30 January, 2006

Charts are busted!

ExxonMobil posted fourth-quarter profits of $10.7 billion.

Last quarter, you may recall that they posted profits of $9.9 billion, which was the record at that time. But these heady times we're living in won't sit still for a period as long as several months. Hah! The very idea. So we have a new record. The king is dead. Long live the king!

Some of you might find it alarming that humongous oil companies have essentially got the rest of the world hostage, at barrel-point, or held over a barrel, and other puns as well. We don't even have to draw a diagram, here. Oil price high. Consumer pay through nose. Oil company make out like bandit.* It's pretty clear that oil companies are essentially robbing oil consumers blind.

So why should we let them do this? If only oil executives would descend from their board-rooms and bathe us in the effulgence of their wisdom! Fortunately for us, the U.S. Senate recently had hearings on this exact subject (although oil executives apparently aren't effulgent so much as oppugnant).

Therein, execs do a lot of whining, complaining about environmental regulation, how they can't drill everywhere they want to, limited access to the best oil fields, environmental regulation, Russia causing the price of oil to be low for several years, and environmental regulation. (I'm not exaggerating about the environmental regulation!) Also lots of fulminating about the free market and how it should be left to do its own thing.

This is balls. Most of the increased cost of gasoline is explained by one factor, and one factor alone: oil price. Quoth the head of the FTC:
The vast majority of the Commission’s investigations and studies have revealed market factors as the primary drivers of both price increases and price spikes. ... The world price of crude oil, a commodity that is traded on world markets, is the most important factor in the price of gasoline in the United States and all other markets.
Despite all the complaints of oil executives, despite their grumbling about what a difficult, technical industry petroleum production is and how long the investment cycle is, the fact is, their high profits bear absolutely NO RELATION AT ALL to the high costs they may or may not be incurring. They do not deserve high profits because of unusual circumstances that required much more of them. Their high profits come only because they are fortunate enough to be standing in the right spot at a particular historical juncture.

I thought this quote (ironically) said it best:
"If it's Google, no one asks about the profits because they're too busy buying the stock," said Amy Myers Jaffe, associate director of the energy program at Rice University. "Exxon is different. We have these emotional feelings related to gasoline because there's no readily available substitute."
Sorry, Amy - that's not an emotional reaction. When someone exploits their position of dominance and the inflexibility of the market they are in to make tons of cash, that's just robbery. We don't tolerate it from monopolists - why should we tolerate it from the oil industry as a whole?

I won't suggest that price controls should be put in place. It would be essentially impossible to control the price of crude. Actually, I don't think there's really anything constructive that can be done about this situation (short of repeating tropes about alternative energy sources). This is just capitalism, plain and simple. Some get rich. Others watch.

* Who, I am told, use plenty of tongue.


I am by no means an oil-company apologist -- honest, check my URL, I'm a solar guy! -- but I think you've got it right when you say there's not much that can be done. Suppose we do use price controls? Then supplies run short as producers sell to more profitable uncontrolled markets. The result? Rationing, gas stations running out of gas, and long gas lines when they actually have gas. Of course, with no price controls whatsoever we get price gouging, but most places have laws against that now.

So the choice seems to be between having record oil-company profits and gas when we need it, or shortages and long gas lines just so we can keep our money out of the hands of the oil companies. Would you rather give Exxon $15 or an hour of your time?

It probably doesn't make you feel any better to know that real (i.e., inflation-adjusted) gas prices are on par with what they were from WWII to about 1970 -- we were spoiled with dirt-cheap gas in the '90s. Of course, combined with record profits, that just goes to show that the real cost of producing gas is much lower than it used to be....

Posted by Alan

so we are required by economic law not only to have the most lavish memorial service imaginable, but to pre-pay the funeral director. i dig. 

Posted by david

We have these emotional feelings related to gasoline because there's no readily available substitute." 

And some of us get this emotional reaction b/c a big REASON there's still no readily available substitute is b/c of the actions of said oil profiting company.

Oil company make out like bandit*.

* Who, I am told, use plenty of tongue.

Eww, eww, eww!!! Saurabh! You're lucky I have no current make out opportunities, or I'd be very pissed at how much the lingual image of oily executives is making my brain cringe. What are you, a double agent with the abstinence squad?  

Posted by Saheli

So long as I have out the calculator, I'd like to point out that Sen. Clinton raised $17 million last year, including $6 million in the fourth quarter, making her the biggest legal political fundraiser in America. Hooray for her. It took Exxon Mobil 22 minutes and 35 seconds to bring in the same amount of revenue, based on their fourth-quarter sales. It took 4 hours 9 minutes to gather that much profit, the poor dears. So I think they can make out with whatever body parts they like -- particularly the body politic. 

Posted by hedgey

No, no... the BANDITS use plenty of tongue. 

Posted by saurabh

That 90's-era cheap oil, by the way, was the direct product of the collapse of the highly productive Soviet economy, and their move from consuming most of their oil production domestically towards becoming a major oil-exporter. That combination is unlikely to arise again. There's exactly one country in the world that's physically able to repeat that feat, and I'm standing in it. Well, sitting. 

Posted by saurabh

Yeah, well, you collided the images together by association, if not syntactically. Shame on you.

I think I'm more down with pirate-tongue than bandit-tongue anyway. Arrrrr.

Do you mean 80s era cheap oil? Because I've heard (I think at the same talk I met hedgey at) that cheap oil came from our using political pressure SA to release tons, thereby flooding the market, driving the pricedown and dragging the export-king-USSR into bankruptcy, since oil was its only major source of foreign currency--that, in fact, it was the opening of the Saudi oil-floodgates which "defeated" the Soviet Union (along with the arms race.) I dunno, maybe I'm just confused. . . 

Posted by Saheli

(re 80s, that's what i thought, and more to point that that was why the north sea no longer has liquified dead things beneath it) (all hail maggie & ron) 

Posted by david

Yeah, I've heard that theory. I don't quite buy it, mostly because the USSR was never exporting most of its product. Maybe it relied on what it did export for foreign revenue, and there's a slim chance that the collapse of oil price from its historic highs might have been a crippling blow (iffy), but even so - recall that in the early 80s, the major event going on worldwide was a dramatic contraction in consumption. This is what forced the price of oil down, and in fact OPEC production shrank dramatically during most of the 80s.

But after checking it seems the theory I posited above (which was the one put forward by the head of ConocoPhilips) is incorrect. Russian production tanks after the fall of the Soviet Union (although exports, interestingly, continue to climb during that era - see some graphs I found ). But it doesn't take off again until the end of the 90s, after the historic low of 1998. The best explanatory factor is OPEC production ramping up again after the 80s. 

Posted by saurabh

No, I meant '90s cheap oil. At the time I wrote it, I was remembering paying 90 cents/gallon for gas in the late '90s. But you made me doubt myself, so I checked DOE statistics. They show that real oil prices spiked in 1978, reaching an all-time high in 1981, and returning to their 1978 levels in 1985. Prices then reached an all-time low in 1998 (though they're comparable to 1972 prices, just before oil markets went haywire). Of course, the price of oil has been a lot more volatile since 1978 than it was before, so there are probably peaks and valleys that don't show up in the data set I'm looking at, but that's the gist.... 

Posted by Alan

did you link the same hearings that John Stewart highlighted because Ted Stevens refused to require the execs to swear in? 

Posted by someone else

Oh yeah... I was going to mention those hearings and the Jon Stewart comment, but I forgot. As it turns out, Stevens addresses that exactly. He complains that even before the hearings began there was already a press release about how the execs weren't going to be sworn in. Then he says that it's not customary to swear people in, and anyway, lying in front of a Congressional hearing is a federal crime and the executives are aware of that, so he's not going to swear them in. Anyway, I don't see what the executives would be lying about, anyway, because they're just presenting their viewpoints, essentially, and no one is even interviewing them. 

Posted by saurabh

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