"Oil Executives Point to Supply and Demand in Explaining Profits"

The bastards.

Comments

[an-cap]

i DEMAND that the oil companies SUPPLY me with prfoits. So said the government educated anarcho-capitalist

[kwais]

Sean Hannity, on 'Hannity and Combs' said today that if the Senators were so concerned about price gouging, then they could stop gouging on the 60 cents per gallon of taxes.

I second that. I do think that gas taxes are one of the few places that I like to see taxes, but still. I second that motion.

So now Bill Frist joins the rank of Republicans that I will never vote for, should he run as president.

So now McCain and Frist join the ranks of people who I will not vote for even if they are running against Hillary.

I think I would vote for DeLay though, for his mug shot alone. De Lay and Condolezza Rice are good with me.

[M1EK]

"Sean Hannity, on 'Hannity and Combs' said today that if the Senators were so concerned about price gouging, then they could stop gouging on the 60 cents per gallon of taxes."

Hell, if we really wanted to pay for all of our roads with the gas tax, it'd have to be about a buck-twenty a gallon. In other words, shut up; you're getting a good deal.

[kwais]

I am not getting a good deal. Unless the money to pay from the roads appears magically, it means they are taking money for the roads from some other enterprising tax.

How did you come up with the buck twenty figure?

[Stretch]

Hell, if we really wanted to pay for all of our roads with the gas tax, it'd have to be about a buck-twenty a gallon. In other words, shut up; you're getting a good deal.

That's not the point. The point is that taxes account for a substantially greater portion of gas prices than profits do. If you want to pay $1.20/gallon in taxes to fully pay for all of our roads that's fine, but then don't come whining that the price of gas is too high.

[M1EK]

kwais,

Where to begin. Suffice to say this is my bread and butter - start with "road subsidies" on google and be prepared to spend weeks. Most of the missing money for road construction and maintenance comes from property and sales taxes; some from income taxes. (you obviously pay the same amount of each whether you drive a lot, a little, or none at all).

[jf]

Hell, if we really wanted to pay for all of our roads with the gas tax, it'd have to be about a buck-twenty a gallon. In other words, shut up; you're getting a good deal.

It's true! Because the rest of the money required to "pay for all of our roads" comes from the magical road-funding money tree, where dollars are free and nobody ever has to worry about repaying them.

Dumbass.

[kwais]

Have any of y'alls read, or heard of the bood "The FairTax Book", by Neil Boortz and somebody else?

I like that book. It proposes a retail tax of 23% and no income tax at all. I really like that idea.

Of course a gas tax that pays for the roads would be cool. Also cool would be alloweing drilling in ANWR and allowing more refineries to be built.

[kwais]

Also, does anyone know why there are only six oil companies. Is there anything from stopping me and two well funded partners from starting an oil company?

[Stretch]

I'm half and half on Boortz, but I thought the FairTax book was excellent(once you get past Boortz being Boortz) and answered most of my questions. I have yet to read a compelling critique of the plan. It's clearly superior to our current tax system.

[fyodor]

(you obviously pay the same amount of each whether you drive a lot, a little, or none at all)

Meaning, all other considerations aside, that you're getting a good deal if you drive a lot but a bad deal if you drive a little.

But then I suppose that's M1EK's point, that the gas user is getting a good deal, although that leaves out the possibility that privitizing roads would be an even better deal, for all.

Anyway I agree that bringing up the gas tax in regard to increased gas prices is bogus, but then the complaints over high gas prices that it's a response to are even more bogus.

[Rick Barton]

From restricting domestic exploration and extraction to impeding the construction of refineries so that one hasn't been built here in well over two decades, the government has done much to restrict the supply, and the number of suppliers, of petroleum products. This cuts back the competition, which of course tends to engender larger profits for the suppliers who are able to clear the government hurdles.

So now the idiot liberals want to do further damage and tax these profits more excessively which will discourage production and increase prices.

[SM]

kwais,

You might want to read this before you go looking for venture capital.

http://www.cato.org/research/articles/taylor-050603.html

[Jim Walsh]

In a perfect world we'd have a retail tax and no income tax. Real-world politics being what it is, I suspect we'll ultimately end up with both.

[kwais]

I get from that article that more refineries have not been built because it is not economically feasable, rather than because of environmental rules against refineries.

So the fact that there are many rules against refineries is myth?

[matt]

Just saw Sununu's commentary on C-span, and was frankly shocked that a senator in this day and age could make that much sense.

[Ron Hardin]

``Fair Tax'' critique :

It instantly confiscates 23% of your savings.

You've already paid income tax on your savings. Now when you spend them (say in retirement) they buy 23% less because you have to pay the tax again.

You can't move the point of tax collection later in the earn-tax-spend cycle without hitting people twice on the same earnings.

Anybody who is about to retire will be screwed by this tax.

On the other hand, a flat tax is just about perfect.

[Solitudinarian]

On the other hand, a flat tax is just about perfect.

And a poll tax is perfect.

[Happy Jack]

Suffice to say this is my bread and butter

I'll concede your appeal to authority. Perhaps you can be more specific and point me to an academic study of road subsidies.

[Dave W.]

The customer pointed to antitrust law and subpoena'd and FOIA'd meetings where Dick Cheneny used to go as VP.

Now that ppl realize that the nat'l security concerns of 2002 and were overblown and further that Cheney ratted out a US agent, courts begin to grant the subpoena's and FOIA's. Then we all come back here and talk about what the oligopoly said to the gov't in 2002.

That would be a lot more enlightening than this crap post.

[thoreau]

What bugs me is that many (not all, but many) of the same people who think the gov't should do something about high oil prices also think that we should consume less oil.

I'm not accusing anybody in this thread of that hypocrisy, it's more a general observation.

[Steven Crane]

A national sales tax replacing the national income tax is regressive by nature.

If you -want- people of lesser income to pay a larger portion of that in taxes, that's fine and dandy so long as y'alls admit it.

[Warren]

Ron,
The flat tax is bogus. One can argue that an indexed tax rate is a bad idea (I'm not convinced) but that is a minor issue. The problem with income tax is the umpteen odd tons of tax code. All of which exists for the sole purpose of determining what is 'taxable income'. Flat tax proponents like to think they'd blow away all that code, but taint so. What if you get paid in chickens? What about charitable contributions? What about the home mortgage deduction? And it so it goes.

A sales tax is of course susceptible to the same sort of special interests corruption. Still a fundamental evil of the government requiring each and every citizen to provide a detailed accounting of everything they've been up to in the past year will be avoided.

[quasibill]

Kwais -

I believe the point of the Cato article is that while, yes, there are onerous (although sometimes justifiable) regulations on oil processing, that constitutes more of a barrier to entry in the market than a hindrance in building refineries. If the market needed more refineries, the current market players would build them, but the evidence suggests that the current refining capacity is just about right. So relaxing all the regs wouldn't result in more long term refining capacity - it might result in new, innovative market players, but any increase in capacity in one area will likely be offset by a decrease somewhere else.

[Warren]

S Crane
Actually, the Fair Tax as it's being proposed is progressive in terms of placing a lesser burden on poorer consumers. First of all, the plan calls for the government writing everyone a 'prebate' check to offset the first X amount of tax. Also the Fair Tax is a sort of VAT tax where items are taxed only once and not on resale. Therefore, buying used goods avoids tax.

[M1EK]

"I get from that article that more refineries have not been built because it is not economically feasable, rather than because of environmental rules against refineries.

So the fact that there are many rules against refineries is myth?"

Not a myth precisely - in some states it would be nearly impossible to build a refinery. But for every California, there's a Texas, where we'll import your baby seals, club 'em for you, and send 'em back next-day delivery.

[M1EK]

Me: "Hell, if we really wanted to pay for all of our roads with the gas tax, it'd have to be about a buck-twenty a gallon. In other words, shut up; you're getting a good deal."

jf: "It's true! Because the rest of the money required to "pay for all of our roads" comes from the magical road-funding money tree, where dollars are free and nobody ever has to worry about repaying them."

"WITH THE GAS TAX". Maybe I should have used the blink tag.

"Dumbass."

Double dumbass on you.

[joe]

Supply and demand would explain prices rising. They wouldn't explain profits.

[MP]

Supply and demand would explain prices rising. They wouldn't explain profits.

Yes they would. As imbalances in Supply and Demand sort themselves out, profit opportunities arise. They wouldn't explain indefinite profits, but they would explain short term profits.

[MP]

Hell, if we really wanted to pay for all of our roads with the gas tax, it'd have to be about a buck-twenty a gallon

When all of the money collected in gas taxes is actually allocated to road maintenance, instead of getting sucked into the general fund, then maybe I'll start believing that we aren't fully funding our highway system.

Of course, this varies by state. But CT sure as shit isn't putting all of its gas tax revenue back into the roads.

[joe]

Rick,

Refinery capacity has increased by roughtly 1/3 over that 20 year period. The fact that the petroleum companies have increased their operations to meet demand by building and retooling on site, rather than by building new sites, doesn't keep me up at night.

thoreau, "What bugs me is that many (not all, but many) of the same people who think the gov't should do something about high oil prices also think that we should consume less oil."

Yes and no. A lack of other transportation options and auto- and fuel-intensive community designs make it difficult for many Americans, particularly low/mod income Americans who can't just buy a new car of a new house, to significantly reduce their fuel consumption.

[joe]

MP, zero (0) percent of the road maintenance done by municipalities in Massachuetts comes from the gas tax. It is all paid for by property taxes.

Just as funds from other revenue sources are put into roads at the federal and state level.

[joe]

MP,

A boom in supply that reduces suppliers' costs could well generate short term profits via the demand curve, as a drop in the retail price lags the drop in the suppliers' cost.

But that's not what we're talking about. We're talking about an increase in the suppliers' costs, which is followed by the suppliers raising retail prices well above that increase. And, hey, look at that, they ALL made the same mistake in guessing how much they needed to raise their prices to maintain their profits. Not one of them managed to get it right and have significantly lower prices, thereby grabbing market share, as economists would predict.

"Oil cartel" doesn't just refer to OPEC.

[Phil]

Also the Fair Tax is a sort of VAT tax where items are taxed only once and not on resale. Therefore, buying used goods avoids tax.

Otherwise known as "The Plan Where Now Poor People Can't Even Afford Wal-Mart And Have To Shop At Goodwill."

I am not, in general, a Tax Fan, but in the heirarchy of taxes, I'm really not a regressive tax fan.

[Russ D]

zero (0) percent of the road maintenance done by municipalities in Massachuetts comes from the gas tax. It is all paid for by property taxes.

This makes people who live in walkable neighborhoods suckers then, doesn't it? If you're gonna pay for roads, you may as well use them.

(cue joe's rationalizations...)

[joe]

Phil,

Maybe a beefed up EITC/Reverse Income Tax/Guaranteed Minimum Income element could address that.

[joe]

Ah, Russ D brings out the "sunken cost" fallacy...

If I've already paid, I need to use the resource, even if it's not in my interest to do so. Yep, great logic there. That's the way to maximize.

[joe]

Hey Russ, if you buy a truckload of horse shit for your garden, and you only need half a truckload, and the garden center won't give you a refund...do you eat the rest?

[MP]

What if you get paid in chickens? What about charitable contributions? What about the home mortgage deduction? And it so it goes.

A flat tax is not a tax on cash, but a tax on income. That includes assets such as chickens. Charitable and mortgage deductions are not a legitmate part of a true flat tax plan.

Where I differ from Hall and Rabushka is that Capital Gains should clearly be included as income. Any assets added to your balance sheet are income. The only assets I wouldn't include are inheritance gains.

[Phil]

joe, maybe but then it seems to me that not only aren't you uncomplicating the tax code all that much -- with determining who is eligible at what income levels for what credits, and what counts as income -- but you're going to really decrease overall tax revenue. If part of the collected tax is redistributed back to poorer people as an EITC/negative tax plan, and since the rich wouldn't care all that much about the tax either way, you shift the burden almost completely to the middle class, who will simply buy fewer things, just as they would if prices went up on their own. So not only does revenue go down, you risk a recessionary consumption pattern.

Don't get me wrong -- I'm in favor of smaller government, but that seems a back-asswards way of getting there.

As to the topic, I'd love to see some of those $3/gallon complainers spend a couple of weeks in Europe. $3 seems like a bargain to me.

[Sandy]

Joe, if the garden center was charging you for a full truckload whether or not you had a garden, your analogy might not be full of crap (ahem). In that case, you might be tempted to plant a garden anyway, since you're already paying for it. Utilizing it would be a way of maximizing, since the cost of a vegetable garden would be artificially low compared to some other activity or home improvement you might make (such as more insulation).

[alkurta]

I think some of you are forgetting about domestic oil production. Oil on the international market rose to a price of around $70 a barrel. So, oil you bought from Saudi Arabia costs $70 per barrel but oil you are pumping out of the ground in Texas may only cost you $10 - $20 a barrel but you can still sell it for $70 a barrel in the commodities market. This has got to play a major part in the recent profit increases.

[MP]

Sunken cost fallacy? We're talking about current and future road maintenance costs, not existing infrastructure costs. From a user fee perspective, if people don't use roads, then they shouldn't have to pay for their upkeep.

[Phil]

This makes people who live in walkable neighborhoods suckers then, doesn't it? If you're gonna pay for roads, you may as well use them.

Right, because there's no additional cost in owning and maintaining a car. Except for the gas, maintenance, licensing, inspection, taxes and payments it's completely free!

[John]

Lets think about this for a minute. What if you make it nearly impossible to explore new oil and gas fields in places like ANWR and off the shore of California, what does that do to the value of existing reserves? What if you make it impossible to build new refineries, what does that do to the value of existing refineries? Big oil is getting rich because environmentalists have made it impossible to find and exploit new oil and gas reserves or build new refineries thus driving the value of the existing reserves and refineries through the roof. Its good to know that the Sierra Club is looking out for the profits of big oil at the expense of the consumer.

[joe]

But Sandy, Russ D's example was of people for whom walking is more convenient, and whether they should drive instead just to get their money's worth. Driving more wouldn't gain them anything, unlike a bigger, more productive garden.

MP, that's a different issue than what Russ D was smart-assking me about. But as far as "users pay," auto drivers "use up" the roads hardly at all. Almost all of the maintenance and repair costs done to the roads are the result of eighteen wheelers.

Shorter John: "Please nobody notice that refinery capacity has gone up and that ANWR contains an insignificant amount of oil."

[hmm]

screw the oil companies, I'm pissed at all of you. You are all price gougers, selling things on ebay for more than they are worth, selling your homes for 2 times the value you paid for it 3 years earlier, selling your labor to companies for more than it's worth. What about the IT guy who works for Exxon and demands an 80k a year salary for what, setting up damn email? Price gouging I tell you, Exxon should be pissed, we need hearings as to why provisioning computer networks costs so much today. Don't even get me started on big Medical, jeez, $100 for a 5 minute doctor appt? The gaul.

[kwais]

I am still not seeing a good argument against the "FairTax" or the retail tax. It is not regressive. It might cause people to buy less new stuff and cause less new stuff to be sold, and less taxes collected. But that would kind of fit right in with a "waste not want not" philosophy.

As for the poor. It seems to me that they seem to be buying plenty at Walmart right now. I doubt a 23% increas in the cost will affect them that seriously.

As for those who have been paying taxes on their imcome for all this time being screwed. Hey better to stop people from being screwed now. Also a lot of these people are the selfish bastards who insist on keeping SS alive to the detriment of their grandkids

[jeffiek]

Not one of them managed to get it right and have significantly lower prices, thereby grabbing market share, as economists would predict.

Why on earth would anyone go for market share in an environment of uncertain supplies? The logical result would be to run yourself out of product (and business). The rational thing to do is to raise prices to stretch existing supply and cover the cost of replenishment.

Which is exactly what happened.

[Cliff]

I'm no economist. That being said, don't price increases follow scarcity? After the price increases, the consumer can choose to conserve or pay the increased costs. I see the profits as replacement costs for future oil consumption.

Oil companies are going to end up spending a lot of the profits on rebuilding infrastructure after Katrina et al. Personally, I have seen falling prices for gasoline in the past week or so.

As to the proposed "windfall profit tax", who is going to benefit from this? I'll bet it won't be the consumer. Something else to consider is the amount of taxes being collected on gasoline already. IMHO, the federal government is no better than the oil companies in this regard. Who will investigate the feds for increased taxes?

[Russ D]

joe,

I'm talking about subsidizing, not sunken costs. It's not a question of needing to use the resource because you paid for it, but the result is the people walking are subsidizing the people driving. Which lowers the cost of driving which tends to attract people to the activity.

[Phil]

It might cause people to buy less new stuff and cause less new stuff to be sold, and less taxes collected. But that would kind of fit right in with a "waste not want not" philosophy.

Well, yeah, in the sense that lowered consumption, lowered production, and lower revenue is what people generally refer to as "a recession." Not a good idea.

As for the poor. It seems to me that they seem to be buying plenty at Walmart right now. I doubt a 23% increas in the cost will affect them that seriously.

You don't think a nearly one-quarter price hike on everything, all at once, would significantly affect people who live paycheck-to-paycheck? Really?

[T]

Can I just point out a simple fact that appears to have been overlooked by most everyone except the people in the oil industry? Oil companies profits are only "excessive" when viewed as a flat dollar figure. But here at Reason, we're all bright enough to know that what's important are things like profit as a percentage of revenue and measures that try to normalize for the size of the company, right? ExxonMobil has a profit margin of just over 10% for the past year. Is that excessive? If so, why aren't they picking on Pfizer, which has a profit margin of over 15%?

The oil industry makes a boatload of money because it's huge. When your annual revenues are in the hundreds of billions of dollars, any profit margin worth mentioning is going to generate an absurd amount of money.

Of course (full disclosure) I work in the industry, so I have a vested interest in not seeing more asinine regulation or taxation piled on.

[Russ D]

zero (0) percent of the road maintenance done by municipalities in Massachuetts comes from the gas tax. It is all paid for by property taxes.

Almost all of the maintenance and repair costs done to the roads are the result of eighteen wheelers.

joe, keep swingin'. You'll hit the ball eventually. But I'm sure you'll attribute that to "skill".

[Francisco Torres]

Kwais,

For a good criticism on the "Fair" tax idea, please see:

http://www.lewrockwell.com/cox/cox8.html

[Perry]

"Supply and demand would explain prices rising. They wouldn't explain profits."

Joe,

I read somewhere that I wish I could remember (maybe even here?) that the reason behind this is as prices spike, people are more price inelastic and will spend the timeto shop around for the best deal - this keeps prices somewhat in check. On the way down, people are less sensitive to price and shop around less, therefore gas retailers can step prices back at a slower pace, and thats where the real profits come from.

[Crushinator]

Microsoft's profit margin last year was 30%. They are the ultimate gougers. They engage in monopolistic practices. They sell overpriced operating systems that are loaded with bugs and security vulnerabilities. Microsoft encourages employees to rat on their employers through the Business Software Alliance. I refuse to purchase Microsoft products if a reasonable alternative exists.

I agree with joe that the recent increases in gas prices were suspiciously similar for the competing oil companies. Is this really open competition or collusion?

[ChicagoTom]

The American Prospect had an idea that sounded interesting. Instead of the gas tax why not just tax crude oil.

Thoughts, comments ??

[jm]

How much of current Alaska oil production actually stays in the United States?
Would all of ANWAR production stay here?
How much in government subsidies are oil companies receiving that they may not need if reaping huge profits?

[downstater]

How about a sales tax in which people pay a rate based on income? Submit receipts and income information and that is what you pay in taxes. That way only consumption is taxed - which is what is better about sales taxes - but it is not as regressive as a flat rate.

I did not think up myself. I heard it somewhere else. I also think that it would be near impossible to administrate since I don't keep every receipt of chewing gum over the course of a year. But perhaps a variation of something like this? I'd be curious to hear people's thoughts.

[Stretch]

You've already paid income tax on your savings. Now when you spend them (say in retirement) they buy 23% less because you have to pay the tax again.

That's an excellent point, however, it assumes that none of the money spent from retirement savings under our current system is being paid for taxes. They're alreadly paying approx. 22-25% in taxes for every already-taxed-dollar they spend. In other words, it's a wash. But given the increase in investment the FairTax will bring and the monthly prebate, retired people will do better than they are now. Yes, not as well as someone who worked and saved for 30 years under the FairTax, but better all the same.

Otherwise known as "The Plan Where Now Poor People Can't Even Afford Wal-Mart And Have To Shop At Goodwill."

As for the poor. It seems to me that they seem to be buying plenty at Walmart right now. I doubt a 23% increas in the cost will affect them that seriously.

Again, while there would be a temporary spike in prices, they would lower over time (very quickly in most cases) to reflect the significantly lower overhead. A product that costs $1 today would ultimately not cost $1.23 under the FairTax, because approx. $.22-.25 of the cost now is directly due to various taxes that would be eliminated under the FairTax. Assuming that 22% that $1 product would now cost $1.01. Perfect, no, but hardly the price "catastrophe" that people assume. Assuming %25, that product will only cost $.98 under the FairTax.

If you -want- people of lesser income to pay a larger portion of that in taxes, that's fine and dandy so long as y'alls admit it.

While they pay little or no income taxes, they are burdened with about 15% in various payroll taxes. Once you include the monthly prebate, the FairTax will actually lessen the tax burden for the poor. Let's review: the poor get to keep all of the money they earn, they are never taxed on basic necessities, and extraneous goods and services will cost about the same as they do now. How is this in any way unfair to the poor?

[Stretch]

As for the poor. It seems to me that they seem to be buying plenty at Walmart right now. I doubt a 23% increas in the cost will affect them that seriously.

Should have been in quotes above.

[MP]

Is this really open competition or collusion?

Competitive price pressures are not automatic. Capitalizing on fear may be unseemly, but it is not illegal and not collusion. It should come as no surprise when a set of vendors take advantage of the same market conditions at the same time.

[Jonathan Richman]

"Supply and demand would explain prices rising. They wouldn't explain profits."

joe, not directly, but indirectly, yah sure.

Actually, I've heard that one reason this happens is that while the oil companies buy most of their crude from others, they do a fair amount of their own drilling and pumping as well. So when prices go up, the value of their own production goes up. And profits go up.

I remember when I joined the company I'm at now back in late '97, the folks giving the presentation on our 401K plan said that it was a very conservative plan that invested for the long run. As an example of how they worked, the presenter guy said they invested in the oil indudustry because oil prices were "down" at the time and would surely go up someday, making this a good long term investment. Assuming the oil industry stocks have gone up in response, I suppose this investment company was pretty smart, and this petit bourgeouis office drone is reaping the benefit. Yay capitalism! Well, maybe I'm not benefiting as much as high gas prices hurt me, I'd have to do a lot of research to calculate that. Either way, unless the increased prices are caused by some new government intervention or by collusion, they're caused by supply and demand, which I can do nothing about regardless, and the high profits result in turn.

[fyodor]

God damn name change post.

[alkurta]

In regards to the oil that leaves Alaska, I read somewhere (maybe here) that due to the cost of transporting the oil, it is more economical for the Japanese to buy their oil from Alaska, then substitue another tanker from the Middle East that would have gone to Japan and send it to America.

[Stretch]

For a good criticism on the "Fair" tax idea, please see:

http://www.lewrockwell.com/cox/cox8.html

His major points are that it's not libertarian enough because it accepts government spending as it is and that it's impractical because politicians will never let it pass as it is written. Both fair points, however it seems a little silly for someone at LewRockwell to bemoan that someone else's ideas will not be accepted by politicians.

Again, the difficulty in passing the FairTax is enormous. It's perfectly legitimate to say that politicians will add so many clauses as to render it useless, or that the 16th will never be repealed, or that it offends your sensibilities since it accepts current levels of government spending (although this last only to give it any chance of passing whatsoever). But to me, these are not critiques of function but critiques of the current political establishment.

Honestly, almost anything would be better than our current tax system. But given the choice between taxing my income (especially witholding) and taxing my spending, I'll choose the later. Sure, I'd rather pay no taxes at all, but who wouldn't? Everyone but the real anarchist accepts that some form of taxation is necessary to have even a minimally functioning government.

[joe]

jeffiek,

"Why on earth would anyone go for market share in an environment of uncertain supplies?" Because the uncertain supplies are known to be temporary.

Cliff, "That being said, don't price increases follow scarcity?" Yes, of course they do. A price increase was an inevitable result of the disruption of the supply chain. However, a price increase that was attributable entirely to the scarcity would have resulted in roughly steady profits, not record profits. How many other businesses can you think of that see record profits when, and as a result of, a significant increase in their cost of doing business? This suggests to me that the demand curve is not the only factor at play here.

T, I agree that the profit margin, not absolute dollars, would be a better measure. That said, businesses operating from supply and demand pressures are expected to see a dip in their profit margins when their operating costs increase, as at least some of their buyers' demand is elastic. That's what happens to gas stations - most of them saw falling profit margins as a consequence of the price spike this summer.

Perry, that's an intersting insight.

[joe]

MP,

"Capitalizing on fear may be unseemly, but it is not illegal and not collusion. It should come as no surprise when a set of vendors take advantage of the same market conditions at the same time."

Yes, and when Congress considers its tax breaks, subsidies, and other actions that the oil industry's lobbyists make noise, positive or negative, about, it is good for them to note how public-spirited the companies have been in their operations.

[fyodor]

How many other businesses can you think of that see record profits when, and as a result of, a significant increase in their cost of doing business?

See my explanation above.

This suggests to me that the demand curve is not the only factor at play here.

What other factors do you suspect? If it's collusion, why weren't oil companies colluding before? Clinton stopped them, I suppose?

[joe]

fyodor,

Oil companies have been colluding for a long time. Politicians only become conerned about it when they hear from their constituents, who generally only make noise during extreme situations.

[Brian]

Oil companies have been colluding for a long time.

If so, then they're the most incompetent colluders in history. Why did they ever let gas fall below $1/gallon?

[fyodor]

joe misses my point. What is different now than before prices went up, aside from supply and demand? As I already suggested, one can easily claim that the oil companies were afraid of Clinton but not of Bush. Maybe joe doesn't want to claim that because there's no evidence for it? Anyway, joe also ignores my, or should I say, Jonathan Richman's explanation for why oil company profits go up when the price of oil goes up. Actually, I was curious about the very same thing when I heard that presentation back in '97. I kept my eyes open and found an article that explained the phenomenon. Take note joe, I read this several years ago, it's not something made up to shill for the oil companies over the current situation. Now okay, I don't have any links, and you don't have to believe me. But the thing is, it actually makes sense.

[MikeP]

Supply and demand would explain prices rising. They wouldn't explain profits.

If I find diamonds in my backyard garden and can dig them up for nothing, I can form a corporation that will make astonishing profits indefinitely. My company's production costs are way below prices, and will be for the foreseeable future.

The typical giant oil company has oil fields, oil inventories, and refineries. When there is a shock in supply, price goes up -- obviously as you note. But profits go up too. The cost of operating the oil fields hasn't changed. The cost of storing the oil hasn't changed. The cost of operating the refinery hasn't changed. But the price of the oil it can sell from its fields and inventory and the price of the gasoline it can sell from its refineries all have gone up.

That is what explains profits. And in general this is not exclusively a short term condition. The profits will be higher than the prior norm as long as demand keeps the price elevated.

[MikeP]

And in general this is not exclusively a short term condition. The profits will be higher than the prior norm as long as demand keeps the price elevated.

Note that in a competitive market -- which the oil market certainly is -- this condition generally won't last for long. In particular, the giant oil company will raise its production -- raising its costs as well, else it would have run the higher production already -- to supply more product and grab more of those profits garnered at the high price. In this range, total profits still go up, but profits as a percentage of revenue go down.

And, by the way, more consumers are supplied with a product that they clearly want, and the higher supply pushes the price down as well.

Everyone is happy but the demagogues.

[Rick Barton]

joe:

Refinery capacity has increased by roughtly 1/3 over that 20 year period. The fact that the petroleum companies have increased their operations to meet demand by building and retooling on site, rather than by building new sites, doesn't keep me up at night.

Two points: #1) If refinery capacity has indeed increased by roughly 1/3 over the last 20 years, has that really kept up with demand?

#2) And most important, the dearth of any *new* refineries means no new entrants into the market and that exerts a force for higher prices and higher profits for the existing competitors.

[Joe]

Joe,

Its amazing the misinformation you get from getting your information from Mother Jones. Its not just ANWR, and its not just oil, its natural gas. Nearly our entire coast line and huge gas reserves in the Rockies are totally off limits. Yes, refining capacity has gone up, but not enough to meet demand, moreover, its concentraited on the gulf coast and vaunerable to hurricanes. The bredth of your ignorence and misinformation about so many topics is nothing short of staggering.

[Stretch]

kwais,

Like I said, I think a consumption tax is better than an income tax, and the FairTax Plan is the only realized consumption tax plan that answers well the most basic questions. It's not perfect, but it's merits and deficiencies should be debated about the plan itself, and not about misconceptions and the political establishment's own power.

Honestly, overall the book is subpar but useful. You can get all of the pertinent info over the web if you can wade through many of the purposely shallow critiques and many of the purposely blind hosannas.

I've already taken too much away from this thread, so I won't comment again here about this, but seriously look at all facets as proposed by both the supporters and the detractors. Finally, I have not found a serious, functional critique of the plan as it is written. That does not mean it's error free, or necessarily the best plan.

That said, the two comments that I hear all the time are that everything will cost 23% more, which is ultimately false, and that it is regressive in nature, which is worth debating if you only consider income (and not payroll etc.) taxes. At the very least this plan does not further disadvantage the poor, even if it doesn't make everything A-Okay!. I'm going to stop talking about this now on a thread that really has nothing to do with this but at least it's pretty far down in the list now.

[Dave W.]

When your [industry's] annual revenues are in the hundreds of billions of dollars . . .[/i]

. . . then your industry should have at least hundreds of independent competitors, if not thousands, but certainly a lot more than 5 or so.

[MikeP]

. . . then your industry should have at least hundreds of independent competitors, if not thousands, but certainly a lot more than 5 or so.

I just went to Yahoo Finance and found the following number of companies in the following three industry subgroups:

Major Integrated Oil & Gas: 44
Independent Oil & Gas: 140
Oil & Gas Refining & Marketing: 200

I did not go through and count companies in the Oil & Gas Drilling, Exploration, Equipment, or Services industries, where the number of companies gets tediously large.

Granted, it is too bad that oil and gas are lumped together: it looks like quite a few of these may be natural gas only. Also some look like plain electrical generation companies, so I don't know why they're here and not under utilities. In all fairness I'm not an expert in either finance or corporate taxonomy.

But I am curious about your exhaustive search. How did you manage to cull 300-something companies out of such a list to come up with the 5 you identified as independent competitors? Or did you simply turn on C-SPAN and count all the oil companies that were big and evil enough to be chastised in front of a Senate committee...

[Bob Smith]

>Hell, if we really wanted to pay for all of our roads with the gas tax, it'd have to be about a
>buck-twenty a gallon.

Really? You are aware, are you not, that automobile-related taxes (including registration fees, license fees, sales tax on auto sales, auto repairs, and fuel, gasoline and oil excise taxes, income taxes on auto-related business, and probably other taxes I've missed) are for the most part not actually spent on road building and maintenance? They are spent on subsidizing public transit, boondoggles like light rail, or just funneled into the general fund to be spent on whatever. That autos don't pay for themselves is a myth.