We're headed towards monopolies, which make it even harder for startups.

http://www.ftc.gov/opa/2004/08/oilmergersrpt.htm

The other problem is that they have not been investing those profits in improving the infrastructure. I posted a link about that somewhere earlier in this thread.

Just watch and wait, this issue will become greater as time goes by and elections get closer.

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Whenever you see consolidation in an industry, it's because it's been deemed that it's more profitable to buy out your opponents, than it is to expand your business by other means. Usually, you can only buy out your opponents, if they are posting poor profits. If an opponent's profits are increasing at say 30% a year and the outlook seems the same, then that company usually will trade for around 30X profits. An INSANE level for any company to purchase at that price. However, when profits are flat, the company usually trades for around 5 to 10X earnings, and at that level is where all the Mergers and Aquisitions take place. The thinking is that with the Merger of Backend processes that the customer doesn't see, and the elimination of overlapping territorial assets, there would be more profits to be had.

However, if the trend in the Oil and Gas industry was "Record Profits" you would not see these mergers at all. Instead you would see increased players, and increased competition, which in turn would lower prices. Just as what happened in the late 70's, which caused energy prices to collapse by the 80's and lasted for around 20 years.

Also, how do you think they would make it harder for startups, by Lowering prices? Hmmm, who would that benefit? No the only thing that is making it harder for startups is the excess regulation of this industry.