Big Oil and the Truth
Well from the responses from another thread, I am starting this thread to answer many of the issues brought up about evil big oil so it won’t be buried in the other thread. Below is a refresher course in world oil 101.
The jump in U.S. gasoline prices this year has so far drained consumers of an extra $20 billion, or about $146 for each passenger car in the country per the GAO. The national price for regular unleaded gasoline hit a record $3.22 a gallon this week, and is up $1.05 since the beginning of February, according to the Energy Department. The added expense is taking money away from consumers to spend on other goods and services, spending billions more on gasoline constrains consumers' budgets, leaving less money available for other purchases. Why don't people think about this with tax cuts? If you want to cut prices on gasoline, cut the taxes, the state, the city, the feds, etc. It adds up to 60 cents a gallon.
Many of you (and politicians) want to take the profits of big oil, But if you're big oil, why would you even consider investing billions of dollars in a country that is trying to effectively ban your product?
Someone noted that grocery stores profit margin is 2%, because people have to eat, and questioned why doesn't big oil look at it that way. Grocery stores are distributors, not manufacturers. Your local gas station is the distributor and is making only about 2% profit. Big oil is the manufacturer, just like Pepsi or Frito-Lay, and they make much more than 2% just like big oil does. Do you want to take their profit too? Let’s just take everyone’s profits? Remember we are governed by the free enterprise system. Profits are good! Live it, love it, or leave it.
I know that the gas price is one of these things that when it comes up, it goes up, people think that there's some suspicious or conspiratorial reason behind it, they just cannot accept the fact that the free market works in gasoline. So let me ask some questions. How many oil companies are there that sell gasoline in the US? I don't even know the answer, but it doesn't matter because there's more than one. If you don't think they are competing with each other, then you don't know the world. ExxonMobil, BP, Shell, and whoever the others are, they compete with one another. I realize that some of you might think they all get together and set the price, but even a US Senate study after hurricane Katrina proved there is no collusion.
How many companies are there selling gasoline in this country that are not American? Citgo, BP. Do you think that ExxonMobil and BP and the rest are getting together to set prices in the US? Remember, these people are the world market. Now, where does this oil come from? Gasoline is oil first and there are a bunch of different places it comes from all over the world. Actually, the number one country we get oil from is Canada. Not Saudi Arabia, Venezuela or Russia. The oil companies do not own this oil as it is, they have to purchase it.
So tell me how it is that oil, which starts the whole price timeline, coming from so many different places in the world, ends up as refined gasoline with no free market determining the price in this country. I want to know how this is possible. I want to know how it is that BP, ExxonMobil, Citgo, etc. are getting together with the Russians and with the Saudis and coordinating this. Then the guys playing the futures market in oil on the commodities market, I want you to tell me how they are involved in this so that the price is set by one person from the time it comes out of the ground 'til it gets to your car as gasoline. All these companies compete with one another at the retail level, they are competing with each other to find oil all over the world. We have to buy oil from all these different countries, and we have to refine it here. All of these aspects have market circumstances that rein in the desire for people to charge more than what they can get for it. Then you've got the stockholders of these publicly traded oil companies who are demanding profits as big as they can be. They're publicly traded companies and if the managers of these companies don't get as big a profit as they could or if they get too little a profit, there's going to be hell to pay from the shareholders.
Have you heard of a country called China? More and more people have access to automobiles that use gasoline, and they are putting a lot of pressure on the worldwide supply of gasoline. The US politicians are standing in the way of this country finding any more oil on our property; be it Alaska; be it off one of the coasts, they won't let it happen, while at the same time they're talking about energy independence.
Big oil earns only 30% of its income from operations in the United States. I want to know how it is that big oil and all these companies competing with one another somehow control the product around the world from the moment it comes out of the ground. I want to know how they own Saudi Arabia, Russia, Iran, and Venezuela. There's oil coming out of the ground everywhere but here. With all the pressure on the supply from the rising Chinese economy and the Indian economy, can you tell me how big oil controls every drop from the time it comes out of the ground until tends up as gasoline in your tank. But you can't tell me because it's not possible.
Do you like flipping on the light switch or having air conditioning at home? Where do you think that comes from? They won't let us do nuke power, so it's coal and it's oil. I haven't even scratched the surface of the oil industry and the costs in finding it, drilling it, bringing it up, transporting it as crude across the oceans and pipelines and so forth.
I literally am amazed that somehow the truth and the facts of the oil business, economics of the oil business, escape people when the economics of most other things are never questioned. I guess that comes from a vocal minority of activists and the Media routinely telling people they're being gouged. Yet nobody ever complains when they're talking about raising those taxes. This market is so complex, it's like the climate, although it's not nearly as complex as the climate, it is profoundly complex, and to try to control it and corner it is impossible.
Saudi Arabia at 8.3 million barrels a day is the largest producer in the world. ExxonMobil at 2.54 million barrels a day is the fifth largest. ExxonMobil's market share of the world oil market is 3%. There is no way big oil is engaging in price fixing and controlling every bit of the oil from the ground to your tank as gasoline with only 3% of the world oil market.
If you are really all that excited by the gas prices, maybe it’s time for you to trade in your Crossfire for a Toyota Prius, and you can join those smug others who like to smell their own farts (see South Park). I’m filling my Crossfire up and driving down the road just for the fun of it!