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Like Mathguy said, it isn't about profit, it's about profit margin. More than that, it is about return on equity and return on investment. They have to spend to drill and refine...those are capitalized assets you amortize over long periods of time, and the payback periods are long. There is risk associated with exploration...you may spend all the money drilling only to find no oil. That would be a zero return. There is a price tag you attach to any risk...if an enterprise cannot look forward to making a profit margin, no one would want to take the risk. I am not defending the oil companies for what they charge, nor do I have the appetite to analyze and prepare a dissertation. It's just what business does.
Like Mathguy said, it isn't about profit, it's about profit margin. More than that, it is about return on equity and return on investment. They have to spend to drill and refine...those are capitalized assets you amortize over long periods of time, and the payback periods are long. There is risk associated with exploration...you may spend all the money drilling only to find no oil. That would be a zero return. There is a price tag you attach to any risk...if an enterprise cannot look forward to making a profit margin, no one would want to take the risk. I am not defending the oil companies for what they charge, nor do I have the appetite to analyze and prepare a dissertation. It's just what business does.
Yeah, and it's easy to torture numbers....lets say a company makes profits of:
10, 30, 10....well they had a 200% increase! but only a 67% decrease the next year. ;-)
Last I checked, McDonalds made 3.5billion net income on 22.8bil of revenues or >15%.
Exxon-Mobile made 40bil on 400bil of revenues....10%
Garmin made 855mil on 3.1bil of revenues....>25%
Granted we could look at equity and not revenues and get into recognizing capital gains etc. but I'm just making the point that "Big Oil" is to the far left what global warming is to the far right....it's a political hack topic.
What a poor analysis. You mention increase in profits as that is bad in and of itself....and nowhere address their actual profit margins.
Let me give you a little math lesson...
Bob makes $10 profit then $20 then back down to $10.
His increases are 100% and -50% yet he is back to the same level of profit...how is that?
Math is hard.
P.S. If my company made $100 of profit but made $1000 the next year....is that bad? Well it's a 10x increase, it must be....lol
However, when the price of oil & gas goes up beyond what is reasonable it causes inflation in virtually every single commodity on the earth- both directly & indirectly. Nothing gets to you that doesn't have oil/gas effect it's price in a dramatic way.
When oil companies charge unreasonably high prices and make unreasonably high profits the strong ripple effect destroys the economy and genuine hardship to families.
No one would begrudge a fair & reasonable profit. But I think this is above that and the oil companies have a shared responsibility to understand the effects of their product and it's effect on the world. People are, literally, starving to death now in some areas of the globe over unreasonably high oil & gas prices. I would submit that if gas & oil companies continue to make it a point to be one of the main sources of the problem, then thay have to face regulation and be forced to be part of the solution.
Short-term profit generally kills long-term survival. So what? The initial investors have already taken their profits out before the companies die. The few that made fortunes from Enron kept the money while the pension funds were looted. What happens to the rest of the society and economy is nearly irrelevant.
However, when the price of oil & gas goes up beyond what is reasonable it causes inflation in virtually every single commodity on the earth- both directly & indirectly. Nothing gets to you that doesn't have oil/gas effect it's price in a dramatic way.
When oil companies charge unreasonably high prices and make unreasonably high profits the strong ripple effect destroys the economy and genuine hardship to families.
No one would begrudge a fair & reasonable profit. But I think this is above that and the oil companies have a shared responsibility to understand the effects of their product and it's effect on the world. People are, literally, starving to death now in some areas of the globe over unreasonably high oil & gas prices. I would submit that if gas & oil companies continue to make it a point to be one of the main sources of the problem, then thay have to face regulation and be forced to be part of the solution.
I agree that gas is unique in its impact on the economy as a whole. However, whenever anyone starts talking about a "fair & reasonable profit" then I get nervous. Who is going to decide that?
Price controls - whether in the form of "excess" profit taxes or price caps - only lead to reduced supply. The result is shortages because demand remains constant or is artificially inflated. Then what? Should we mandate that oil companies not reduce production?
By the way, the state tax on gas in California is $.45 per gallon plus there is a 7.25% (at least) sales tax. That is way more than the oil companies or resellers make from a gallon of gas. That doesn't sound fair or reasonable.
People are starving to death because of Congress' mandate on ethanol. Rather than letting the market take care of it we have a bunch of insulated DC politicians who are beholden to Big Green. The high price of gas will naturally create competition in the form of alternative fuels that are now cost effective. It might cause some pain in the transition period but in the long-run the economy will be better off than if lawmakers rush into to try and "fix" things.
However, when the price of oil & gas goes up beyond what is reasonable it causes inflation in virtually every single commodity on the earth- both directly & indirectly. Nothing gets to you that doesn't have oil/gas effect it's price in a dramatic way.
When oil companies charge unreasonably high prices and make unreasonably high profits the strong ripple effect destroys the economy and genuine hardship to families.
No one would begrudge a fair & reasonable profit. But I think this is above that and the oil companies have a shared responsibility to understand the effects of their product and it's effect on the world. People are, literally, starving to death now in some areas of the globe over unreasonably high oil & gas prices. I would submit that if gas & oil companies continue to make it a point to be one of the main sources of the problem, then thay have to face regulation and be forced to be part of the solution.
Errr....destructive monetary policy trashing the dollar is the reason oil and gas went up so much (or at least the biggest part of it.) lets not put the cart before the horse here.
In what way is a profit of 10% obscene, abusive or extravagant?
It generally isn't, but when that 10% causes inflationary pressures it could be in the oil companies best interests to cut it a bit. Inflation hurts them too...sometimes more than it hurts us.
In what way is a profit of 10% obscene, abusive or extravagant?
I didn't say it was or wasn't...it would take more analysis than "gee 40billion is a big number", which is basically the point of my entire post. My personal opinion based on everything I've read and looked at is that it's fine.
I've yet to see a decent economic or financial analysis explaining the profits of Exxon as excessive. The democrats upon taking over congress made a lot of noise but in the end did nothing which indicates to me that this is a political issue and that the profits are not excessive in an actual discussion of people with some degree of education on financial and economic subjects.
I love Canadian Maple syrup and pay $10 for a large bottle historically.
Lately, I have to pay $14 a bottle to buy it from Canada.
Some people here are saying that the company selling me the maple syrup is helping cause inflation by charging $4US *more*.....others might say that our monetary policy, hitting the exchange rate has pushed the price up.
If the exchange rate went from 1.4 to 1.0 the Canadian company used to be getting
1.4 x 10 = 14 canadian dollars for their product and is now getting....
1.0 x 14 = 14 canadian dollars for their product
Certainly there is room for a grey area where multiple issues are occuring but I just thought an example might be in order.
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