A Democratic Theme beginning to emerge.

[Rex Kickass]

Bush's speech is GOP desperation to be honest with you.

 

Although I think Schumer has a point. We need to look at a way where Oil industries can profit while the resources we need to make our society operate don't hold us hostage economically.

[kapkomet]

Bush's speech is GOP desperation to be honest with you.

 

Although I think Schumer has a point. We need to look at a way where Oil industries can profit while the resources we need to make our society operate don't hold us hostage economically.

But Rex... the oil companies DO NOT CONTROL THE PRICES! That's VERY important.

 

They make the same (roughly) 10 cents on the gallon whether the price is $3.00 per gallon or $1.50 a gallon. If they lose, it's a percentage, not a per cent thing. They are profiting from the high prices, of course, but NOT nearly like what is being politicized... and that is my point. It's important that people get that.

 

Now, if the price of oil is $12 bbl., they lose money - and they had to consolidate, etc. in the late 1990's. It was how they survived.

[Rex Kickass]

Now Kap, that is absolute bulls***. To say big oil doesn't profit from high oil prices is absolutely wrong when ExxonMobil made the highest quarterly profits in US business history last year when oil hit 70 dollars a barrel. You're acting like the oil companies only make money on the gasoline part of the equation.

 

The problem is that if you free float the resources that a society needs to function in an unregulated market, sometimes you find a situation where the cost of those resources finds your country held economically hostage. There has to be a better way to ensure our resources at a reasonable price for our needs. Part of that is moving away from dependence on foreign oil - something that could have been partially accomplished if Clinton or Bush had the balls to seriously raise the CAFE standards in the last 14 years. But part of it has to do with the way the resources are distributed.

[YASNY]

I'm watching this thread with extreme interest.

[kapkomet]

Now Kap, that is absolute bulls***. To say big oil doesn't profit from high oil prices is absolutely wrong when ExxonMobil made the highest quarterly profits in US business history last year when oil hit 70 dollars a barrel. You're acting like the oil companies only make money on the gasoline part of the equation.

 

The problem is that if you free float the resources that a society needs to function in an unregulated market, sometimes you find a situation where the cost of those resources finds your country held economically hostage. There has to be a better way to ensure our resources at a reasonable price for our needs. Part of that is moving away from dependence on foreign oil - something that could have been partially accomplished if Clinton or Bush had the balls to seriously raise the CAFE standards in the last 14 years. But part of it has to do with the way the resources are distributed.

Yea, they profit, of course they do. But they profit from the AMOUNT PRODUCED (ie the supply), not the price, by in large. Now that oil is $70 bbl, all of a sudden, it's profitable to pull that crap up out of the ground. Did you see the same supply when oil was $12 bbl? No. The same goes for natural gas. Now that it's profitable to pull it up from the ground, there's wells all over the place. There's 5 or 6 within eyesite of my house as we sit on one of the largest natural gas fields in the United States. This wouldn't have happened if the demand didn't dictate the price being higher, and therefore the supply is shorter, and therefore it's more profitable to pull this stuff out.

 

Basically, I'm saying that the profits are more volume driven then they are price driven... they are reaping the benefits, bigtime, of the price by expanding volume at the same time.

 

I agree with the last part of your post. Hell, since Nixon we have heard our presidents say "we need to get off of the foreign dependence"... personally, I think the strategy long term is to suck the middle east dry and then we will have all the fuel. That will be an interesting table turn... but in the short term, it costs us dearly.

Edited April 26, 2006 by kapkomet

[kapkomet]

And Rex, you'll full of (bull)s***.

 

[YASNY]

You guys be careful throwing that 'bulls***' word around. Just sayin'.

[kapkomet]

You guys be careful throwing that 'bulls***' word around.  Just sayin'.

[Texsox]

Near as I can tell, there is a finite amount of oil out there, and we ain't making much more, at least nowhere as fast as we are using it. So what incentive is there for anyone to extract quickly and for cheap prices? In a sense they are all working their way out of an industry. Now we seem to have lots and lots, and perhaps that is too futuristic to worry about, but you know, just saying . . .

[Balta1701]

Yea, they profit, of course they do.  But they profit from the AMOUNT PRODUCED (ie the supply), not the price, by in large.  Now that oil is $70 bbl, all of a sudden, it's profitable to pull that crap up out of the ground.  Did you see the same supply when oil was $12 bbl?  No.  The same goes for natural gas.  Now that it's profitable to pull it up from the ground, there's wells all over the place.  There's 5 or 6 within eyesite of my house as we sit on one of the largest natural gas fields in the United States.  This wouldn't have happened if the demand didn't dictate the price being higher, and therefore the supply is shorter, and therefore it's more profitable to pull this stuff out.

Ok, so based on your theory, there should therefore be a direct correlation between the percentage increase in oil company profits and the percentage increase in oil production. In other words, if I make a fixed amount of profit on 1 gallon of gas regardless of the price of that gasoline, the increase in any company's profitability should be directly correlated with the world's oil consumption.

 

In 2004, the world consumed roughly 30 billion barrels of oil. The number for 2005 is roughly 31 billion barrels of oil. Therefore, there should have been an increase in profits of all oil companies between 2004 and 2005 of 3.2%, because that was the increase in how many barrels of oil were sold between the 2 years.

 

Exxon Mobil, for example, saw it's profits go up 17% from 2003 to 2004, and by my numbers, about 40% from 2004 to 2005. The oil industry as a whole saw its profits surge by 19% in the first quarter of 2006, despite the fact that oil consumption is growing at a vastly slower rate.

 

In other words, oil companies are making vastly more money not because they're selling more oil, they're making more money because they're making more money per gallon.

[kapkomet]

Ok, so based on your theory, there should therefore be a direct correlation between the percentage increase in oil company profits and the percentage increase in oil production.  In other words, if I make a fixed amount of profit on 1 gallon of gas regardless of the price of that gasoline, the increase in any company's profitability should be directly correlated with the world's oil consumption.

 

In 2004, the world consumed roughly 30 billion barrels of oil.  The number for 2005 is roughly 31 billion barrels of oil.  Therefore, there should have been an increase in profits of all oil companies between 2004 and 2005 of 3.2%, because that was the increase in how many barrels of oil were sold between the 2 years.

 

Exxon Mobil, for example, saw it's profits go up 17% from 2003 to 2004, and by my numbers, about 40% from 2004 to 2005.  The oil industry as a whole saw its profits surge by 19%  in the first quarter of 2006, despite the fact that oil consumption is growing at a vastly slower rate.

 

In other words, oil companies are making vastly more money not because they're selling more oil, they're making more money because they're making more money per gallon.

 

Partially true. But what was the consumption in 1999? I'd like to see that.

 

Volume is driving this more then the price. I'd have to chart it to probably make it a better argument and I don't know that I have that much time.

[Balta1701]

Partially true.  But what was the consumption in 1999?  I'd like to see that.

 

Volume is driving this more then the price.  I'd have to chart it to probably make it a better argument and I don't know that I have that much time.

This may be a bit unsatisfying, because it's coming from BP, and because for some reason they give the total oil consumption not in barrels but in "Million Tons oil equivalent" (and I for one haven't a clue what that unit means), but Here you go.

 

World oil consumption

1999 3,493.9

2000 3,538.7

2001 3,552.2

2002 3,580.5

2003 3,641.8

2004 3,767.1

 

According to BP, world oil consumption has grown by roughly 8% since 1999. That is vastly less than the growth in oil profits over the same time, which have literally grown by several hundred percent.

[kapkomet]

Right. But why?

 

And the answer is not as obvious (price) as you might think.

[Balta1701]

Right.  But why?

 

And the answer is not as obvious (price) as you might think.

So, if the answer is not that they're making more $ per gallon of gasoline sold, what is the answer?

[kapkomet]

I can't break this into what I want to right now but...

 

3,493.9 * $55 (2005 price) = $192,164.50

3,767.1 * $55 = $207,190.50

 

$15,026. - pure REVENUE (which is your 8% I keep bringing up), which doesn't equal PROFIT. You all keep missing that. What about cost cutting to draw out existing oil? What about 'infastructure' that was already in place? Many of the companies have consolidated cost structures through mergers and acquisitions.

 

Be careful, because you are having a tendency to mix apples and oranges here (revenue and profit). You have to apply the right delta - which is what I've been trying to say in a not so eloquent way.

[Balta1701]

I can't break this into what I want to right now but...

 

3,493.9 * $55 (2005 price) = $192,164.50

3,767.1 * $55 = $207,190.50

 

$15,026. - pure REVENUE (which is your 8% I keep bringing up), which doesn't equal PROFIT.  You all keep missing that.  What about cost cutting to draw out existing oil?  What about 'infastructure' that was already in place?  Many of the companies have consolidated cost structures through mergers and acquisitions. 

 

Be careful, because you are having a tendency to mix apples and oranges here (revenue and profit).  You have to apply the right delta - which is what I've been trying to say in a not so eloquent way.

Ok...found a conversion between Mtoe and oil barrels...and using your oil price conversion

 

1999: 25.6 billion barrels x 55 = $1.40 trillion

2004: 27.6 billion barrels x 55 = $1.52 trillion

(those are BP's numbers.)

 

So, in other words, revenues should have increased by about 8% over that timespan due to the increase in oil consumption. However, as I said, profits have gone up several hundred percent. However, earlier you claimed:

 

But they profit from the AMOUNT PRODUCED (ie the supply), not the price, by in large.

 

Thus, I think I've been basically proven right on this issue here...they are benefiting from vastly more than the amount produced. For another example, in total, in 1999, the major world oil companies earned a total profit of $28.06 billion. Last year, Exxon Mobil earned a profit greater than that number. Also last year, the total profitability of the biggest 5 companies, not including as many as I counted in that last number, was over $108 billion.

 

Now, to look at that increase another way, for that to happen, each barrel of oil sold would have to earn your average oil company $3 more in 2005 than in 1999. They would have earned a profit of roughly $1 per barrel in 1999, and $4 per barrel in 2005.

 

However, we are also told that oil companies produce a fixed profit per gallon of gas. You said so earlier. Therefore, the increased profitability of those companies, to the tune of an additional $3 per barrel sold, has to come from some other source other than just additional sales. Therefore, you're left with the "getting rid of inefficiencies" argument.

 

However, what you're failing to realize is that you just made the argument that the oil companies are operating as a monopoly and basically must be price fixing.

 

If capitalism is actually working, and 1 company develops efficiencies, it should be able to increase its own profit by selling its good at a price below the less efficient companies. In fact, it almost has to do so, because otherwise the other companies will develop their own efficiencies and undersell them. However, in a monopoly, a company is able to fix the price at whatever level it wants, and increase it's profit through generating efficiencies, because whatever efficiencies are generated are not passed back to the consumer.

 

If oil company profits are being generated through efficiencies of some sort, then the oil companies are actively price-fixing, because there is no competition occuring which would force some of those efficiencies to be passed on to the consumer in exchange for larger market shares of the more efficient companies.

[kapkomet]

Answer me this. Who actually owns the oil?

[Rex Kickass]

What I don't understand is that if oil companies drill oil out of the ground themselves, refine it themselves, and sell it themselves... why are they dependent on a market price?

[Balta1701]

Answer me this.  Who actually owns the oil?

If I understand things correctly, in most cases, it's originally owned by whoever owns the land/mineral rights on the land where the oil is found. But in almost all those cases, the oil exploration rights are leased/sold off to an oil company (sometimes state-owned), which from that point on controls the oil from the moment it is pumped. Exxon, I believe I read somewhere this morning, controls something like 18% of the world's proven reserves through these deals for exploration rights.

[southsider2k5]

You are still comparing apples and oranges. Profits and revenues are two very different things. You are talking about increases in profits and increases in revenues as if they are the same thing... They are not. Realize that you can have a revenue increase and loss of profits. You can also have an 8% revenue gain and a doubling of profits. Profits are revenues minus costs. Revenues are net intakes... There is a BIG difference between the two.

 

The oil industries costs are pretty close to fixed. The pipelines are there, as are the gas stations, refinaries, tankers etc. Their costs do not change based on the price of crude oil. (That is an important thing to note right there) The only people who benefit from the increased costs of oil directly are the people who ACTUALLY own the oil coming out of the ground. For the most part the oil companies do not OWN the oil fields. Many within the US are owned, but I can't imagine any of the middle eastern companies selling us their oil fields. Its just like a grocery store passing on a price increase in lettuce to the consumer. The grocery store takes whatever price that they receive, mark it up 10 cents, and sell it to the consumer. The one difference is that for whatever reason, energy is completely contra to economic common sense, and dispite price increases, demand is still rising, so instead of making less revenue like they should, they are making that same margin, more times than they were before. Throw on top of that, a reduction in costs, some government tax breaks and subsididies that you have even repeatedly mentioned, and it doesn't have to be a felony for them to have record profits. Granted it's contra to common sense and economic law, but it is plausible.

 

To be honest if the oil companies weren't making record profits we would be in real trouble because that would mean supply was shrinking, and if you added that increasing demand... well lets just say todays scary prices would be tomorrows riots in the streets.

[Balta1701]

The oil industries costs are pretty close to fixed.  The pipelines are there, as are the gas stations, refinaries, tankers etc.  Their costs do not change based on the price of crude oil.  (That is an important thing to note right there)  The only people who benefit from the increased costs of oil directly are the people who ACTUALLY own the oil coming out of the ground. For the most part the oil companies do not OWN the oil fields.  Many within the US are owned, but I can't imagine any of the middle eastern companies selling us their oil fields.  Its just like a grocery store passing on a price increase in lettuce to the consumer.  The grocery store takes whatever price that they receive, mark it up 10 cents, and sell it to the consumer.  The one difference is that for whatever reason, energy is completely contra to economic common sense, and dispite price increases, demand is still rising, so instead of making less revenue like they should, they are making that same margin, more times than they were before.  Throw on top of that, a reduction in costs, some government tax breaks and subsididies that you have even repeatedly mentioned, and it doesn't have to be a felony for them to have record profits.  Granted it's contra to common sense and economic law, but it is plausible.  thi

 

To be honest if the oil companies weren't making record profits we would be in real trouble because that would mean supply was shrinking, and if you added that increasing demand... well lets just say todays scary prices would be tomorrows riots in the streets.

I'll grant you that in theory you should be correct, and for the most part you are...we're just sort of splitting hairs compared to what the folks in Saudi Arabia are earning, but the fact is that the bolded statement just isn't correct.

 

It's been proven again and again and again over the last few years that as oil prices have gone up, the oil company profits have gone up. I understand this is different from revenues and revenues should go up as the price goes up, but the fact is that profits have gone up as well. In fact, when you just read some random press report about the profits of any oil company in any quarter, they include something like this:

 

Profit Soars at Exxon Mobil

Surging Oil Prices Lead to Company's Best Second Quarter

 

I understand the position you're trying to argue, and it makes sense from a hypothetical and economic standpoint. The oil company shouldn't want oil prices to go up, because they should be able to sell more oil and earn a higher profit at lower oil prices. However, that's simply just not what the last 5 years have taught us. As oil prices have gone up, the growth in oil demand has in fact started to slow a little bit, but the rate of increase of oil company profits has been divorced from the growth in sales. The only thing it has correlated with is the increase in price. And the more the price has gone up, the higher their profits have gone.

 

As far as I can tell, I can account for nothing other than the price which would have driven the massive increases from profits on the $10 billion scale in roughly 2001 to profits on the $100 billion scale in 2005. Subsidies haven't been raised nearly that much, demand has not grown that much, there haven't been major innovations or mergers which would come close to accounting for that. The only variable left in this whole mess is the price, and everything we've seen since 2001 suggests that as the price of oil goes up, the profits of oil companies go up. Yes, revenues go up as well, but that's to be expected. What shouldn't be expected is the increase in profits.

[kapkomet]

I'll grant you that in theory you should be correct, and for the most part you are...we're just sort of splitting hairs compared to what the folks in Saudi Arabia are earning, but the fact is that the bolded statement just isn't correct.

 

It's been proven again and again and again over the last few years that as oil prices have gone up, the oil company profits have gone up.  I understand this is different from revenues and revenues should go up as the price goes up, but the fact is that profits have gone up as well.  In fact, when you just read some random press report about the profits of any oil company in any quarter, they include something like this:

I understand the position you're trying to argue, and it makes sense from a hypothetical and economic standpoint.  The oil company shouldn't want oil prices to go up, because they should be able to sell more oil and earn a higher profit at lower oil prices.  However, that's simply just not what the last 5 years have taught us.  As oil prices have gone up, the growth in oil demand has in fact started to slow a little bit, but the rate of increase of oil company profits has been divorced from the growth in sales.  The only thing it has correlated with is the increase in price.  And the more the price has gone up, the higher their profits have gone.

 

As far as I can tell, I can account for nothing other than the price which would have driven the massive increases from profits on the $10 billion scale in roughly 2001 to profits on the $100 billion scale in 2005.  Subsidies haven't been raised nearly that much, demand has not grown that much, there haven't been major innovations or mergers which would come close to accounting for that.  The only variable left in this whole mess is the price, and everything we've seen since 2001 suggests that as the price of oil goes up, the profits of oil companies go up.  Yes, revenues go up as well, but that's to be expected.  What shouldn't be expected is the increase in profits.

But oil companies do NOT set the price. So how again, is this their fault?

[Balta1701]

But oil companies do NOT set the price.  So how again, is this their fault?

They do not set the price per barrel of oil, correct. But they do set the prices that they sell the oil off after it comes through them when they sell it off to a gas station or wholesaler or whoever. They're a middleman - they don't directly own the oil, they lease it, and the Saudis who own the oil rake in the dough when the price goes through the roof.

 

But as a middleman, they get to do some markup while the oil is in their possession; that's what they take out to cover their operating expenses and as profit. They then sell that oil to the consumers. That is where they are able to influence the price at some level; they can simply mark up their price as a percentage of the gas price instead of just a finite amount per gallon of gas. They can increase their markup slightly as the price goes up, and this drives higher profits, which I contend makes up some significant portion of the profit explosion we've seen, because there is no other way increased profits would correlate with increased prices.

[southsider2k5]

I'll grant you that in theory you should be correct, and for the most part you are...we're just sort of splitting hairs compared to what the folks in Saudi Arabia are earning, but the fact is that the bolded statement just isn't correct.

 

It's been proven again and again and again over the last few years that as oil prices have gone up, the oil company profits have gone up.  I understand this is different from revenues and revenues should go up as the price goes up, but the fact is that profits have gone up as well.  In fact, when you just read some random press report about the profits of any oil company in any quarter, they include something like this:

I understand the position you're trying to argue, and it makes sense from a hypothetical and economic standpoint.  The oil company shouldn't want oil prices to go up, because they should be able to sell more oil and earn a higher profit at lower oil prices.  However, that's simply just not what the last 5 years have taught us.  As oil prices have gone up, the growth in oil demand has in fact started to slow a little bit, but the rate of increase of oil company profits has been divorced from the growth in sales.  The only thing it has correlated with is the increase in price.  And the more the price has gone up, the higher their profits have gone.

 

As far as I can tell, I can account for nothing other than the price which would have driven the massive increases from profits on the $10 billion scale in roughly 2001 to profits on the $100 billion scale in 2005.  Subsidies haven't been raised nearly that much, demand has not grown that much, there haven't been major innovations or mergers which would come close to accounting for that.  The only variable left in this whole mess is the price, and everything we've seen since 2001 suggests that as the price of oil goes up, the profits of oil companies go up.  Yes, revenues go up as well, but that's to be expected.  What shouldn't be expected is the increase in profits.

 

If revenues go up, why wouldn't profits go up, if costs are essentially fixed, to actually declining??? You, yourself have mentioned companies closing down facilities by the oil companies repeatedly. You have also mentioned that production is up across the board, so companies are making more oil into finished products with less capacity, which means less total costs, and way less costs per barrel. You have also mentioned increasing subsidies and tax breaks for the oil companies.

 

Let me show you a number example, maybe that will help.

 

An company has total revenue of $110. They also have costs of $100 so they have a $10 profit. The next year, they make more product and have total revenues of $120. This company manged to close one of their production facilities which cost them $10 a year to operate, while simultaniously having their other branches pick up the production slack, so that there actually maintaining their overall production increase company-wide. So now the company reports a $30 profit with a 9% increase in revenues, a 10% decrease in cost, and reports a tripling of profits to their customers. Its not some big conspiracy, its simple math and all of the news that you have been reporting to us for months on a stage of billions of dollars.

[Cknolls]

I'll grant you that in theory you should be correct, and for the most part you are...we're just sort of splitting hairs compared to what the folks in Saudi Arabia are earning, but the fact is that the bolded statement just isn't correct.

 

It's been proven again and again and again over the last few years that as oil prices have gone up, the oil company profits have gone up.  I understand this is different from revenues and revenues should go up as the price goes up, but the fact is that profits have gone up as well.  In fact, when you just read some random press report about the profits of any oil company in any quarter, they include something like this:

I understand the position you're trying to argue, and it makes sense from a hypothetical and economic standpoint.  The oil company shouldn't want oil prices to go up, because they should be able to sell more oil and earn a higher profit at lower oil prices.  However, that's simply just not what the last 5 years have taught us.  As oil prices have gone up, the growth in oil demand has in fact started to slow a little bit, but the rate of increase of oil company profits has been divorced from the growth in sales.  The only thing it has correlated with is the increase in price.  And the more the price has gone up, the higher their profits have gone.

 

As far as I can tell, I can account for nothing other than the price which would have driven the massive increases from profits on the $10 billion scale in roughly 2001 to profits on the $100 billion scale in 2005.  Subsidies haven't been raised nearly that much, demand has not grown that much, there haven't been major innovations or mergers which would come close to accounting for that.  The only variable left in this whole mess is the price, and everything we've seen since 2001 suggests that as the price of oil goes up, the profits of oil companies go up.  Yes, revenues go up as well, but that's to be expected.  What shouldn't be expected is the increase in profits.

Demand has grown that much. In that time, China has gone from an oil exporter to the 2nd largest oil importer. That is some sizable demand being supplied, no.