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Let's talk about Energy, George
January 30, 2006 10:48 AM   Subscribe

So, you're gonna talk about energy? Wonder if the President will mention the record profits his buddies in big oil have been earning. Exxon Mobil who made a record $25.3bn (€19.4bn) profit in 2004, earned a company record $9.9bn (€8.2bn) in the fourth quarter of 2005. In the same quarter, Condoleeza Rice's former employer Chevron, who once named an oil tanker for their former vice president, earned a record $4.14bn (€4.43bn). The third-largest US oil company, ConocoPhillips, has reported a fourth quarter profit of $3.68bn (€3.05bn), a 50% leap from the same time a year ago.The industry claims that oil companies earn 7.3 cents on a gallon, but "Exxon's profit for the year... a staggering $36.13 billion is bigger than the economies of 125 of the 184 countries ranked by the World Bank. Profit rose 42 percent from 2004."

You gonna talk about that, George?
posted by three blind mice (80 comments total)

 
I'm certain he'll discuss it honestly, fairly, and in depth.
posted by Plutor at 10:51 AM on January 30, 2006


George doesn't talk about rich people.
posted by Balisong at 10:52 AM on January 30, 2006


Sorry, bad link. Try this one.

The third-largest US oil company, ConocoPhillips, has reported a fourth quarter profit of $3.68bn (€3.05bn), a 50% leap from the same time a year ago
posted by three blind mice at 10:53 AM on January 30, 2006


See, profits are up! America is strong, he's getting it done. That man has vision and integrity right up the wazoo.
posted by fenriq at 10:54 AM on January 30, 2006


If the poor are too stupid to buy oil stocks then so be it.
posted by zeoslap at 10:55 AM on January 30, 2006


The word profiteering comes to mind. But then so do the words treason and impeachment.

Also: unethical assholes.

Hmm, i guess several words came to mind.
posted by quin at 10:55 AM on January 30, 2006


Extra quote in that one. This is what you mean:

The third-largest US oil company, ConocoPhillips, has reported a fourth quarter profit of $3.68bn (€3.05bn), a 50% leap from the same time a year ago
posted by Plutor at 10:55 AM on January 30, 2006


Trickle down theory = Oil companies pissing on your head and telling you it's raining.
posted by almostcool at 10:56 AM on January 30, 2006


I just see a few links to earnings reports from oil companies and one about the state of the union. The rest of this post is just editorializing.

Also, companies in various industries post record profits all the time, for various reasons.

Some links providing evidence that Bush's policies are directly benifitting oil companies at the public's expense would be nice.
posted by driveler at 10:58 AM on January 30, 2006


What's your point?
posted by cillit bang at 11:01 AM on January 30, 2006


I'm betting he won't.
He'll be way too busy expaining to us that domestic spying is the only path to freedom. that and promising to tackle healthcare as efficiently as he did Medicare. gods beneath us.
posted by Busithoth at 11:01 AM on January 30, 2006


I bet he won't either. cillit bang, what do you think?
posted by Witty at 11:02 AM on January 30, 2006


You gonna talk about that, George?

You seem to be addressing someone named George. It's seems awfully personal for a Metafilter posting. Can't you just e-mail this guy with your complaint, whatever it is?
posted by Faze at 11:03 AM on January 30, 2006


These record profits, quarter after quarter, of course, beat the previous record quarters.
And they've had many, many record quarters since Cheney took office and held his little secret meeting.
BTW, what did they talk about in that meeting?

Hey America, how's it feel getting screwed gang-raped by Dubya's good buddies?
posted by nofundy at 11:03 AM on January 30, 2006


George is not what you would call a reader.
posted by jenovus at 11:04 AM on January 30, 2006


Time for another oil company tax break?
posted by nofundy at 11:04 AM on January 30, 2006


1) Steal elections
2) ?
3) Profit!
posted by nofundy at 11:05 AM on January 30, 2006


Gas prices in my area have gone up $0.40 since Jan 1st. Of course I'm frustrated to read about gigantic record profits while prices are still rising, but the thing that gets me the most is that I've heard nothing about gas prices on the news at all this month.

There was discussion of a windfall profit tax last October. I noticed that in the weeks after that story broke gas prices around my area went down by over $1, or almost 30%. What is happening with that tax now? Sounds like it failed, and isn't likely to come up again. Is congress still upset?

In a related story - Jaime Spellings, ExxonMobil's general manager of corporate planning, points out that in the third quarter of last year Exxon earned 9.8 cents per dollar of sales, while Coca Cola earned 21.2 cents per dollar of sales. Glad we're not fueling the worlds transportation needs with Coke.
posted by pkingdesign at 11:06 AM on January 30, 2006


nofundy,

2) Smear, smear, smear anyone who questions anything you've ever done. Or said.
posted by fenriq at 11:07 AM on January 30, 2006


I'm not optimistic that this will result in good policy, but at least Bush is going to publicly acknowledge that the US is facing a serious problem and needs to respond. I think that's good.
posted by russilwvong at 11:09 AM on January 30, 2006


No, no, no... I got it.

2) Ignore drowning black people in New Orleans 'cuz you like"don't care about black people".
posted by Witty at 11:11 AM on January 30, 2006


Hey, you can't lay all the blame on the oil companies. Some (most) has to go to those darn speculators at the mercantile exchanges. Those guys they just love speculatin'
Are Higher Prices a Blessing? - Mises Institute, www.mises.org/story/1801
Futures Fundamentals - Why Use Futures? www.investopedia.com/university/futures/futures5.asp
posted by Gungho at 11:15 AM on January 30, 2006


Who the fuck cares as long as I keep hearing, at regular intervals, about

1. homos not marrying
2. babies not getting murdered
3. Jesus
posted by The Jesse Helms at 11:16 AM on January 30, 2006


What is good for Exxon-Mobil,is good for America
posted by hortense at 11:17 AM on January 30, 2006


I just see a few links to earnings reports from oil companies and one about the state of the union. The rest of this post is just editorializing.

Editorializing? What you talkng about, drivler? It is a sequence of facts followed up by a question. I never suggested it was good or bad, I simply suggest that it is germane to the issue of energy. And perhaps a bit embarassing to Der President.
posted by three blind mice at 11:19 AM on January 30, 2006


This FPP seems to be running on sheer indignation. Not that indignation isn't justified, but content is wanting.
posted by Hobbacocka at 11:20 AM on January 30, 2006


Also, companies in various industries post record profits all the time, for various reasons.
posted by driveler at 1:58 PM EST on January 30


Yeah, guys, what's the big deal? It's not like the oil companies are linked to our current administration or anything...
posted by NationalKato at 11:21 AM on January 30, 2006


Image hosting by Photobucket

puking as usual
posted by tarantula at 11:24 AM on January 30, 2006


Hey, you can't lay all the blame on the oil companies.

Blame the oil industry? Why? What to they have to do with the policies in Washington?

I'm just pointing out how successful Bush's economic policies have been for his former colleagues in the oil industry. I'm just hoping he will present these impressive figures to the nation tomorrow night.
posted by three blind mice at 11:28 AM on January 30, 2006


I'm not optimistic that this will result in good policy, but at least Bush is going to publicly acknowledge that the US is facing a serious problem and needs to respond.

The previous nods towards alternative energy have all been very bad jokes. (Example: hydrogen.) I foresee more of the same.

That said, partisan rhetoric won't accomplish anything. Environmentalists need to do a better job of providing simple explanations of the flaws in his policies, such that the average american can understand (let alone care) about the decisions.

Liberals need to explain not just what's wrong with his solutions, but what they'd do differently, in a clear and concise manner.

I just don't see that a bunch of people saying "Bush sucks" will accomplish anything.

Perhaps some well-informed posters here could help put this all in a more coherent, non-partisan historical context.
posted by I Love Tacos at 11:28 AM on January 30, 2006


Yeah, and "Der President" isn't editorializing, either. Exxon is likely to be the largest company in the country in turns of revenue, so it's not exactly earth-shattering news that they have the largest profit.

Here's some context, courtesy of the Washington Post:

Most financial institutions, such as commercial banks, are routinely more profitable than Exxon Mobil was in its third quarter. For example, Exxon Mobil's gross margin of 9.8 cents of profit for every dollar of revenue pales in comparison to Citigroup Inc.'s 15.7 cents in 2004. By percentage of total revenue, banking is consistently the most profitable industry in America, followed closely by the drug industry.

Altria Group, the maker of Marlboro and other cigarettes, made 22 cents for every dollar of revenue in 2004, and pharmaceutical company Merck made 25.3 cents for every dollar of revenue in 2004.

By other measures, such as profit per employee, return on invested capital and free cash flow, Exxon Mobil is nowhere near a standout.

posted by fochsenhirt at 11:29 AM on January 30, 2006


I bet he'll say "The state of the union is strong." (Applause.) They always say the state of the union is strong. (Applause.) We could have half the country overrun with time-traveling mutant cyborg Communist assault troops from the future, and the Prez would still say that the state of our union is strong. (Applause.)

For once I'd like to see someone say something honest, rather than spout a stupid stock phrase and then wait for everyone to clap and cheer, congratulating themselves for running such a wonderfully strong union. This is nothing more than a photo op wank session for the current administration, and the State of the Union address has been this way probably at least since the first time it was televised.
posted by caution live frogs at 11:30 AM on January 30, 2006


Did corporations not post record profits during the adminstration of the previous president?
posted by JekPorkins at 11:32 AM on January 30, 2006


What ever happened with this story?
posted by Mijo Bijo at 11:32 AM on January 30, 2006


You traitorous fools! (TERROR ALERT!) Don't you realize that huge oil profits (AL QAEDA!) ensure our (9/11!) freedoms as Americans, and guarantee that (IRAQ IS THE CENTRAL FRONT IN THE GLOBAL WAR ON TERROR!) democracy (SADDAM WAS A VERY VERY BAD MAN!) prevails in the global war (BRING 'EM ON!) against liberty and (IT'S A TERRORIST SURVEILLANCE PROGRAM!) the values this great country (LET'S ROLL!) was founded on?
posted by digaman at 11:33 AM on January 30, 2006


Mijo Bijo: nothing. You expected otherwise?
posted by you just lost the game at 11:34 AM on January 30, 2006


Yeah, and "Der President" isn't editorializing, either.

Where was that in the FPP?

Are you suggesting that Herr Bush's policies are NOT working?

You miss my point entirely. This is GREAT NEWS fochenshirt! The President is going to talk about energy and the economy and he should present these impressive figures as evidence that HIS POLICIES ARE WORKING!!!
posted by three blind mice at 11:35 AM on January 30, 2006


I'm going to vote that nofundy stands for government due to his policy of just shouting out remarks about how evil George Bush is. I mean, that's such a fantastic political discourse and I foresee great things in the future of the United States of America if that carries on.

*applauds*
posted by longbaugh at 11:35 AM on January 30, 2006


You left out: (MISSION ACCOMPLISHED)
posted by Mijo Bijo at 11:35 AM on January 30, 2006


I just don't see that a bunch of people saying "Bush sucks" will accomplish anything.

Yea, but it sure is fun... more than I imagined even.
posted by Witty at 11:36 AM on January 30, 2006


Yeah, and "Der President" isn't editorializing, either. Exxon is likely to be the largest company in the country in turns of revenue, so it's not exactly earth-shattering news that they have the largest profit.

See, we don't care about that. It is the huge size of the profit that matters. This is a walmartian kind of indignation and facts are only facts if we say they are. Got it?
posted by stirfry at 11:40 AM on January 30, 2006


i try to buy my gas at CITGO
posted by specialk420 at 11:42 AM on January 30, 2006


fochsenhirt, that is certainly relevant information, but I don't think it comes close to being adequate context. What is the historical profit per $ revenue for the oil industry?

My understanding is that commodities don't normally earn such huge profit percentages because there is much less risk in the industry...
posted by Chuckles at 11:42 AM on January 30, 2006


Lets talk about " Iran crisis 'could drive oil over $90"
From The Observer ( the Sunday edition of the UK Guardian ).
posted by adamvasco at 11:45 AM on January 30, 2006


Yeah, it'd be nice to see some thoughtful, reality-based discussion of why oil prices are rising, how that compares to previous years (inflation adjusted) and other companies/industries, and what might be done either to lower oil prices (and hey, is that really a good thing, given the many externalities of using oil?) or find workable energy alternatives.

Sincere thanks to the few posters above who have tried to make this a thoughtful, substantive discussion instead of yet another self-indulgent "gosh I hate George, don't you?"...
posted by twsf at 11:45 AM on January 30, 2006


Some links providing evidence that Bush's policies are directly benifitting oil companies at the public's expense would be nice.

Can't vouch for this over-editorialized post, driveler, but the above describes exactly what's been happening in the natural gas business (with the same big oil players - Exxon, Chevron, etc), as laid out in this NYT article. Firing government auditors who uncover fraud is just one of the strategies used to look the other way while the public is bilked out of its share of the increased revenues:

...an often byzantine set of federal regulations, largely shaped and fiercely defended by the energy industry itself, allowed companies producing natural gas to provide the Interior Department with much lower sale prices - the crucial determinant for calculating government royalties - than they reported to their shareholders.

As a result, the nation's taxpayers, collectively, the biggest owner of American oil and gas reserves, have missed much of the recent energy bonanza.

...the outgoing Clinton administration pushed through tough new rules for valuing crude oil, which relied on comparing company reports with an index of spot market prices.

But the Bush administration did not close any loopholes for valuing natural gas. Indeed, in March 2005 it expanded the list of deductions and decided against valuing sales at spot-market prices when companies were selling to their own affiliates...

The Bush administration also took a much more relaxed approach to auditing and fraud prevention. In 2003, the Interior Department's inspector general declared that the auditing process was "ineffective" and "lacked accountability" and that many of the auditors were unqualified.

In one instance, inspectors discovered that auditors had lost the working papers for an important audit and tried to cover up their blunder by creating and back-dating false documents. Rather than punish anybody, the inspector general recounted, the minerals service gave the employee who produced the new documents a financial bonus for "creativity."

...The Interior Department also fired two of its most aggressive and successful auditors. One of them was Bobby L. Maxwell, a veteran auditor who had recovered hundreds of millions of dollars in underpayments over a 22-year career and received an award for meritorious service in 2003 from Interior Secretary Gale A. Norton.

Mr. Maxwell was fired in early 2005 after clashing with superiors over his belief that Kerr-McGee had shortchanged the government $12 million. Mr. Maxwell charged that he had been wrongfully fired, and the government paid him an undisclosed amount of money to settle out of court.

Mr. Maxwell is now pursuing Kerr-McGee, which has denied any guilt, with his own lawsuit under the False Claims Act, which allows private citizens who prove fraud to collect some of the money they help recover.

"It's all gotten worse, not better," said Representative Carolyn B. Maloney, Democrat of New York, who led Congressional investigations into cheating on oil royalties in the 1990's. "They make the process so complicated that no one can really follow the money."

Perhaps the most striking example of sluggish auditing is the government's effort to collect back royalties from companies that blatantly ignored one of the government's basic rules. Under current rules aimed at promoting energy production in deep waters, companies can produce large volumes of oil and gas without paying royalties at all. But the rules also require companies to start paying royalties if market prices climb above certain "threshold" levels.

As it happens, market prices have been above those levels since the 2003 fiscal year. But even though dozens of companies never bothered to start paying, Ms. Burton said earlier this month that the government had yet to demand repayment three months into the 2006 fiscal year...

Over the last four years, the Bush administration has ordered its auditors to move away from detailed inspections in favor of a more cursory approach of looking for anomalies in company reports. If a company in Louisiana, say, reported prices that differed from those of other companies in the same region, it would attract closer scrutiny...

The agency's strategy has drawn protests, however, from many states, which are entitled to a share of federal royalties, and from some of the Interior Department's most aggressive auditors. One of those auditors was Kevin Gambrell, director of the Federal Indian Minerals Office in Farmington, N.M. Mr. Gambrell fought with his superiors over many issues, one of which was their demand that he do fewer audits and simply monitor posted prices of companies in the same area...

The Interior Department forced Mr. Gambrell out in 2003, charging that he had improperly destroyed office documents. Mr. Gambrell sued for wrongful termination, arguing that he had discarded only copies of documents. He also presented evidence that his office had recovered eight times as much money as offices that used the administration's preferred approach. The government settled his case in 2004 by clearing him of any wrongdoing and paying him an undisclosed amount of money.


That about covers your request, doesn't it?
posted by mediareport at 11:47 AM on January 30, 2006


In one instance, inspectors discovered that auditors had lost the working papers for an important audit and tried to cover up their blunder by creating and back-dating false documents. Rather than punish anybody, the inspector general recounted, the minerals service gave the employee who produced the new documents a financial bonus for "creativity."

Bwahahahaha!
posted by furtive at 11:53 AM on January 30, 2006


a good link, mediareport. thanks
posted by stirfry at 11:56 AM on January 30, 2006


Gas prices in my area have gone up $0.40 since Jan 1st. Of course I'm frustrated to read about gigantic record profits while prices are still rising, but the thing that gets me the most is that I've heard nothing about gas prices on the news at all this month.

The problem is described perfectly above. Gas prices are a matter of supply and demand. Demand for gas is through the roof - although prices have skyrocketed, demand has not declined.

Curb the demand, and prices will decline. Oil companies are not to blame for making money - the consumer is to blame for giving it to them. Stop buying their gas and their profits will fall.
posted by b_thinky at 11:59 AM on January 30, 2006


Get a bike.
posted by MarshallPoe at 12:08 PM on January 30, 2006


mediareport's post has messed up My Comments. I'm hoping that a </em> will fix it - here goes nothing...
posted by Chuckles at 12:09 PM on January 30, 2006


Heh, I didn't think it through thoroughly... Of course it will be fixed for me, my comment will bounce mediareport's off the My Comments page...
posted by Chuckles at 12:11 PM on January 30, 2006


Why doesn't one single news source write an article like this post?
posted by Mr_Zero at 12:11 PM on January 30, 2006


$20 says that he calls for opening up ANWR as a solution to the energy crisis!
posted by jasper411 at 12:20 PM on January 30, 2006


Hey longbaugh,

You'll find your dinner just outside the barn door.
The horse I rode in on left it there for you.
Your constant commenting on my posts gets old too, don'tcha' know? Why you stalking me?
posted by nofundy at 12:21 PM on January 30, 2006


Daft.... the percentage profit on gas (not cents per gallon, as mistakenly cited, but cents per dollar of revenue) has remained pretty constant. It's even mandated in contract for most delivery companies. So, when we, the consumers, require a LOT of gas, and the prices go up for any of a myriad of reasons, that percentage results in more profit.

So?

You can either stop being such a consumer (which will drive the prices down), or you can see if you can get distribution companies to renegiotiate their supply contracts. Either works. Getting mad that they are successful is kinda lame.
posted by dwivian at 12:23 PM on January 30, 2006


Who is writing Dubya's speeches these days?
I assume David Frum is out since the "axles of evil" SOTU and Peggy Nooner only does Saint Raygun.
Anyone in DC know?
posted by nofundy at 12:24 PM on January 30, 2006


nofundy - that comment above is my second directed at you, which is nothing in comparison to the endless, dull gibberish you keep shouting. I'm sick of seeing dios et al getting a verbal kicking when people who just post random left-wing shit are left out. It's called fairness and it's something you should stand for if you actually valued the freedom you so obviously feel is being eroded. As is, seeing your ridiculous screed in every thread about politics is like watching a child rub it's own crap everywhere. In the end it's only your playpen that stinks.

Incidentally - your comment above was neither big nor clever but I'm sure you know that. Try bringing some sensible commentary to the table and I'm sure everyone would be much more impressed.
posted by longbaugh at 12:31 PM on January 30, 2006


(Jesus Christ, does mefi's favorite incompetent lawyer have to come up in every thread?)
posted by bardic at 12:49 PM on January 30, 2006


Some links providing evidence that Bush's policies are directly benefiting oil companies at the public's expense would be nice.
posted by driveler at 1:58 PM EST on January 30 [!]


Here you go my friend!

Top Oil Company Executives Retool Responses on Energy Task Force Roles

... a White House document subsequently obtained by The Washington Post showed that officials from Exxon Mobil, Conoco (before its merger with Phillips), Shell Oil and BP America met in the White House complex with the Cheney aides who were developing a national energy policy, parts of which became law and parts of which are still being debated.

And I realize the link below says "Common Dreams," but the link goes to a reprint of an L.A. Times article that is in the Times' pay archives.

Bush's Energy Plan Bares Industry Clout
Cheney-led task force consulted extensively with corporate executives. Its findings boosted their interests. Environmental groups had little voice.

WASHINGTON -- Throughout February and March, executives representing electricity, coal, natural gas and nuclear interests paraded quietly in small groups to a building in the White House compound, where the new administration's energy policy was being written.

Some firms sent emissaries more than once. Enron Corp., which trades electricity and natural gas, once got three top officials into a private session with Vice President Dick Cheney, who headed the energy task force. Cheney did "a lot of listening," according to a company spokesman.

Many of the executives at the White House meetings were generous donors to the Republican Party, and some of their key lobbyists were freshly hired from the Bush presidential campaign. They found a receptive task force. Among its ranks were three former energy industry executives and consultants. The task force also included a Bush agency head who was involved in the sensitive discussions while his wife took in thousands of dollars in fees from three electricity producers. The final report, issued May 16, boosted the nation's energy industries. It called for additional coal production, and five days later the world's largest coal company, Peabody Energy, issued a public stock offering, raising about $60 million more than expected. While Peabody was preparing to go public, its chief executive and vice president participated in a March 1 meeting with Cheney.


And also, just out today:

Bush tried to gag environment expert
One of Nasa's leading climate experts has accused the Bush administration of trying to censor him on global warming and the need for immediate cuts in greenhouse gas emissions.

James Hansen, the director of Nasa's Goddard Institute for Space Studies, said agency officials had ordered that public affairs officers review his lectures, papers and postings on the institute's website as well as vetting requests for interviews from reporters.

The clamp-down followed a lecture he gave last month calling for emission reductions, a move the White House refuses to support.


Why would the White House be against emission reductions? Just file under things that make you go 'hmmmm.'
posted by Otis at 12:54 PM on January 30, 2006


A couple of points: most oil companies make far more from production than they do from sale of refined products (Exxon made $16.7B on upstream production and $5.7B on downstream sales in 2004), so rising gas prices have less of an impact on the bottom line than you might think. Also, the net income to total earnings ratio has been rising, but not that much. Exxon's website provides financial information back to 1997. Here's the ratio of profit to earnings:

1997: $0.058
1998: $0.048
1999: $0.043
2000: $0.076
2001: $0.072
2002: $0.056
2003: $0.091
2004: $0.087

This is really a better measure of profitability than "$25.3 billion". Exxon did better in 2003 than they did in 2004.
posted by fochsenhirt at 1:05 PM on January 30, 2006


Now, now, didn't you all see the ad that Exxon Mobil took out in the NYT today?

If you had read the ad, you would know that while the oil companies profits may seem large, in fact they're not as high as the profits made by pharmaceutical companies or the banks. You see, the ad explains, the oil companies take in a lot of money, but they also have a lot of costs. Some of those costs (too many, surely!) are taxes.

I'm not kidding. Ad on the op ed page of the New England edition. I don't know about other editions, other papers, or online
posted by duck at 1:22 PM on January 30, 2006


Otis, that Hansen story may be "just out today," but I FPP'd the original NYT story about him on Saturday. :)

MetaFilter = your media crystal ball!
posted by digaman at 1:28 PM on January 30, 2006


I dunno about all this. Looks fishy, but I don’t have all the facts and I can’t present an argument either way.
What I can say is - wuz I a Dem, I’d jump on this as the “Elect us and pay less for gas” schtick.
Sorta like Bush’s platform “Elect me and get (about)$300.”

It doesn’t have to be ‘true’ obviously. I mean we all got tax refunds, but...
Of course that’s playing the election game, not actually getting anything productive done like weening us off oil.
posted by Smedleyman at 1:28 PM on January 30, 2006


Sorry I missed that digaman. 'Twas a worthy post.

Duck, looks like that ad is part of a media campaign sponsored by The American Petroleum Institute, which ran ads in the New York Times and Wall Street Journal. Details here:

Record profits spark new backlash against Big Oil

And for those of you who may have missed it yesterday:

As energy prices soar, U.S. revenue from energy leases lags
But an often byzantine set of federal regulations, largely shaped and fiercely defended by the energy industry itself, allowed companies producing natural gas to provide the Interior Department with much lower sales prices -- the crucial determinant for calculating government royalties -- than they reported to their shareholders.

As a result, the nation's taxpayers -- collectively, the biggest owner of U.S. oil and gas reserves -- have missed much of the recent energy bonanza.


If that isn't "evidence that Bush's policies are directly benefiting oil companies at the public's expense," I don't know what is.
posted by Otis at 2:13 PM on January 30, 2006


b_thinky:

Well, the supply/demand equation works great for most markets, but the oil market, we are learning, is fairly price-inelastic.

For years economists in the mainstream have followed the supply/demand logic for oil and it makes sense. Except for the fact that the oil market prices are far less supply/demand driven today than they were 30 years ago. Today, oil pricing is a far more speculative venture, primarily due to the fact that reliable data about current and future oil production is slim to none (OPEC members, Saudi Arabia infamously, have not produced verifiable facts and data since 1982. This in itself should make people nervous, but I digress).

During the 1970s oil crisis prices rose astronomically, and yet worldwide demand continued to increase. Quite contrary to the economists' views. The same thing happened this fall with prices - demand stayed more or less the same when all was said and done, even though prices soared. Again, economists were a bit shocked by this.

What is proves is that oil, and petroleum derived products in general, are far more ingrained in our daily lives than most people recognize. Everything from the fertilizer to grow our food to the roads that transport our food trucks to deliver our food to the grocery store is premised on cheap oil. Society is tied to it and I wonder what would happen without it.

Having said that, and going back to my comment about oil and oil based products being part of a very speculative market, it's true: I don't think there's much blame to lay on the oil companies right now. They are merely reaping the rewards for a very volatile market that is precariously supply and demand balanced at the moment with speculators just looking for the chance to take in some profits as well as the value of oil goes up.

Moving beyond that, this is not so much a defense of the petroleum industry as a statement of how it really operates, but let's hope that the petroleum industry takes a large part of that profit and re-invests it in oil discovery and recovery techniques. If you follow Matthew Simmons at all, you'll understand why this should be a priority. Oil discovery and recovery is immensely capital intensive and there are plenty of arguments to be made that the low price of oil through the 1990s is partly to blame for the lack of infrastructure improvement and development that was part of the reason for the shortages following the hurricanes. Of course, if you love conspiracy theories, you may fall along the lines of those who already belive Peak Oil is upon us, that the petroleum industry is well aware and is trying to milk its wells for all their worth while there is still time.

We may not like the petroleum based society/industry that we have to live with, but for the time being it is the only fundamental basis we have. Startling the markets and causing a panic will only make things worse. Coming back to topic from my long-winded post (I apologize), I'm not surprised by the numbers posted today, nor am I dismayed in any way. Lots of companies post record, obscene profits (Microsoft, anyone?) and have obscene cash hoards (Microsoft, anyone? Or Apple, for that matter).
posted by tgrundke at 2:28 PM on January 30, 2006


Well, the supply/demand equation works great for most markets, but the oil market, we are learning, is fairly price-inelastic.

Because it is not a market, Adam Smith - it's a cartel. Supply and demand have little to do with price. Suppy is controlled by the same people who set the price and there is no competition for supply or price. Consumers whose demand is insatiable - have only the option of taking it or leaving it.
posted by three blind mice at 2:41 PM on January 30, 2006


There's no such thing as a free market.
posted by Artw at 2:57 PM on January 30, 2006


Everything ... is premised on cheap oil. Society is tied to it and I wonder what would happen without it.


Ooh, ooh, I know this one: Society would change. This is super fun to speculate about. I predict the death of cities. Invest in horse farms. You heard it here first.
posted by jlub at 3:06 PM on January 30, 2006


OPEC controls quantity, but not price (directly, at least). Oil prices are traded openly in London (IPE) and New York (NYMEX).
posted by matthewr at 3:14 PM on January 30, 2006


Artw: There's no such thing as a free market.

Hmmm. Many markets come very close to a state of perfect competition (I assume that's what you mean by a free market). Some agricultural markets have pretty much all of the features of perfect competition: atomicity, homogeneity, equal access to technology, very low barriers to entry.
posted by matthewr at 3:18 PM on January 30, 2006


Hmmm. Many markets come very close to a state of perfect competition

Hmmm. Perfect information? Zero transaction costs? How close is "very close?"
posted by JekPorkins at 3:23 PM on January 30, 2006


No, of course perfect information and zero transaction costs are impossible (even on internet markets). But the main conditions for perfect competition are atomicity (price-taking) and homogeneity, which are pretty much satisfied in a few (historical?) agricultural markets. Perfect information and 0 transaction costs are necessary conditions theoretically, but from an empirical POV I think that for these few markets, if you were to compare the predicted equilibrium in perfect competition and equilibrium in reality, you'd find that they're very similar.

In retrospect, I should have said "a few", rather than "many" markets.
posted by matthewr at 3:36 PM on January 30, 2006


One other number, Revenue $370 billion Taxes $23 billion @ 6.2% My revenue something less than that, my taxes also something less @ 19% not counting sales tax movie tax hotel tax etc.
posted by mss at 3:56 PM on January 30, 2006


I know its pissing in the wind here - but absolute profit numbers are not the way to determine if a company is earning more money then they should in a competitive market. Of course neither are margins as the oil business would like you to think.

I'm not implying for a moment that big oil has not seen benefits from Bush or anything like that. Just saying looking at single net income number is not meaningful.

You need to look at in terms of profit/ dollar invested. And for a business like Oil that is cyclical you need to look at it over a pretty long period of time.
posted by JPD at 4:01 PM on January 30, 2006


Not an expert on the US oil market, but surely the high oil price has a far bigger impact on oil corporations' profits than anything Bush has done. For example, Shell (Anglo-Dutch oil) recently reported the highest profits ever (in absolute terms), in the UK - £9.32bn, after tax.
posted by matthewr at 4:05 PM on January 30, 2006


three blind mice -

Thanks for the snarky remark - good to see that good ole' MeFi tradition is holding strong as always. OPEC is a cartel, but not all producers of oil are members of it. Further, the price is not set by the producers - oil is freely traded in New York and London exchanges where the speculators are the ones who run the costs up and down. All that the Saudis or Venezuelans have control over is the amount of production.

For further evidence of the control of speculators, go back a few years to 2000 when there was a supposed "glut" of oil on the market and prices were dropping so low that Saudi Arabia was on the verge of default. Even "The Economist" jumped on the bandwagon publishing a lead story about the oil glut, only to find out about three days after publication that it was all speculation and in reality, the market was in almost perfect equilibrium. If anything, there was a marginal shortage. Speculators control the price, not any cartel. The "cartel" of OPEC merely controls production rates for a certain percentage of the market as a whole.
posted by tgrundke at 4:30 PM on January 30, 2006


Just wanted to say thanks to tgrundke for some good comments on a topic that MeFites tend to get ridiculously one-sided about.
posted by Micah at 10:08 PM on January 30, 2006


Because oil prices are so volatile, pinpointing only one or two factors that cause the price to change provides an incomplete picture of the situation.

So to say "speculators control the price" is a bit of a over simplification (so is claiming that OPEC controls the price).
posted by Otis at 6:48 AM on January 31, 2006


Chuckles writes "What is the historical profit per $ revenue for the oil industry?

"My understanding is that commodities don't normally earn such huge profit percentages because there is much less risk in the industry.."


I wonder how they compare to other mining companies like those that produce aluminum, potash, or copper.
posted by Mitheral at 7:19 AM on January 31, 2006


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