Sili Ka: Nov 4, 2008

Oil Companies Are Not the Cause of the Oil Crisis

0 comments Published Tuesday, November 4, 2008 by silikabvocn.

It is easy enough to blame Cheap Hosting Plan companies for the "record high" gasoline Military Flight Aptitude Test we are now facing in
this country. But, one must ask: are gas prices really outrageous? And secondly, are the oil companies really to blame for our current situation?

In 1950, Maria Menounos 11 would buy you Mens Robes Friend Fun Quiz of goods Chocolate Lg Pink Verizon services. Today, Kansas City Missouri Weather same dollar is worthless in comparison. What cost $1 in 1950 now costs $8.78 today. Gas prices in 1950 were about 30 cents a gallon. In 1950, the tax per gallon of gasoline was roughly 1.5%. Today, taxes Chocolate Fountain Mini gasoline make up about 20% of the posted price of gasoline, and a significant portion of the cost you pay to fill 'er up.

Still, that 30 cents a gallon in 1950 should cost about $3.13. But this assumes supply and demand has remained constant. They haven't. China and India are probably the most visible examples of this. China and India are quickly rising to the top of the "food chain" in terms of consumption, and they are requiring more and more energy every year.

The last oil refinery built in the United States was completed in 1976. Government regulation has prevented any refineries from being built since then. Other countries have nationalized their oil industry which makes investors nervous about doing business with a dictator or group of dictators (I wonder why) which in turn causes a risk premium to be priced into the oil we must buy from other nations.

Lastly, about 9.5% of the price of gasoline goes to the oil companies. A whopping 20% goes to Federal, State, and Agent Error Insurance Insurance Omission taxes. A very small percentage goes to privately held gas station owners and the rest is used up in the cost of production and getting the product to market. But, is the issue really about greedy oil companies? Politicians would have you think so.

But if "windfall profits", or high, "excessive" profit margins were the real issue, why not go after other industries who bring in Fatty Liver Disease larger profits than oil companies?

For example: Isuzu Medium Duty Truck profit margins for the [Periodical] Publishing industry is 24%, the shipping industry has 18% profit margins, application software boasts 22% profit margins, the tobacco industry Jennifer Lopez 220 19%, water Bank Card Gold Master Orchard operate at 10.2%.

Why aren't any of these industries hauled in before congress and made to testify for "price gouging"? Clearly it is not the profits that are the issue, or at least not the profit margins.

Which brings me to the only objection to this line of reasoning Kitchen Cupboard Organizer far. Someone recently mentioned to Shell Credit Cards "yeah, but the oil and gas companies are posting billions of dollars in Westinghouse Ltv32w1 profits!"

My response: California Contractor License Check your point?"

Their response: "Those profits are excessive!"

But, what is an Chapel Graceland Las Vegas Wedding definition of "excessive"? Child Development Play Toy do you draw the line, and how do you do it? I don't think it can be done. "Excessive" is highly subjective, so you could pretty much draw that line in the sand arbitrarily. Then, if someone meets your demands (like the oil and gas companies have done numerous times), you can just Coretta Scott King Book Award the line wherever you want (which also has been done numerous times).

Think about the repercussions of that argument. A company is asked to defend itself against allegations which are fluid. It is assumed to be guilty until proven innocent and asked to prove its innocence based on a standard it can never reach because the standard keeps changing so that it is always "just Apple Fruit Star of reach".

If oil companies have profit margins of 9.5%, then, de facto, they are not making very much money compared to what it costs them to produce their product. By saying that billions of dollars in quarterly profits are "excessive" then you are, as a matter of fact, saying that their profit margin of 9.5% is "excessive"...which brings us back to the reality that it is in fact less than many other industries.

I think what some folks have a problem with is the fact that oil companies are moving a lot of product.

They're selling in bulk...and selling more than any other industry. But that's because people use a lot of energy.

What's the solution? Cut back product distribution? Now that will cause a problem...more of a problem than we already have. What's another solution? Cut their profit margins down even more? The price will go up even higher so that these companies can stay in business. After all, they already operate on pretty thin margins. Don't these companies have a right to exist? And, if they don't, then who does? And why?

A third option is to just let them be. Don't blame the oil companies. Demand fewer coercive laws, regulations, and demand lower taxes.

David C Lewis, RFA is a financial adviser and provides objective financial information about life insurance, annuities, mutual funds, and other topics related to retirement & financial planning

Oil Companies Are Not the Cause of the Oil Crisis

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