Thursday, October 30, 2008
Profits, profit margins, get the whole story
With 58% Jump in Profit, a Record Quarter for Exxon
As usual the NYT, like most of the rest of the media fail to put oil company profits in perspective.
The "record" was set with the highs in oil prices back in the summer. I want to know what the profit "margin" was. The numbers are impressive, but most Americans don't differentiate between "profit" and "profit margin" or the net earnings to revenue ratio.
That is the real telling figure. Microsoft averages 28-29%. Coke averages 18%. Most people think a 10% margin is acceptable. Historically, oil companies earn 7.5-8.5%, even during the recent "astronomical highs." Exxon's net margin is 9.21%. Coke 18%, Microsoft 28%, Exxon 9.2%. Who's really raping the consumer?
In this quarter they spent $7 billion on research and development, nearly $33 billion on taxes (that's before the Obama "windfall" profits taxes) and had earnings of $14.8 billion.
And those earnings are returned to the investors, i.e. pension funds, mutual funds, 401-K's, individual investors, institutional investors. If you have a retirements fund or mutual fund, you may very well be a beneficiary.
All I want to see is perspective in these articles but they are determined to demonize these companies without which our economy would come to a screeching halt. No energy to run it, no economy, no jobs, no home, no retirement, no food, clothes, goods etc.
Do they make a lot of money, Sure do! Is that bad? Let 'em go bust and see what happens. Do they earn excessive profits, not even.
"We are all in the same boat on a stormy sea and
we owe each other a terrible loyalty." - G. K. Chesterson
Labels: capitalism, energy, Exxon, New York Times, oil, profit margin, profits, taxes, windfall profits
Saturday, August 02, 2008
Politics, power and pocketbooks...
It’s been a few days since posting. Lot’s of personal responsibilities clamoring for attention drew my attention away from the computer, but not the news. Still, in the coming days it will be a balancing act to write while continuing to take care of business at home.
Of interest is the today’s story on the draconian measures of House Democrats to shut down Republican efforts to pass legislation to deal with the current rise in prices digging into the pocketbook of American families.
The House leadership, without debate, passed a resolution Friday to adjourn that legislative body for the next five weeks. In doing so they effectively turned a deaf ear to the cries of Americans seeking relief from high gas prices.
Democrats are reticent to enact any legislation that brings relief to high oil prices, preferring to play on the American distrust of oil companies that has been perpetuated by their rhetoric and media misinformation.
After the adjournment, Republican held a protest on the House floor with Representative Thad McCotter (R-Michigan) proclaiming, “he believes part of the reason Congress is so hated by the American people is because they ‘care more about politics than about working people.’"
Rep. Mike Pence, R-Ind, declared, "Republicans will not go quietly. Let us demand that the president of the United States ... call a special session of this Congress on energy."
So what’s up this Democrat Congress? Why won’t they address the issue of high oil prices? I believe, like many others, it’s because they want oil and gas prices to remain high, at least through the November elections. What better tool to demonize Republicans than to paint them and the Bush administration with the false colors of complicity with “big oil.”
The ignorant voter base of the Democrats who will not educate themselves on the facts of the issues will blindly fall in line. Many other Americans who remain more interested in entertainment and celebrity than arming themselves with the facts will follow along.
Meanwhile, Barack Obama has flipped and now supports drilling offshore. That’s a 180-degree flop from his strongly held, immovable and principled position of only a few weeks ago. One would have to believe that his principles can be bought and the change we can believe in it the changing nature of Mr. Obama’s positions.
And the beat goes on. Meanwhile, while the American people struggle with high fuel prices, spiraling grocery prices and an economy that seems to be faltering, succumbing to the efforts of the Democrats and their media crony’s, Democrats and Republicans go on a spending spree.
The spending bill passed on Friday included 510 earmarks. These spending measures are stuffed into legislation, most going unnoticed until after the final vote. Most of the money spent goes to pet projects in the representatives’ district and much of it isn’t even requested or lobbied for by the recipients. Their primary purpose is to memorialize the representative or senator who lassos it.
Meanwhile, weighed down by the aforementioned increasing cost of living, American families are paying for the vanity of their representatives $17 Billion addiction. According to Citizens Against Government Waste, politicians spent $17.2 billion on 11,610 pork projects in 2008. It cost’s every American family $153.57. That’s more than a week’s worth of groceries for most families, money they could sorely use in their own budget yet Congress persists in pilfering the pockets of the public for their own pernicious practices.
"We are all in the same boat on a stormy sea and
we owe each other a terrible loyalty." - G. K. Chesterson
Labels: Democrats, election, energy, food, fuel prices, Obama, oil, politics, Republicans
Thursday, July 17, 2008
Drill here, drill now...
American Solutions' Dave Ryan presented a petition with the signatures of 1.3 Million American voters today to the Republican Congressional leadership.
The petition demands Congress take action now to Drill Here, Drill Now and tap our American petroleum resources. This is too important an issue to stand-by and let Congress do nothing.
And they will do nothing if the voters don't act. Americans are now struggling under the burden of high petroleum prices brought on by legislators who have done nothing to prepare for this crisis since the last time oil prices shot up in the 1970's.
We do have a few leaders, statesmen, in Washington who will take the lead, but the majority party will continue to point fingers and blame all the way to the fall elections. All the while the American people will be the ones struggling under these high prices while our congressmen and senators drive around in luxury paid for by our tax dollars.
We need to tell them to act now, not out of politics but because as our representatives they are required to act in our, the voters interests. Not in the interests of the environmental cartels that have ruled the liberal agenda in Washington for so many decades.
If you have yet to sign the petition, do so. It's not too late to let your voice be heard.
"We are all in the same boat on a stormy sea and
we owe each other a terrible loyalty." - G. K. Chesterson
Labels: crude oil, energy, fuel prices, oil, politics, Republicans
Wednesday, June 18, 2008
Curing cancer...and our energy problems
I've been "covered up" the past few days with work obligations making it difficult to even think about posting. Not that there's a lack of stuff to comment about.
One thing caught my attention though. As mentioned before, I listen to podcasts when I'm able to at work. I control what I listen to, it's stuff that interests me, I'm not at the whim of some radio station and it's more mentally engaging than just music.
On that note, I'll have to post a list of my favorite podcasts sometime. But that's for another time.
On my list of listening material is "Cranky Geeks," a tech podcast that discusses all things technology.
On a recent podcast there was mentioned just in passing an item about an inventor, John Kanzius, who has discovered a way to attack cancer with radiowaves. It's done by attaching minute metallic particles to the cancer cells and directing RF energy towards them, heating the metal and the cells, killing the cancer cells.
According to other researchers working in the next stage of the project, it holds great promise. The procedure has already been proven to work in animal subjects and the hope is to soon begin human trials. As it goes into further research and probably medical trials, Mr. Kanzius hopes he will be able to see the procedure used to help a cancer patient. Oh, he's a cancer patient himself, he has leukemia.
But I said the mention on the podcast was in passing. The panel pretty much panned the idea, questioning if it could be done and how would they get the metal particles to the cells. If you weren't paying attention you might have even missed the whole thing.
What really caught my attention though took place a few days later. A friend was over and she mentioned she had heard of a guy who had discovered a way to make fuel out of seawater. Huh! Like that's been the "holy grail" for years! Making fuel out of water? Wow!!
While she was here I did a search and low and behold I found the article. It was a CBS news item, but the focus of the item wasn't fuel from seawater, but killing cancer cells with RF waves.
It seems that in his RF/cancer research, Mr. Kanzius discovered that if he directed radio waves at seawater the chemical bonds of the seawater were weakened and the result was hydorgen. The same stuff others are wanting to use to make hydrogen fuel cells to power cars. Wow! Fuel from water!
To my knowledge, the energy angle to this has barely made a ripple in the news. The 5 and a half minute CBS broadcast of Mr. Kanzius' cancer discovery didn't mention it. It was the A/P print article along side that carried that part of the story.
Local Kentucky TV station, WKYC, produced a story on the energy angle that is heavily viewed on YouTube.
I'm just amazed that as big a story as energy has become in recent months, this discovery hasn't received more air time. But then, hydrogen isn't the "darling" of the environmental cartels. They are true believers in solar, wind, tidal. Anything that is even remotely linked to petroleum is anathama to them.
As I've mentioned before, to work our way out of this energy problem, we must employ all resources. We cannot depend on any single source. Hydrogen is a clean fuel. When it burns it gives off CO2 and H2O. That's Carbon DiOxide and Water. For a fuel that's as clean as it gets!
"We are all in the same boat on a stormy sea and
we owe each other a terrible loyalty." - G. K. Chesterson
Labels: cancer, energy, fuel prices, oil, power, technology
Wednesday, June 11, 2008
Congressional windfall profits grab...
The rising price of gasoline is hurting nearly every family in America. We are tired of Congress doing nothing but bowing down to the environmentalists.
It is time for Congress to develop a program that allows the exploration of America's energy sources without materially affecting our environment. Congress should put our families first, ahead of the environmentalists!
Recent actions by Congress to demonize oil companies while Congress does nothing of substance are deplorable. Senator Claire McCaskill castigates oil companies for earning $83,000 a minute in profits in 2007.
At the same time, for every minute of 2007 and 2008 Congress spends $5,137,000.00 of the American taxpayers hard earned money, and continues to ask for more. That's over $5 million a minute with nothing of substance to show for it.
As a nation our problem is not the oil companies, who produce a needed product and earn a reasonable 8-10% profit margin for their efforts. Our problem is a Congress who is in the pockets of the environmental cartels that are bent on the destruction of the American economy while Congress aids and abets the ruin.
It's time Congress acted with substance, not throwing fodder to the masses in the form of an oil company "windfall profit tax" "trust fund" that will be raided by this do nothing Congress in the same way the Social Security trust funds are.If this is the best our elected officials can do I suggest they do the American people the greatest service a politician can and just get out of the way and allow the American economy and private industry go to work and fix this problem that by it's very nature Congress cannot.
"We are all in the same boat on a stormy sea and
we owe each other a terrible loyalty." - G. K. Chesterson
Labels: crude oil, Democrats, fuel prices, oil, politics, profits, Republicans, taxes
Thursday, June 05, 2008
A comprehensive solution needed
Finally, a major factor in the rising cost of crude oil and fuel is the decline of the dollar. Having lost about a third of its value since 2001, this loss of value has weighed heavily on the cost of foreign goods imported into the US. Taken another way, all else being equal, a barrel of oil that sells on the futures market for $133 would, with the dollar returned to its former strength, cost only about $90. That would result in a corresponding drop in the price of gasoline back to about $3.00 - $3.15 per gallon, just on the strength of the dollar.
Of course the question is, “how do we do this?” The short answer is, “we don’t.” The rise and fall of the dollar is a response to US monetary policy. In the US the Federal Reserve, a non-governmental group that wields huge control over the money supply, drives monetary policy.
In it’s attempts to thwart a slowing economy, fight inflation, stabilize the stock market and generally reassure everyone from Wall Street to Main Street, the Fed raises and lowers interest rates and increases and decreases the availability of money.
As it relates to the value of the US Dollar (USD), low interest rates, while good for business and consumers, decrease the investment potential of US currency, increase the investment potential and therefore demand of foreign currencies, and in the process lower the value of the dollar as it relates to the world currency market.
When the Fed increases the money supply, and the US Treasury increases the amount of dollars in the economy, the value of the dollar is diminished as well. The value of the dollar in your pocket is not fixed. It is based in the perceived value of that dollar as relates to the integrity of the US government to back it.
Many think the basis of the value of the dollar is the US Gold Reserves. They couldn’t be more wrong. The US total Gold Reserves is reported to be 8,133.5 tonnes valued at $256 billion, the largest in the world but a mere fraction of the total gold ever mined.
At the same time, the US M2 money supply as measured by the Federal Reserve is $7676.1 billion, or 30 times the total of US Gold Reserves. In practice this means that faith in the US government and economy are by far the driving factors in the value of this fiat currency called the US Dollar, not the objective value of an underlying treasury reserve.
Why does the value of gold go up in terms of US Dollars? In short it’s because the USD is seen as having less value. The same goes for the price of crude oil. Supply and demand being as they are, they affect the day-to-day price fluctuation of this commodity. The longer-term price is impacted by the value of the USD in the world.
The lower it goes, the less it buys and more of it is required to purchase a particular item of value.
To increase the value of the USD the Federal Reserve and US monetary policy should begin to take steps to normalize interest rates and money supply. While that may have a negative effect in the short term on the US economy, the short term pain would result in longer term gain.
Secondly, the US policy towards business should be less restrictive in terms of tax policy. As noted before, businesses do not pay taxes but merely collect them from consumers embedded in the cost of goods and services, from investors in lowered investment value and passes it on to government.
Corporate income taxes and such issues as the Lieberman-Warner “Cap and Trade” scheme currently before the US Senate saddle business with costs and expenses that strangle it in the world economy, often driving business and the attending jobs away from US shores to nation with more friendly tax policies.
Voters must demand that politicians get control of government spending, cutting back budgets and reducing spending to minimal levels and enact a transparent and balanced budget. The US has over $9 trillion in Public Debt having a devastating effect on the national economy, interest rates and exposure to the whims of overseas investors.
The Fair Tax put forth by Congressman John Warner would create a transparent US tax policy, replacing all federal taxes, Income, Social Security, Medicare ad infinitum, with a single sales tax. While there is plenty of discussion over this proposal, and it’s attendant misrepresentation, there remains difficulty in gaining traction in Washington.
So in summation, the problems facing the energy crisis are multifaceted in nature and require a comprehensive response. There is no one “magic bullet” solution. Rather, in the interests of long term solutions and national security, answers must be long thought out, deeply researched, span a variety of technologies and energy sources to protect against vulnerability to single source attacks like we’ve seen on crude oil.
As a nation we should:
It’s not a matter of finding answers to the current pain nor is it simple environmental, economic or security in nature. In the long term it’s a matter of providing a sustainable future for the nation and our children and grand children. To think less is nothing more than selfish.
This series:
1. Gas prices, taxes and politics
2. Crude, profits and big government
3. Dealing with petroleum production
4. Optimizing petroleum
5. Is there a single solution?
6. Monetary policy and energy
"We are all in the same boat on a stormy sea and
we owe each other a terrible loyalty." - G. K. Chesterson
Labels: battery technology, carbon tax, concentrating solar power, crude oil, csp, fuel prices, hybrid, nuclear power, oil, politics, power, solar power, taxes, technology, tidal generator, wave generator
Sunday, June 01, 2008
Is there a single solution?
In my previous post on this topic I talked about the need to expand the development of petroleum-based answers to the energy problems facing America. Today I want to take a look at alternative solutions.
Certainly alternative fuel vehicles, including hybrid, electric and fuel cell, are important resources to develop. But transportation only accounts for about 28% of US energy consumption. A comprehensive plan will address energy consumption in industry (33%), residential housing (21%) and commercial buildings (18%) as well.
The greatest hurdle to overcome in electric car technology has to do with the batteries. For decades auto manufacturers have used the tried and true lead-acid battery. It’s rechargeable, relatively long lasting and inexpensive to produce. But the greatest downfall of lead-acid batteries is their weight.
One of the latest technologies on this front is the zinc-air battery. These use oxygen in the air to react with cathodes to produce electricity. They have a high power to weight ratio, are safe and environmentally responsible. Several companies are working on moving the technology to the automobile arena.
Fuel cell technology is rapidly improving. Used for some time in a variety of exotic, static and military applications, in recent years researchers have working hard to develop technologies for automotive application. The intent is to either fully replace the petroleum fueled vehicle or to replace batteries in hybrid vehicles.
Hybrid vehicles are coming on strong and while they are relatively new, the technology is rapidly improving. Combining improved battery technology with small, efficient gas engines and powerful electric motors, hybrid vehicles look to have great prospects for long range, fuel-efficient vehicles.
Just about everyone has heard of solar power or wind power. Both seem to have great potential for generating large amounts of electricity using the right technologies.
When we hear "solar," most of us think of solar cells, i.e. photovoltaic, energy production. The technology with the greatest potential for producing electricity though is in Concentrating Solar Power (CSP). This technology produces electricity by concentrating the suns heat to generate huge amounts of steam that in turn is used to power electricity generating plants.
It’s estimated that arrays of these concentrating plants covering a combined area of only 100 by 100 miles square could generate enough electricity to supply the electrical power needs of the whole United States (Listen to an NPR story on this). One company, Arusa, is building a 177 megawatt plant in southern California to power 120,000 homes while Abengoa is building similar plants in Europe and South America.
Tidal generators are another up and coming technology using the action of waves and tides to generate electricity. While most of these have no direct application to transportation, they can relieve some of the environmental burden and produce electricity to charge electric vehicles.
Nuclear energy has been used around the world to produce electricity for decades. France, for one, has 59 nuclear plants producing 75% of its electricity, exporting much of that.
On the other hand, the US’s 100 nuclear plants produce only 20% of total electricity generated. After the Three Mile Island incident in 1979 plant construction came to a screeching halt. Now, nearly 30 years later, we are beginning to revisit nuclear energy. But the environmental lobby continues to roadblock plans along with the need to overcome lingering public fears whipped up by the media.
The technology has improved way beyond TMI and the US has never build any plants using the same technology as those in Chernobyl. Another recent development is the change in some of the leadership of the environmental lobby. Patrick Moore, a founder of Greenpeace, is now promoting nuclear power as an important part of solving the climate problem.
These are only some of the better-known technologies under research and development. Anyone of them has potential to impact the US energy need, working together they can provide a comprehensive solution to our current and future energy needs. But they require time for further development and to explore their potential affects on our economy and society, both pro an con. When we rush new technologies out too often the impact of unintended consequences is missed. By taking time to fully vet the technology we can hopefully anticipate and discover ways to diminish those negatives.
The greatest asset we have as a nation is our ability to innovate and develop new answers to the problems that trouble us. Our greatest enemy is jumping to quickly to a quick fix without dealing with the root problem. That is the nature of politics and while it didn’t used to be, is becoming the cry of the American people.
As a society we must begin to again take the long view to the challenges that face us. The “microwave mentality” works fine for cooking, but for serious problems we need to put it in the oven and let it “slow cook.” We must find full, comprehensive solutions that use every asset and resource available to us. The stakes are too high to do otherwise.
My next and final post in this series will discuss the impact of economic policy on the price of crude oil fuel at the pump.
Further reading: A Blind Man's Guide to Energy Policy
Interested in holding your politicians "feet to the fire?" Follow the link below to American Solutions where you can join others petitioning Congress to act now to expand use of our domestic resources.
"We are all in the same boat on a stormy sea and
we owe each other a terrible loyalty." - G. K. Chesterson
Labels: battery technology, concentrating solar power, crude oil, csp, fuel prices, gas, hybrid, nuclear power, oil, politics, solar power, technology, tidal generator, wave generator
Friday, May 30, 2008
Let them know how you really feel......
I received an email from "The Freedom Project" making available a petition/protest to Congress regarding the current energy debacle. I wrote as follows:
Respectfully...
- "Please forget the Fed gas tax "holiday." It's merely political pandering and will in the long run produce more bad than good. The only reason for it is for politicians to be able to say, "I did something."
Do something real, pass legislation to expand exploration to areas now restricted. This is a National Security issue. We MUST be able to have control of our energy supply, otherwise we are at the whim of every third world dictator and despot.
For me, while the cost at the pump hurts, what hurts more is the loss of security for my family and my grandkids. We must regain control of our energy supply, otherwise their future WILL be owned by every country who sells us energy.
Do something real, open exploration in areas now restricted. Do something real, support expansion of research in Shale Oil production, i.e. Raytheon's new technology.
Do something now, stop diverting corn to ethanol and incentivize a change to switchgrass. Do something now and provide substantial support to research and implementation of new energy sources like Concentrated Solar Power.
Don't talk about it, study it, demonize oil companies or any number of non-productive "political" responses. The problem is not the oil companies nor is it even the foreign oil suppliers.
Look in the mirror. Had Congress addressed this problem decades ago instead of "studying" it, we would not be here. Instead Congress gets in bed with those whose agenda runs counter to the good of the nation and her people.
Then, testing the political winds a concentrated effort is made to do...nothing.
Do something now, pass "real" legislation to address the problems, or get out of the way to allow some who will the opportunity to do so.
Thank you."
If you want to add your "two cents worth," Visit The Freedom Project.
"We are all in the same boat on a stormy sea and
we owe each other a terrible loyalty." - G. K. Chesterson
Labels: crude oil, fuel prices, gas, oil, politics, taxes
Wednesday, May 28, 2008
Optimizing petroleium
One of the more promising new energy sources being researched and even now coming into production is Oilage or growing algae and using it to produce a high-grade crude oil. PetroSun is now producing in Texas and though researchers don’t think they can produce enough to replace crude oil, the resulting product can be blended with low grade crude to where it can be processed without retooling refineries and extend our supply exponentially
The recent rush to ethanol has proved the error of moving too rapidly to embrace a supposed alternative without exploring all its consequences, intended and unintended. The demand corn ethanol has put on this food crop, taking 20-25% of last years production, has fueled the rise in all grain prices raising fears of food shortages and bread lines around the world. This in a year of record crop yields. What will happen during a low yield year.
Now the multi-million dollar commitment investors and industry has made to this failed plan has politicians wringing their hands and instead of doing the right thing, backtracking this policy, they blunder ahead.
A better source of biomass would be switchgrass, but that wasn’t immediately available and would have required a season to plant and grow the source. That small delay would have staved off the drain on the food supply and the rampant run up in grain prices. But in the rush to deal with this problem in a short-term political way, another long-term problem has resulted.
And don’t forget the powerful agricultural lobby. Their strangle hold on Congress continues to funnel tax dollars in the form of crop subsidies, loans and more to these large corporate farm operations.
We must, in addition to finding new economical, reliable energy sources, continue to discover new ways to conserve energy in socially and economically friendly ways. One of the big problems with the environmental lobby is the constant call for actions that will harm the economy of industrialized nations and in the process bring hardship to the citizens of those nations.
Truly at its core, the underlying philosophy of environmentalism is to return industrialized nations to agrarian societies like the third world. Technology, industry and development must go to make way for the forests, the snail darter and spotted owl, and the grassy plains. To their way of thinking there is blight on the face of the earth and Humanity is its name.
Next post, new and old technologies visited.
If you haven't done so, visit American Solutions and sign the petition to let Congress know you want action on allowing exploration and production of our domestic resources. It's a national security as well as an econonmic issue.
"We are all in the same boat on a stormy sea and
we owe each other a terrible loyalty." - G. K. Chesterson
Labels: business, crude oil, fuel prices, oil, politics, technology
Friday, May 23, 2008
Dealing with petroleum production
One of the most immediate and difficult predicaments facing the American people and their political and business leaders is the problem of energy. Where to get it, how to conserve it and how to use it effectively throughout our economy.
Please understand that I am not an expert on these matters. I'm simply a layman who looks at these things, is curious about the facts, and analyzes them with a basis in common sense. The latter part seems to be pretty scarce in American society, politics and the educational system.
Lets deal with the problem of supply first.
US proven reserves as of January 2007 totaled 21,757 million barrels or enough to fully replace foreign imports for just 10.8 years. So that alone isn’t the answer. But when you consider our largest trading partner for crude is Canada from which we import 15% of our need has reserves totaling 179,210 million barrels the situation doesn’t look quite so dire.
The problem with accessing the US reserves is one of political policy. The US Congress and the Administration, both past and present, Republican and Democrat, have gotten in bed with radical environmentalists who have convinced them that our crude oil reserves cannot be accessed without doing damage to the environment. That is patently wrong.
While it can be demonstrated that done improperly, oil production and transportation can cause harm, we have the technology and know how to do it right. ANWR and the continental shelf have huge untapped oil deposits that have been deemed politically inaccessible. That must change if America is to regain energy security.
Another huge source of petroleum for the US is found in shale oil. The US has reserves of 2 Trillion barrels of shale oil, nearly four times that of the rest of the world. Because of the difficulty in extracting and processing it, until now to do so hasn’t be profitable. But with crude prices in excess of $130 per barrel, it can now be a viable source of energy.
At current levels of consumption, that would provide crude oil for 280 years. Allowing plenty of breathing space for technology to develop and test alternative energy sources without rushing them out to unintended consequences.
The problem now is again, the environmental lobby who rail on about the potential damage that may be caused by extraction. Enter Raytheon Corp. which has developed a way to do this in a much more environmentally friendly way. Still, politicians and environmentalist will persist in blocking this resource that would provide a major foundation of US energy security.
Also, the US is an exporter of crude oil, 1,317,000 barrels every day. That amounts to fully a quarter, 25% or total US crude oil production. If we diverted that flow to domestic markets we could extend our total crude oil supply an additional 10%. To continue to export crude oil in the face to the energy security crisis we face is unthinkable.
If the US seriously committed to any of or preferably all the above the effect on the crude oil futures market and the petroleum producing nations would be immediate, even though it would take time to ramp up production.
Remember, it’s a futures market. The price is based on anticipated supply and demand. If the marketplace understands there is truly going to be substantially greater supply, traders will factor that in, producers will recognize the increased competition for their product and the price per barrel will shrink accordingly.
That will have a very quick impact at the pump. And it will be long lasting as opposed to quick fix fuel tax holidays and wrong-headed suspension of deposits into the SPR proposed by politicians who refuse to think out of the box.
House Republicans have already begun to answer the call with a proposal to increase production. But it needs to be more than merely a proposal and House Democrats need to join in.
OK, so is increased domestic production the answer. Not in and of itself. We need to actively pursue alternative energy sources. I’m not talking simply solar or wind technologies though they are a part of the matrix.
The next post will discuss some of the alternatives to petroleum.
Statistics taken from:
The Energy Information Administration-Dept. of Energy
Interested in holding your politicians "feet to the fire?" Follow the link below to American Solutions where you can join others petitioning Congress to act now to expand use of our domestic resources.
"We are all in the same boat on a stormy sea and
we owe each other a terrible loyalty." - G. K. Chesterson
Labels: crude oil, Democrats, fuel prices, oil, politics, Republicans, technology
Tuesday, May 20, 2008
Crude, profits and big government
At the end of my last post I said I’d give my personal take on the solutions to the energy crisis. But as I thought about it, I realized most people swallow the line put forth by the media and the left as to the cause of the rising price of crude oil and subsequently the price of gas at the pump.
They (the media and the left) would have you believe that “big oil” and its billion dollar profits along with inept policy on the part of the Bush administration is the reason you are paying nearly $4.00 per gallon for gas.
I’m gonna have to disagree with them, and I’ll tell you why in this post.
The price of crude oil is not determined by the oil companies. While they may affect it to some degree, the price of crude is subject to the same laws of supply and demand that govern the rest of the US and free world economy.
The prices seen on a daily basis that has the media whipping up a froth of alarm is actually the bidding in the oil futures market. Those prices quoted are for crude oil to be delivered the next month. It’s actually a little more complicated than that, but for our purposes that’ll work.
There’s also a spot market that is even more volatile for crude available for immediate delivery. What determines the pricing in these markets is not “big oil” or even market demand. What drives it is what the traders think demand will be compared to what they think availability will be at that time.
Geo-politics plays a huge role in this. The current major unknown (traders hate unknowns) is the condition of the Nigerian oil fields. In recent years these production facilities have been under constant siege by militants, action that may result in the closing down of Nigeria’s 2.16 million-barrels-per-day production. That’s about 7.2% of OPEC’s production and nearly 3% of total world output.
Normally that wouldn’t seem to be a problem, but with producing nations shipping near capacity, demand from developing countries increasing and some analysts predicting a peak in production in a few years with ongoing declines thereafter, the current pressure on prices doesn’t look to be temporary. Many analysts predict an upward march to near $200 per barrel of crude within 2 years or sooner. At the current rate, it may well be sooner.
China, India, Russia and other rapidly developing nations are competing with the US for the finite supply, exploring and drilling in areas either geographically inaccessible to us or off limits due to the environmental lobby. China, Cuba and Mexico are planning to drill in the Gulf of Mexico while China bids on pipeline services in Alaska.
Bit by bit our resources are sold off or abandoned to foreign competitors while we complain and do little else.
But what about “big oil” and their “billion dollar profits?” Aren’t they making a killing off the consumer? As it turns out the answer to that is…No! The table below compares the 2005 profits of several major companies including oil and you can easily see that while amounts are large, “big oil” exacts a margin much lower than other large US companies in other sectors.
Oil company profits: A perspective Earnings, Revenues, Profits (Billions) for selected companies, recent quarter, 2005 Source: Bloomberg News, reported in AAPG Explorer Dec. 2005 | |||
Company | Net Profit | Revenue | Profit Margin |
Citigroup (banking) | $7.1 | $21.5 | 33% |
Microsoft | $3.1 | $9.7 | 32% |
Coca-Cola | $1.3 | $6.0 | 21% |
Procter & Gamble | $2.0 | $14.8 | 14% |
General Electric | $4.7 | $41.6 | 11% |
ExxonMobil | $9.9 | $92.6 | 11% |
ConocoPhillips | $3.8 | $48.7 | 8% |
IBM | $1.5 | $21.5 | 7% |
Chevron | $3.6 | $51.1 | 7% |
Wal-Mart | $2.8 | $76.8 | 4% |
Oil industry average profit margin is about 8.2%; (3rd Q. '05) for all US industry, the average is about 6.8%. Profits in the oil industry were easily outpaced by those of the Pharmaceuticals, Banks, Household Products, Software, Telecommunications, Semiconductors, Consumer Services, and Food, Beverage and Tobacco sectors. | |||
Should you think that is an anomaly, early figures for the first quarter of 2008 have Exxon, Conoco and Chevron earning .0857% on their total revenues of $235.5 billion dollars. That’s a net profit of $20.2 billion. But don’t worry; at the same time they paid $47.86 billion in taxes.
Let’s put that in perspective. You have a, say, widget you sell for $100. It costs you $71.08 to design, produce and sell that widget. After you collect your $100 from the sale you cheerfully give $20.32 to the government to spend any way they please and they let you keep $8.58 to do with what you wish.
In the case of “big oil” that $8.58 goes to the share holders who risked their money to invest in their future via the stock market while the government, which risked nothing took away nearly 2 and a half times what the investors received. And now Hillary Clinton, Barack Obama, Nancy Pelosi, Harry Reid and other Democrats want even more. (Psst..companies don't really pay taxes guys, it get's passed on to the consumer via cost of goods. Always has, always will. It's under the table taxation of the public.)
If the oil companies were to cut their profits to zero the most that would be saved at the pump would be .91.5¢/gallon. But in reality only .46% of a barrel of oil goes into gasoline so you might in reality see only a .424¢/gallon reduction. But how long do you think that would last? No company is in the business to break even. And no investor will willingly put his hard earned money into an investment when he knows his return is zero.
So the company goes out of business or is sold to an off shore investor, either way people are out of work and either the new owner or other international oil companies pick up the business and they earn the profits. And the government, they lose their cash cow.
"We are all in the same boat on a stormy sea and
we owe each other a terrible loyalty." - G. K. Chesterson
Labels: business, fuel prices, oil, politics, profits, taxes