[ATrain]

Oil and gasoline prices are at record highs, but so are profits for oil companies:

http://apnews.myway.com/article/20080521/D90Q9U601.html

Forgive me for saying so, but I agree with the dems that there is a disconnect between the supply and demand here. If the oil companies truly had to raise prices to reflect the global demand and rise in oil prices, then their profits should've remained the same instead of ballooning to record profits.

[LUconn]

not me. They're banking now, but they're fueling the race for alternatives to them that much more. Capitalism and market forces at work.

[ALUmnus]

When the two largest countries in the world, India and China, are both more and more oil hungry with each passing day, and demand constantly increasing in the largest oil consumer in the world, us, then I would kind of assume that profits would be good if you're in the oil industry. Don't you think? It's amazing to think such a large group of people can be so ignorant when it comes to economics and be in power.

[RubberMallet]

i thought capitalism was good...

[Sly Fox]

... it certainly is if you are a shareholder.

[LUconn]

...which everybody with a 401k or mutual fund is.

[RubberMallet]

si.

seriously, more oil is being consumed than ever before....profits are supposed to go down?...i dont' get it...

[4everfsu]

Increase the supply by drilling in Alaska and offshore and the price of gas will go down. I don't believe or agree with Dems on this issues or others

[RubberMallet]

Increase the supply but drilling in Alaska and offshore and the price of gas will go down. I don't believe or agree with Dems on this issues or others

great point....the oil companies have been screaming "PRODUCE MORE OIL LOCALLY AND PRICES WILL GO DOWN"

[Baldspot]

When the two largest countries in the world, India and China, are both more and more oil hungry with each passing day, and demand constantly increasing in the largest oil consumer in the world, us, then I would kind of assume that profits would be good if you're in the oil industry. Don't you think? It's amazing to think such a large group of people can be so ignorant when it comes to economics and be in power.

Exactly. India and China are asking for more and more oil and the Dems are refusing to allow us to drill on American soil or look for alternative sources such as nuclear energy.

[Sly Fox]

Fresh off my trip to Anchorage earlier this week, oh how I would love to really enter this discussion. But alas ....

[LUconn]

What on earth do you do? You take a lot of trips. Sounds fun.

[Sly Fox]

My work as a communications consultant is what has me travelling (I am in Iowa next week and Nebraska the following). I still dabble in television and radio here in Houston.

But I have confidentiality agreements with our clients that force me to bite my tongue on many issues that pop up here.

[RagingTireFire]

Hmmm. What do Texas, Alaska and oil companies have in common? .... thinking ....

[blwall1416]

Hmmm. What do Texas, Alaska and oil companies have in common? .... thinking ....

migrant workers?

[ALUmnus]

i thought capitalism was good...

That's part of the problem, a majority of our federal government disagrees.

[flamesbball84]

si.

seriously, more oil is being consumed than ever before....profits are supposed to go down?...i dont' get it...

Demand is up, and supply is going down. Basic economic theory says that would mean price goes up, which means profit goes up - especially since there is still currently enough supply for everyone who wants it, but that's not going to last.

[RubberMallet]

where in ia sly

[LUconn]

so does our MBA progam include economics at all?

[Hold My Own]

I think Sly is teasing us...I mean he had that same confidentiality agreement involving cell phones a few months back...unless theres a new cellphone that is able to find crude in the soil then I'm lost

[Sly Fox]

We have multiple clients in several industries, HMO ...

I am in Cedar Rapids next week.

[Hold My Own]

We have multiple clients in several industries, HMO ...

I am in Cedar Rapids next week.

Alrite, just checking

[Ed Dantes]

You need to differentiate between two things: Profit and Profit Margin. Suppose I spend $900 on doo-hickies, then sell them for $1000. My profit is $100, my profit margin is 10%. But suppose the price of doo-hickies doubled, to $1800. I'll, in turn, sell my doo-hickies for $2000. My profit is $200 -- a new high -- but my profit margin remains 10%.

That's really what's happening to the oil companies. The price of oil has gone up (we'll get to this in a second), and while their profits have as well, their profit margins have not.

Principally, I am not opposed to oil companies making money, or any ones making money, because that gives them the capital needed to finance R&D (research and development). I'm sure you're all familiar with the term "peak oil" (that is, the worldwide oil supplies have peaked and will run dry soon). Well, money to R&D goes to finding ways to better utilize the oil we access now, and find ways to utilize the oil we cannot. Also -- 52% of Exxon Mobil, and probably a healthy pct. of other oil companies as well, are not controlled by greedy oil execs -- but by people who invest in the company through mutual funds and pensions. Such as teachers. Screwing with oil companies screws them.

That being said, I am opposed to any of the so-called tax breaks the democrats claim oil companies get. That's a little ridiculous when they're pocketing $30 billion and paying less of a share in taxes than I do, right?

Now, why has the price of oil gone up? Other than saying "supply and demand", let's look at this reasonably. The world consumes 87 million barrels of oil a day, and that number goes up 1 million each year. This is because of the modernization of India & China and other developing nations, and our own consumption as well. Meanwhile -- we have not kept pace with that demand (obviously).

Question -- who is the number two oil exporter to the United States? Answer: Mexico (behind Canada). Did you know -- that Mexico nationalized its oil fields (meaning: the government usurped control of it) and now they produce less oil than they used to? Largely because they can't? It's the same case with Venezuela. OPEC supplies us with about half of what they did, per day, than in 2000, for varying reasons...

It is not the oil company's fault that I have to pay $4.00 for gas. I do blame others before them -- namely those same government officials who have done everything in their capacity to stifle oil production.

But on the other hand... those oil companies really COULD give us all a break, you know?

[Realist]

The reasons for the crazy oil prices aren't supply and demand or oil companies taking huge profits. Oil companies have some of the smallest profit margins of any industry. Also, despite what you may hear about "surging demand from China and India," it's really not that much comparatively. Long term, maybe, but right now supply is more than adequate to fulfill existing demand.

The problem is our government lowering the key interest rate to absurdly low levels. It devalues the dollar, and oil is traded in dollars. Since the dollar continues to fall, we have to pay more to get oil since the dollar is worth less internationally. This is one big reason. The other is rampant investor speculation on oil. Everyone is pouring money into commodities as they see it as a hedge against the falling dollar and US stocks. As more and more people move into commodities, it drives the price up for the goods they are moving into, and oil is the most popular hedge. Also, oil is relatively inelastic, when you raise prices, consumers don't buy less, especially in America. So it doesn't hurt the oil companies, they are just going to make more money, even with the same profit margins as explained by the guy posting before. The only thing we can do is get rid of our SUV's, car pool, and rely less on gas. And hope our government stops bailing out people who made stupid mistakes and create inflation for the rest of us.

The problem is the fact that we aren't letting free market capitalism play out. If we did, we wouldn't have lowered the key interest rate to these insanely low levels to bail out the banks and in turn those with ARM's. Now we've just compounded an already weakened economy with what is going to be some serious inflation for the next year or two, oil, along with other commodities.

Rant over. Go buy your hybrid.

[Purple Haize]

Thank you Ed and Realist for bringing sanity into the discussion. I loved it when the SHELL Ceo lite into one of the the Senators when the Senator said this was a free market. The CEO basically told the Senator that they are prohibitied from drilling in KNOWN fields that would equal what SA and VEN have.

I am going to disagree on the decision to reduce the interest rates.. Yes that does de value the dollar and is a reason for the price of oil to go up, but had interest rates not been dropped then our economy would have really hit the craper.. Remember just 2 years ago when our houses were ATM 's? The US is a HUGE global engine, if it sputters the rest of the world stalls. In short, it will be easier to get the dollar to rebound then the economy. (Or if you are a conspiracy theorist, you might want to look into how George Soros made his billions.)

And finally, oil is a commodity, much like SCAR....er Porkbellies. The great Invisible Hand of Adam Smith would come into play a day after the US declared it would start drilling from its own sources. Why? Becuase there would be a lot more supply. Supply is not going down, it is just stagnent. The demand in booming. And oh BTW, in a metric to standard converstion gas is $11.oo /gal in the UK.