A Democratic Theme beginning to emerge.

[Balta1701]

But 2k5, the cost of producing a barrel of oil has actually not dropped in recent years. Rather, as oil has become more scarce and harder to get out of the ground and refine, the cost of production per barrel has actually gone up. From 2002-2004, the cost of finding 1 new barrel of oil went up roughly 10%. The "lifting" costs, the costs of operating the rigs and using them to get oil out of the ground, also went up by over 10% in that time window. The amount of money spent by oil companies on refining, marketing, and transportation jumped by like 50% over that time period (probably dominated by the increased cost of transportation due to high fuel costs).

 

So the costs of finding a barrel, getting it out of the ground, refining it, and transporting it have all gone up significantly in the past few years. Yet the rate of increase of oil company profits have blown away those increases.

 

So to use your analogy, the cost of doing business would not have dropped to $90, it would have jumped to $110. But instead of the company maintaining a constant profit of $10, the company raised its prices, such that it made a $30 profit anyway.

[southsider2k5]

But 2k5, the cost of producing a barrel of oil has actually not dropped in recent years.  Rather, as oil has become more scarce and harder to get out of the ground and refine, the cost of production per barrel has actually gone up.  From 2002-2004, the cost of finding 1 new barrel of oil went up roughly 10%.  The "lifting" costs, the costs of operating the rigs and using them to get oil out of the ground, also went up by over 10% in that time window.  The amount of money spent by oil companies on refining, marketing, and transportation jumped by like 50% over that time period (probably dominated by the increased cost of transportation due to high fuel costs).

 

So the costs of finding a barrel, getting it out of the ground, refining it, and transporting it have all gone up significantly in the past few years.  Yet the rate of increase of oil company profits have blown away those increases. 

 

So to use your analogy, the cost of doing business would not have dropped to $90, it would have jumped to $110.  But instead of the company maintaining a constant profit of $10, the company raised its prices, such that it made a $30 profit anyway.

 

Again, bald numbers mean nothing. How much of the increase in production is from new wells? The cost of new wells can triple, but if it is a fractional part of total production, it has a marginal effect on total cost.

 

Again, you yourself have preached to us about the oil companies shutting down facilities all over the country. This means that they are actually not just producing more oil with the same amount of capital, but they are actually producing even more oil with less capital (which mean less operating costs)you have also kept us well informed of all of the subsidies, tax breaks, and pork projects that are putting money into the pockets of the oil companies, and the monies given to them for alternative energy resources, which allows them to keep and make more of their own profits as well.

 

How exactly do those new costs that you outlined, factor against the new savings that you have outlined prior to this?

 

And finally even if you are right, you still haven't oroved your point that the MARGINS on a barrel of oil have changed at all within all of that. If the oil companies are producing more and keeping the same gross margin per barrel, they will still have more revenues. You still haven't shown anywhere that the gross margins per barrel have increased or decreased at all, which is the core of the arguement. Because profits are always going to be less than revenues, even a small move in revenue can trigger a huge percentage move in profits. And until you can actually show that the companies are making more per barrel, and not just more total, there is no reason to believe that the profits of the oil industry are anything but logical.

[kapkomet]

http://www.taxfoundation.org/news/show/1168.html

 

And I wonder why nothing's changed in 30+ years? Could be that the government is making a killing - even more then the dastardly BIG OIL companies.

[Balta1701]

And finally even if you are right, you still haven't oroved your point that the MARGINS on a barrel of oil have changed at all within all of that.  If the oil companies are producing more and keeping the same gross margin per barrel, they will still have more revenues.  You still haven't shown anywhere that the gross margins per barrel have increased or decreased at all, which is the core of the arguement.  Because profits are always going to be less than revenues, even a small move in revenue can trigger a huge percentage move in profits.  And until you can actually show that the companies are making more per barrel, and not just more total, there is no reason to believe that the profits of the oil industry are anything but logical.

The profit margin for turning a barrel of oil into heating oil and gasoline is $15.842 today, the highest in at least 16 years, based on futures prices in New York. That is more than double the margin a year ago.

 

Bloomberg, last August.

 

Edit: found a more recent Bloomberg. The profit margin is even higher now.

 

The profit margin for turning three barrels of crude oil into two barrels of gasoline and one of heating oil was $19.405, based on futures prices in New York, up 28 percent in the last month.

Edited April 26, 2006 by Balta1701

[southsider2k5]

Heck you can even play with the numbers with increasing costs and still have profits increase. Watch assuming a 10% production increase and a 10% cost increase. Guess what you still get increasing profits.

 

Year 1

100=I

80=C

20=profit

 

Year 2

110=I

88=C

22=p

 

Year 3

121=I

96.80=C

24.20=p

 

Year 4

133.1=I

106.48=C

26.68=p

 

Year 5

146.11=I

117.12=C

28.99=p

 

in 5 years you have a 70% increase in profits over year 1, and that is with the costs increasing exactly as fast as the production increases.

[southsider2k5]

Bloomberg, last August.

 

Edit: found a more recent Bloomberg.  The profit margin is even higher now.

 

Still more fun math tricks there. Guess what. Follow my example I posted before I even saw this and look at the gross margin, which miraculously stays consistant. They are still making the same profit margin per barrel. Bigger numbers mean bigger numbers, but the percentages haven't changed at all... even though the total price has gone up.

 

100=I

80=C

20=profit

 

25%

 

Year 2

110=I

88=C

22=p

 

25%

 

Year 3

121=I

96.80=C

24.20=p

 

25%

 

Year 4

133.1=I

106.48=C

26.68=p

 

25%

 

Year 5

146.11=I

117.12=C

28.99=p

 

25%

[Balta1701]

Still more fun math tricks there.  Guess what.  Follow my example I posted before I even saw this and look at the gross margin, which miraculously stays consistant.  They are still making the same profit margin per barrel.  Bigger numbers mean bigger numbers, but the percentages haven't changed at all.

profit

So, on the other hand, your model doesn't predict growing profit margins, which according to Bloomberg have gone up by more than a factor of 2 in the past 2 years? What happens in that case, or in the case when costs of production are increasing faster than sales, as they are in this case according to the data I presented earlier?

 

Edit: Oh, and I think there's 1 more issue here. The standard oil company statement is that they take a finite number off the top of each gallon, not a finite percentage. I think the argument I've been trying to make this whole thread is that they in fact are taking a finite (or in this case growing) percentage of the cost of each gallon. So they're doing something like your taking 25% of whatever the cost is, instead of taking $.10 on each gallon.

 

If they were taking a finite amount on each gallon, the only growth would be due to growth in demand, which would have produced increases in profits of like 4% - growth in expenditures over that time. But if they were taking a finite percentage, holding the marginal percentage constant, then as the price went up, the total profit margin would go up. So I think that your setup basically follows what I've been saying; at higher total prices, they take the same percentage, and thus wind up with higher profits.

Edited April 26, 2006 by Balta1701

[southsider2k5]

So, on the other hand, your model doesn't predict growing profit margins, which according to Bloomberg have gone up by more than a factor of 2 in the past 2 years?  What happens in that case, or in the case when costs of production are increasing faster than sales, as they are in this case according to the data I presented earlier?

 

But see I answered both them. using the number you posted from Bloomberg the gross profit margins stayed the same, while the profit per barrel increased.

 

Also you never adressed how much of production is affected by the cost increases you are talking about. You also never adressed the savings of plant closings, increased effeciencies, not to mention all of the tax breaks and subsidies which you guys have brought up.

 

I really didn't to spend the day here arguing something that will never change anybodies mind anyway, so enjoy the rest of this... I give.

[Balta1701]

I really didn't to spend the day here arguing something that will never change anybodies mind anyway, so enjoy the rest of this... I give.

Agreed, I will also call it quits at this point. Since I don't think I advocated doing anything about it, I'm not even sure exactly what I was advocating, aside from trying to show that oil companies make more money strictly on price increases.

[kapkomet]

Agreed, I will also call it quits at this point.  Since I don't think I advocated doing anything about it, I'm not even sure exactly what I was advocating, aside from trying to show that oil companies make more money strictly on price increases.

Basic accounting 101.

 

REVENUE - COST = MARGIN

 

If your revenues stay the same, and your costs go down, MARGIN can go up.

 

If your revenues fractionally (as a %) go up and your costs go down, MARGIN goes up more then revenues, and looks a lot higher.

 

You've been conditioned over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over (you get the point yet?) again to see that the bastard oil companies are being greedy assholes and profiting WAY more then they should on oil. And a million articles all over the internet in pieces can support it.

 

But from a pure logic standpoint, the PRICE ALONE of oil is simply NOT the only reason the MARGIN has gone up, which is what you are trying to advocate, which is only partially true.

 

Furthermore, and back to the original point of Rex's thread, I find it FASCINATING how the Democrats for YEARS have been advocating that we need to pay for our oil, how it's not fair we're not paying the same price that Europe is, etc. etc. etc. and now that the field is leveling out some, they are all crying like there is no tomorrow to say that it's Bush's fault. They WANTED this for years, to :rolly conserve, to make people in America :rolly drive little ass cars and not these big SUVs, etc. WAAAAH. STFU! And the Republicans are following the crap trail, hook, line and sinker. Idiots.

 

Talk about a political screwfest. It's not right, and why I hate the Democratic party. You know what, if they were consistant, and really wanted to light George Bush's ass, they should say, you're in Iraq, it was really for oil (accourding to the Dems all along), TURN ON THE SPIGOTS, BIG BOY!

[Balta1701]

Basic accounting 101.

 

REVENUE - COST = MARGIN

 

If your revenues stay the same, and your costs go down, MARGIN can go up.

 

If your revenues fractionally (as a %) go up and your costs go down, MARGIN goes up more then revenues, and looks a lot higher.

I don't want to go over this again, but I've done the best I can in previous posts to show that in fact, costs have gone up significantly in the past few years, and have gone up at such a rate that would have forced margins down significantly if a the oil company revenue or even profit per gallon of gas was held constant, which is what they tell us they do, which is what I don't beleive the data supports. Edited April 26, 2006 by Balta1701

[kapkomet]

Again, who owns the oil?

 

The margin % on refining products has not changed. THAT is not where they are making their profits.

 

They are making their profits on what they own, which is not NEARLY as much as what Saudi, Iran, etc. own.

 

So, yes, they are profiting from it, but refining it is NOT where they are gaining their bigger profits.

[southsider2k5]

I don't want to go over this again, but I've done the best I can in previous posts to show that in fact, costs have gone up significantly in the past few years, and have gone up at such a rate that would have forced margins down significantly if a the oil company revenue or even profit per gallon of gas was held constant, which is what they tell us they do, which is what I don't beleive the data supports.

 

All right, I will give you one more even to show exactly what you are talking about, and much closer to what has happened here in the real world the last couple of years.

 

Take the same cost and income that we started with. Go with a doubling of prices (so a doubling of income, as the oil companies pass on the prices) and a doubling of costs (again they buy the oil too) plus a an additional 10% increases in costs across the board. (decreases in refinaries, plus tax breaks and subsidies result in some savings balanced out by increases in transportation, R&D, no cost change on exsisting sites which make up the vast majority of pumps)

 

Year 1

100=I

80=C

20=p

 

Year 2

200=I

168=C

32=p

 

Gross margins actually fell 4% points from 16 to 20%, yet you still had a doubling of total revenues, and a 60% jump in net profits reported to stockholders.

[kapkomet]

So Exxon Mobil reports a 8.5 billion profit and gets whacked on Wall Street because it didn't meet expectations. What a screwed up society we live in when 8.5 billion is not 'good enough'.

[Balta1701]

Gross margins actually fell 4% points from 16 to 20%, yet you still had a doubling of total revenues, and a 60% jump in net profits reported to stockholders.

But see, again you're still missing the key point; you're allowing the amount of profit per gallon of gas sold to float, as opposed to holding it at a fixed value.

 

Every time the oil execs speak, that's what they tell us; they make a fixed amount per gallon of gas. Not a fixed percentage, a fixed amount. In other words, whether gas costs $.70 or $3.70, they should still make $.10 on the sale of 1 gallon of that gas.

 

All of your models present something fundamentally different; they present the profit margin as being a percentage of the total sale. In your last one, you have the margin start at 20% and fall to 16%. But if the profit on 1 sale of gas is $.10, as they say it is, then the decrease in the profit margin percentage should be proportional to the increase in the price. In other words, $.10 is 12.7% of $.79, but $.10 is 3.3% of $3. If you triple the price of gas, the margin should decline by a factor of 3 if the profit per gallon is held at a constant amount. This is not the case, but it's the case that the oil companies present as justification for why we shouldn't care about how profitable they are.

 

You're basically making the argument for me here...you're showing that the profit is increasing because they're making a higher fixed amount per gallon of gas than they were 5 years ago. Even if the %age profit margin declines, they're making a lot more per gallon of gas sold as the price goes up.

[southsider2k5]

Dude, you have got to stay consistant in what you are talking about. First you were using profits and revenues interchangably. Then you are mixing up gross margins and the profit margins, and then using the percentages off of one to compare the other one. Plus you are assuming per item totals by totals, without having the change in output to bas it on. Of course it doesn't make sense like that you are mixing apples and oranges again. To be honest I am not sure how to even untie what you are tell me there.

Edited April 27, 2006 by southsider2k5

[kapkomet]

ALL HAIL BALTA! MR. FINANCE GUY!

 

It amazes me how you will sit here and argue with a CPA and a economics major. We're wrong, you're right, end of thread as far as I'm concerned, because no matter what you don't want to see that there is more here then what you can see. We've explained it about 6 different ways now, and we're obviously wrong. Thanks for setting me straight on how the profits can be measured at these companies, and how the financials work.

 

Edit: yea, Balta, this is probably out of line, but you keep intermingling things (like southsider said) and when we try to explain it, it gets even more twisted. I personally am making a value judgement that I'm not sure you really want to know, you just want to support the notion that we're getting ripped off.

Edited April 27, 2006 by kapkomet

[Balta1701]

Edit:  yea, Balta, this is probably out of line, but you keep intermingling things (like southsider said) and when we try to explain it, it gets even more twisted.  I personally am making a value judgement that I'm not sure you really want to know, you just want to support the notion that we're getting ripped off.

Actually, I'm not even sure we are getting ripped off. I'm just trying to say that I don't like the business model of the oil companies in that they make a finite profit per dollar sold instead of per gallon, which is why they benefit when the price goes up. But it's hard to say people are getting ripped off if they're willing to pay the price.

[kapkomet]

Actually, I'm not even sure we are getting ripped off.  I'm just trying to say that I don't like the business model of the oil companies in that they make a finite profit per dollar sold instead of per gallon, which is why they benefit when the price goes up.  But it's hard to say people are getting ripped off if they're willing to pay the price.

Gotcha. Now I see what you have been trying to say all this time, I think?

 

INDEED they are paying higher prices for the oil... I think you got that part.

 

And YES, they are profiting more and more (and WAY more lately) on the oil they own the rights to. That is a lot of the revenues... but the gas "profits" are going to be volume driven largely. Do you agree with that much?

[Rex Kickass]

Actually, unleaded gas is on a futures market as well. The price of crude only factors into the price of unleaded gas by about 25% im told. So wouldn't an oil holding company who has a refinery be profiting twice by monopolizing its production (i.e. selling oil to its refinery arm who therefore increases the price of gas and jacks it up further despite the fact that net costs never actually increased to produce either the oil or gas - but more the demand for the oil adjusted the price upwards?)

[NUKE_CLEVELAND]

Actually, unleaded gas is on a futures market as well. The price of crude only factors into the price of unleaded gas by about 25% im told. So wouldn't an oil holding company who has a refinery be profiting twice by monopolizing its production (i.e. selling oil to its refinery arm who therefore increases the price of gas and jacks it up further despite the fact that net costs never actually increased to produce either the oil or gas - but more the demand for the oil adjusted the price upwards?)

 

 

I think the fact that the major oil firms are vertically integrated like that is one reason why gas is so expensive but not nearly the only one.

 

Truth of the matter is, people who can afford higher gas prices are screwing over those who cannot. The Suburban person who drives 2 blocks to get a gallon of milk or other minor errands all the time is helping drive up prices with unnecessary consumption. That makes it hard for Joe Blow who has trouble making ends meet to even afford to drive to work.

 

Those who are angry about high gas prices should focus their ire not on the government, which can't do much about the situation, but on owners of gas slurping SUV's.