Tuesday, April 25, 2006

Gimme fuel, gimmie fire, gimmie that which I desire...

...ooh, yeauh!

Gasoline prices thread! What do we do about it, if anything? Republicans want to ease environmental regulations, and Democrats want to give us a gas tax holiday. Even though the taxes pay for us to have the world's envy of infrastructure, and environmental regulations keep us breathing oxygen with our air.

High gas prices kick my butt, and they do some damage to the Island City economy because we are a driving destination.

But, this is what happens in a free market: high demand + low supply = rising prices. I'm for reasonable regulation and taxation and rule of law, less for big oil company subsidies and corporate welfare (especially when the oil companies are making billions upon billions upon billions in profit). Despite the high prices, we still pay for the gas.

I guess what I'm asking is: shouldn't we let the consumers decide how much gas they buy and at what price they pay? At what point do we accept that gas prices are up, and they are up to stay, and people can either pay or change their behavior?

14 comments:

RightOnPeachtree said...

Unfortunately, we just don't have any reasonable alternatives to gasoline-powered cars. Mass transit is a joke in most places. Living close to work is usually cost-prohibitive and biking to work is an impossibility.

The oil embargo of the mid-70's should've been a sufficient impetus for us to actively pursue viable alternatives. However, our feckless politicians haven't had the vision or temerity to commit to a solution that is long past due.

So here we are -- 30 years later -- and we're being held hostage by sand farmers who should, by all accounts, be sitting at the world's kiddie table...but we have to crawl into bed with them, holding our noses the whole time.

Will Bush be the one to lead us out of this darkness? (I'll wait while the laughter dies down). No, Dubya, whose family currency is oil, will not rescue us.

I really think that a candidate, regardless of party, could win the presidency if his entire platform consisted of, "I will do anything and everything in my power, including exposing and shaming dirty politicians, to get us off of foreign oil". Sadly, it'll never happen and this addiction will be the death of us.

S.A.W.B. said...

Dumping these ridiculous blends of gasoline that are made in the summertime would be one of the first things to drop prices, as it would significantly reduce the cost of refinement.

Remember your basic economics, kids. They may be 'record high number' oil profits, but the profit margins aren't all that different than they were last year, or the year before that, or the year before that, etc...

That's why oil is such a safe investment. Predictability over time, and a generally stable ROI.

The time is now ripe, no matter the bleatings of the environmental whiners, to begin drilling in ANWR, off the Gulf Coast, and in the Santa Barbara Channel. While we're at it, we might as well build some new refineries, and allow the existing ones to upgrade capacity...but hey, that might just be logical...

Patrick Armstrong said...

Drilling in ANWR to reduce our dependency on oil is like me growing my own tobacco to quit smoking.

If we produce more, we'll just consume more. The temporary price relief will be offset when demand again exceeds supply and prices start going up again.

Mike is Right On: we don't have any alternatives right now. Oil companies don't have a monopoly, OIL is THE monopoly.

Oil is also an addiction. That's why oil companies with always make their bottom line, no matter what is going on in the world. No competition from other energy sources + a jonesin' population that needs its next fix to get through the workday.

You can blame prices on environmental whiners all you like: it ain't true. Everybody gets their cut of the oil money except Joe Taxpayer & the environment. That's why you don't see the President of the Sierra Club walking off with a $400 million retirement package (Exxon who?).

Patrick Armstrong said...

Glenn Reynolds adds his $0.02 to the gallon.

Fishplate said...

What is the incentive for the government to reduce consumption? Hint: Various levels of government share $0.50 for each and every gallon of gas sold (more money than the oil company receives). Have you ever seen a Congressperson plead for less money?

In the end, the consumer will decide. Last September first, the local employee mailing lists were full of people asking for opportunities to share rides to work as prices rose over $3.50 When the price dropped below $3.00, there was no more talk of ride sharing. I'm sure the government and the oil retailers took note of that fact...

Regarding refineries: If we could agree on ~one~ additive for all fifty states, theat might help. Brewing thirty, forty or more blends of gasoline does not help economically.

The oil embargo of the mid-70's should've been a sufficient impetus for us to actively pursue viable alternatives. However, our feckless politicians haven't had the vision or temerity to commit to a solution that is long past due.

If you will recall, the oil embargo of the mid-70's ~did~ bring about significant change. Prior to those days, cars like Honda and Toyota were curiosities. When people found thay went farther ona gallon, they became much more popular, and the Big three got scared. It was the Government's meddling that prevented that change from being more widespread. Instead of letting the market work, they chose to institute standards that were unrealistic, yet allowed things to go on pretty much as before when fuel prices dropped again.

S.A.W.B. said...

paT, why do you think Venezuelan's are paying what amounts to $0.14/gallon right now for gas? I feel certain that it's not out of Chavez's desire to make GWB look like a fool.

Venezuela drills for, transports, refines, and sells all the oil it could ever need. They have no dependancy on oil from Russia, the Persian Gulf, or anywhere else. They don't pay out the nose to import the oil. It's there, and available, and it's cheap.

To abuse your analogy, if you were growing your own tobacco to quit smoking, you'd be a fool, just as the US would be foolish to drill for oil just to switch to hydrogen/electric/sense of self worth powered cars. If, however, you started to grow and process your own tobacco in an effort to reduce, or possibly end your need to purchase cigarettes from the importers and purveyors of fine, Turkish tobacco, then you'd save yourself much of the $3+ a pack that you're paying now.

Is drilling in ANWR/Gulf of Mexico/SB Channel an instant fix to the prices? No. Will drilling there help relieve the high speculative price of oil right now? Probably to some degree, though how substantially I couldn't tell you without a PhD in Economics.

Also, why is it that people get all ass-on-fire over the retiring chairman of Exxon receiving a large, and from what I can glean well-deserved, retirement package? He did what he was hired to do, which was to make money for the shareholders of Exxon/Mobil corporation. What is the major opposition to a publicly held and traded company rewarding their CEO with a retirement package/large bonus/stock options/ale and whores for DOING HIS DAMNED JOB? Please, enlighten me.

S.A.W.B. said...

Because I'm now cranky about this, I shall do my due dillegence, and provide more fuel to this poorly punned fire.

First, from the world of patented ridiculousness, a proposed boycott of Exxon/Mobil stations. Lemme know how well that works out.

Next, the big, bad, evil British Petroleum corporation posts a net 15% profit loss in the first quarter! Yeah! Score one for the little guy!

Finally, comparative profit margins, courtesy of the high-priest hisself.

As for profit margins ... the amount of money earned for each dollar of sales ... oil companies are nowhere near the top of the list. In 2005 pharmaceutical companies made about 17.6 cents for every dollar of revenue. That, for those of you educated in government schools, that works out to a 17.6% profit margin for the drug makers. How about your local bank? They made about 19.1 cents for every dollar of revenue. Almost a 20% profit! Not too shabby. And what about your household goods and cosmetics? Those companies earned 11 cents on the dollar. A lot of competition there. Now, the oil companies. What did they make? In 2005 the average was 8.5 cents per dollar of revenue. That works out to an 8.5% profit margin.

Why aren't we out, pitchforks and torches in hand, marching on your local bank/pharmecutical company/favorite consumer goods producer? Surely we're at least as addicted to money/medicine/RC Colers and Moon Pies as we are to oil? In fact, if you look at the profit margins, we're MORE addicted to money/medicine/Pie & Coler than we are to Oil.

I await your responses...

Patrick Armstrong said...

I'm not complaining about his $400 million retirement package, I'm simply pointing out that environmentalists don't make near that kind of money. I'm not complaining about the profits oil companies make off their business, I'm complaining about the money they make off the taxpayer in kickbacks.

They can make all the profits and retirements they want, long as they follow the laws of the land. But one reason to point that out is that OIL is the monopoly, it is our only source of energy and there is no competition to OIL in the US energy market.

The smoking analogy is one I like, because it adresses the whole issue. It is the difference between OIL independence and engergy independence.

If OIL independence is our ONLY goal, than, you're right - it ain't a good analogy. But, the goal (in my mind) is to end our dependence (addiction) on OIL, foregin or domestic.

I realize it will take some time to do that, which is why we need to get to it starting now. We will never stop using oil - but we have got to find some alternatives. A little competition will bring those oil prices down quicker than any windfall tax ever will.

If all we do is figure out ways to get more oil, we'll be right back at this same debate as soon as demand exceeds supply and prices go up again.

S.A.W.B. said...

Pat, your smoking analogy is not necessarily flawed, but it is a bit myopic. If we drill for domestic sources of oil, the prices domestically for oil will drop, and demand for foreign oil will drop, because the speculation will be that we can have some meaningful effect on the world oil market.

If the US can increase it's demand for oil significantly above what it's at now, without a wholesale increase in the population, I'd like to see it.

Environmentalists generally don't work for multi-national, publicly held companies. Rather, they generally work for privately held non-profit concerns. Apples to gorillas.

Laddi said...

sawb, you're first link about the town boycotting gas pumps is funny because people do think that makes a difference. I think most here understand it doesn't.

The second link about BP is one of those lies, damn lies, and statistics crap articles. BP profited $6.6 billion one year, but the next the profit is only $5.6 billion. Did they ever really lose money? No. They're still getting great profit, profit-on-profit, yet they can still spin how my profits have decreased. Cry me a river. BP made money, serious money. Just less than a year ago. Wah.

Further:
"BP's first-quarter profit last year was boosted by $1.1 billion in divestments, including the sale of its 10.34 percent stake in Ormen Lange, a natural gas field off Norway's continental shelf."

That $1.1 billion sure looks similar to the difference between last year's 1Q profit and this year's. Exclude that one-time sale and boom, net result = no change just profit. Good job spinning that one.

Lastly, comparing the relative profit margins between industries doesn't address the issue and is instead a terrible straw man. The difference in profit margin between big oil and pharmaceuticals, or between big oil and fast food, or big oil and nestle makes no difference and has no relevance in explaining WHY big oil's profit margins have significantly increased more during the past two years. We're not asking why big oil's profit margins are larger or smaller than another industry, but why their margins have increased steadily from one year to the next without a reasonable explanation for such an increase. If anything, due to increases in operating expenses, profit margins should have DECREASED, not increased.

In 2003, the oil industry averaged approximately 5.85% over the year; then that increased to 6.37% in 2004. Now this year we're looking at +8% profit margins? If you want to get cute with numbers, that's at least a 36.8% increase in profit margin in just a few years. It'd be one thing if you can say that profit margins haven't changed over the past few years, but that's patently false.

Do the math yourselves. Net Income and Profitability from EIA. Remember: profit margin = net income / operating revenue


Also note:

But Public Citizen noted that oil companies downplay these record profits by calculating profits differently when they communicate with Wall Street and shareholders.

When speaking to lawmakers and the general public, the oil industry highlights the small profit margins (typically around 8 to 10 percent) that measuring net income as a share of total revenues produces.

But that's not the measurement ExxonMobil uses when talking to investors and Wall Street. For example, the company’s 2004 annual report reads: "ExxonMobil believes that return on average capital employed is the most relevant metric for measuring financial performance in a capital-intensive industry such as” petroleum..." In 2005, ExxonMobil enjoyed a 30 percent return on average capital employed"


It's disengenious and false to say profit margins haven't changed when facts show otherwise.

Is it the right of big oil to make money? Absolutely! But to take advantage of a tight market, a bear economy, and natural disasters makes me want to puke it's so sickening. I don't disagree that there are many other factors aside from the oil companies themselves that decide the price of oil. So if the price was increasing without changes to profit margin, sure, I can kind of go with that line of thought. That's not the case. The fact is the difference in profit per $1 of revenue is greater now for oil companies than in recent years past, and that falls squarely on the shoulders of those companies and is why many people are upset. You can stop now with the "profit margins aren't all that different" song.

dadvocate said...

Gas prices are a tough problem. I live 60 miles from my work. Even though I get 30 MPG I still use a lot of gas and it costs.

I have trouble getting too angry at the oil companies though when I look at the inefficiency, incompetence and idiocy of government at all levels and what we pay in taxes. Heck, over the last few years the Federal government has allowed millions of people to enter our country illegally.

Dante said...

I'm of the opinion that we should do almost nothing. Our refineries still aren't at full capacity following last year's hurricaines and we're experiencing an increase in demand that we've never seen before. That's going to drive fuel prices up. According to research done at Ford Motor Company, gasoline would have to top $4 per gallon before Americans seriously reconsider their driving habits so apparently they're not too high at $3 and some change.

I'd be all for building new refineries but I'm not ashamed of my "not in my backyard" mentality when it comes to building a refinery. If they don't get built elsewhere, I can live with that. I feel the same way about domestic drilling. I'm all for it but if the residents don't want it, ok. That being said, if residents do want it (like the majority of Alaskans who are all for ANWAR drilling), let them have it. It's their backyard.

As far as government subsides go, I'm all for removing any government subsidies for oil companies.

Increasing supply is certainly a solution. Pat's asserrtion that drilling in Alaska is just a flash in the pan is correct, but even a small increase in supply can have a large impact on pricing.

Another more painful but obvious solution is to use less oil. We all use oil. Even the hippies that don't own cars and buy organic food from their local Earth Fare use oil. That delivery driver didn't get the goods there by rickshaw. However, we're going to actually have to be strained financially before we start using less. Until I absolutely have to, I'm going out weekly to my nearest lake to be pulled around by an internal combustion engine. Likewise that 30 year old mother of two that drivers her Excursion around as a commuter vehicle isn't going to give it up until she has to.

Dante said...

Oh and another thing I was reminded of from the paper this morning:

I know this will once again expose me to a possible stale croissant assault, but we could all take a lesson from France and build a few nuclear power plants over here. Hydro-electric is awesome because it gives us all these wonderful lakes but there just isn't enough hydro-electric to go around. The China Syndrome is certainly a scary movie (more for the acting than for the plot) but that sort of scenario is laughable. I'll gladly put a nuclear plant in my backyard.

On a side note, I can't believe I thought there was an A in ANWR. I always thought it was "...Wildlife and Reserve" but I found it's really "...Wildlife Refuge." Maybe subconciously I just wanted ANWR to be spelled more like GWAR.

Buzzzbee said...

My thoughts on this are that Free-market rules do not apply to a market that isn't really free. It's true that people can cut back to a certain extent, but I think we can all agree that we have to go to work, go to the grocery store, etc. I know that I personally don't have an effective Non-gasoline-combustion means of getting to and from the places I need to go. Our condition is symptomatic of living is a large, spaced out country.

My solution is to control this situation as best we can through government policy, while also "really" working towards innovation to free us from oil. The "really" is in quotes because I don't buy into those clean environment/encouraging innovation commercials coming from Exxon-Mobile and others.

To me, this is the real cost of Republican economic philosophy. We are more concerned about how much of our tax money we can save than what we can do with it. We should be sparing no expense to create cleaner, cheaper ways to effectively satisfy our energy needs. In 1961, when our only spaceward accomplishment was getting Alan Shepard 116 miles off the ground, John Kennedy announced we would be going to the moon before the end of the decade. Back then, this was an America that could make an impossible statement like that and then make it happen. Of course back then, we didn't rely on companies to finance and make achievement happen. We did that as a country.

Now, our motto is "show me the money". We want to pay less into our government science programs and as a result we get less out of them. We should be able to say, we'll be energy independent in by 2015 and then actually make it happen. From my point of view it's a matter of priorities. Which is more important, tax-cuts or gas prices? Which is more important, tax-cuts or medical innovations? Which is more important, your child's education or tax-cuts? I could make these hypotheticals all day, but I think you probably get the idea.