Liberals Get What They Wanted...High Fuel Prices

Yes, I did, Joseph. I agree with the first three.

The fourth one was populist nonsense that won't lower the price of gasoline.


By the way, I don't like paying $2.85/gal. for gasoline as it is locally. But I understand the economics of it.

 

I, also, understand the economics of it every quarter when the record profits come in for Exxon Mobile. That is why I get this feeling that they don't really HAVE TO jack the prices so high and that all these excuses they feed us is simply a bunch of bull.

Joseph Botwinick

 

Ken

You are a voice of reason and truth in this national debate which seems to be more interested in sound bites and political positioning. You and I don't agree all the way down the line, but I like your logic.

The correct way to look at this is to examine the economics of the situation. And the reality is that we are in a situation where we have a constrained supply and a high demand for oil and gasoline.

Why? Well in the long run there are a few reasons. Perhaps most importantly is the effect of the rapidly developing economies of parts of the world, especially in India and China. This demand is putting a great strain on the supply of oil. To me, the second factor is the lack of any sort of move towards conservation by Americans. This keeps the demand high. Finally, there are the constraints put upon the supply by the restrictions on new oil supplies and on new refineries. My personal opinion is that opening up areas such as ANWR or the Florida coast to oil exploration would have only a modest effect on world oil prices.

(It should also be noted that the current price of gas, while driven largely by the high worldwide price of oil, has another component. There is curently a constrained supply of gasoline due to both the switch from winter to summer fuel blends and due to the switch from MTBE to ethanol in these blends.)

We should also look at the economics of those "obscene" and "record" profits.

If I recall correctly, the price of Exxon stock dropped when their recent record quarterly profits were announced. Why? Because the profits were less than what was expected. More importantly, one should look at how much profit the oil companies make per dollar they spend. They make less than 10 cents on the dollar. That's not much. Most profitable businesses do much better than that.

But if some think that the oil companies are gouging, then perhaps they should enter the commodities market. Go buy your own oil futures. Buy and sell gas on the NYMEX or the Henry Hub. Good luck. You'll need it.

And just what is wrong with charging what the market will bear? When oil was $10 - 20 a barrel and gas was cheap, do you not think that the oil companies were also charging what the market would bear then, too? DO you think we should have bailed them out for losing so much money?

In the end, they are doing nothing more than what anyone else would so. What would be obscene would be for a company to not charge what the market would bear. They would be stealing from their stockholders!

And what do we each do in our own lives? How many go to see their boss and ask to be paid less? How many businesses stay in business by not charging market value?

Even if you believe that the oil companies SHOULD charge less than market value, which it seems that some here believe, this would only serve to make the long term problem worse.

There is a relationship between supply, demand and price. If the price were to be artificially lowered, by whatever means, then you would tend to bring LESS supply tot he market and to cause MORE demand. In the long run, this can only make things worse.

So what can be done?

The most important response is to increase the fuel efficiency of our own energy consumption. India and China are not going to go away. And with OPEC pumping at their capacity, don't think that there will soon be a glut of new oil on the market. (Not that OPEC really has enough market share to influence prices tremendously any more anyway.)

The next most important step would be to increase our own supplies of fuel, provided that it can be done in an environmentally responsible way. Again, my opinion is that this would not lower the price much but it would lessen our dependence on foriegn supplies.

We should also look for ways to broaden our domestic energy sources. At the new fossil fuel prices, there may be niche markets for things like solar or wind power that were not previously economic. I personally think that ethanol is a dead end due to the high energy cost of making it to begin with. (I think that ethanol is a political issue to funnel money to certain states and lobbying groups.) Biomass may have a place at the table as well as things like coal to liquid fuel technologies. (In the interest of disclosure, I work on a project which could be used to turn coal into liquid fuel if someone so desired.)

 

You're sounding like a true blue liberal, Joseph - ignore the facts and just go by one's feelings.

 

1) Until we explore further in these areas we won't know. Prudhoe Bay in Alaska turned out to be way bigger than was first estimated.

2) Yep. We Americans are going to have to come to grips with the fact that we have competition for oil supplies nowadays.

3) Actually, I am rather encouraged about the prospects for new oil discoveries coming online from around 2007-2010 that should help to keep a lid on, if not lower, the price of oil on the NYMEX.

 

Yep. Otherwise, the federal government would remove the $0.54/gal. tariff on ethanol imported from Brazil. We could sure use these imports to help make the transition from using MTBE to using ethanol in gasoline so that its impact on raising the price at the pump could be mitigated.

 

You're sounding like a true blue liberal, Joseph - ignore the facts and just go by one's feelings. </font>[/QUOTE]Ken,

Which facts are you ignoring? The record profits or all the excuses the oil complanies keep feeding us, and the inconsistency between the two?

Joseph Botwinick

 

You have not refuted one iota of what I presented at the top of page two, Joseph.

 

And you have not explained the inconsistency between the excuses and the record profits, Ken.

Joseph Botwinick

 

I clearly explained the record profits at the top of page two, Joseph. If there is something specific that you wish to ask me about my explanation, I will attempt to clarify.

 

Industries that earn a higher rate of return on sales than the oil & gas industry:

Pharmaceuticals & Biotechnology
Banks
Semiconductors & Semiconductor Equipment
Diversified Financials
Household & Personal Products
Consumer Services
Software & Services
Telecommunication Services
Food, Beverage & Tobacco

- Source

 

Ken,
You offer solutions after something has been said. The solutions you offer are pretty much what Joseph said before.

I have no obligation to put up or shut up to your smoke and mirrors math to justify the oil companies. The only thing I can figure is that some how you are connected to their structure.

And as far as you comparing other companies profits, baloney. Those areas are ones in which I can choose other options. As Joseph pointed out, everyone has to have gas. I can grow food. I cant manufacture gas. The other areas I can do without.

 

SN,

He works for Murphy Oil.

Joseph Botwinick

 

"I have no obligation to put up or shut up to your smoke and mirrors math to justify the oil companies."

There is no smoke and mirrors required. The price of oil is set by the commodity markets, not the oil companies. The price of gasoline is set by the commodity markets, not the oil companies. (Plus the oil companies make very little of thier profit on the sell of gas.)

The markets are setting the rates and the returns.

"And as far as you comparing other companies profits, baloney."

Why "balony?"

So, tell us, what do you think is a fair rate of return for a company to earn? What should we do to profits that exceed that rate of return?

It sounds as if you desire a nationalized oil company. We will quit letting the markets set the rates. The federal government will buy the oil, refine it and sell it for whatever price will keep the public at bay. Never mind that they will lose hundreds of billions by doing it. You can pay more in taxes to make up for it. And never mind that by artificially depressing the price, they will make the situation exceedingly worse. At least it will prevent Americans from having to think about all that hard economic stuff and from having to make any tough choices.

 

"And you have not explained the inconsistency between the excuses and the record profits, Ken."

The profits are only high if you consider them outside of context. The context is that the profits compared to how much they had to spend to make them are very low. The oil companies are returning a very low rate of return.

Oil is an expensive business. They must spend an incredible amount of money for the meager returns they make.

Are we to now start deciding what return companies are allowed? We are a capitalists democracy, are we not? No one wants to slouch towards socialism, do they?

 

Profit is how much you take home, not money that is spent on taxes, business expenses, etc...

I agree. We should not slouch towards socialism. Speaking of which...do the oil companies recieve government subsidies and funding? Are there any government restrictions against coming up with gas alternatives that would compete with big oil? I honestly don't know the answer. Please enlighten me. If there are, I think those should also end in the spirit of capitalism and let the oil tycoons spend their own money and make it on their own in a truly free market. What do ya say?

Joseph Botwinick

 

Joseph,

From what I understand the oil Companies get some rather sizeable Tax Breaks...

These are now coming under scrutiny as to whether they are doing what they were intended to do, or not...

Of course one might consider that the givernments buying all that gas at whatever the market will bear is a form of subsidy!

My own take is that we should take some of the bases BRAC has closed and build Military Refineries and take the governments business away the oil companies...

That should temporarily fix some of the supply issues that are based on refinery capacity...

Mike sr.

 

uteo,
The government running the oil companies is yor idea, not mine. The market does not set the price of the billion dollar compensation of the oil executives. You and Ken need to start a talk show to put oil companies in a good light.

 

" The government running the oil companies is yor idea, not mine."

Just taking it to its logical conclusion. When the market sets the price of oil and gas, you complain. (Did you complain when there was a glut of oil and the price was low? Did you think that we needed to give the oil companies extra money to make up for their losses? Or were you content to let them take the risk and the loss? But now that the price goes up and their risk taking pays off a little bit, that's a problem?) So apparently you desire some other mechanism. No rational company is going to plan to lose money. So you will not find a company to give you your artificially low prices. So what other alternative is there than to nationalize the oil business?

I guess you could require companies to operate at a loss.

"The market does not set the price of the billion dollar compensation of the oil executives."

But the market does set the price of oil and gas. The price of gas at the pump would not be one cent lower if there had not been the big retirement package. (I think the real value was more like a few hundred million rather than a billion.) It was bad PR but does not materially affect the situation.

Besides, folks keep harping over the high profits. Why does someone who led them to such high profits not deserve to be well compensated for his efforts?

[ April 29, 2006, 06:37 PM: Message edited by: UTEOTW ]

 

"Profit is how much you take home, not money that is spent on taxes, business expenses, etc..."

But they only make sense to compare on a fair basis. And that fair basis is to compare based on rates of return. And their returns are low compared to businesses in other markets.

"If there are, I think those should also end in the spirit of capitalism and let the oil tycoons spend their own money and make it on their own in a truly free market. What do ya say?"

In principle, I agree. There are too many special interests who get tax breaks for themselves. The question is where is the line between those special breaks that help the country and those that just help a select few and/or the politicians?

I don't know what breaks and subsidies the oil companies get, either. If we knew, we might could decide whether specific breaks were worthwhile or not.

Let's say there were incentives to developing new oil supplies in some area. Would you consider that beneficial? If there was money to research better ways of getting oil out of oil shale or tar sands, would that be worthwhile?