OT (Politics): Hey, I agree with Bush!

[The Shadow]

Originally Posted by dawgfan

Hey, as I said I'm no great defender of the oil industry - I know about their record profits and given that, any subsidies they get from our government should be revoked. I'm not blind to the fact that demand for gas in our country and the willingness of motorists to continue to pay the current prices without demand dropping plays into the costs. I wouldn't have any problem with a deeper look at finances of the oil companies to see exactly why they are producing record profits at a time of rising costs for them. Given the importance of fuel costs to our national economy, I wouldn't object to greater government oversight of the industry - should the oil companies be generating record profits when higher fuel prices are a drag on nearly every other segment of the economy?

I know a little about the oil industry and I think there's some mis-perceptions here. One common mis-perception is that oil companies (Exxon, BP, Shell, Chevron, etc.) make most of their profits on gasoline. This is completely untrue.

Major integrated oil companies, like Exxon, BP, Shell, Chevron, etc. make most of their profits by drilling and producing oil. This is called "Upstream" part of their business. The "Downstream" part of their business includes refineries, gas stations, chemical plants, etc.

I have a link to Chevron's 2nd Quarter Financial Statement here.

http://library.corporate-ir.net/libr..._2QRelease.pdf

Here's Exxon's

http://library.corporate-ir.net/libr...xom_072805.pdf

As you can see, Chevron's and Exxon's "Downstream" business only accounts for 25% or less of their profits. This makes sense - with record price for oil ($60/barrel), oil companies make more money by selling oil they produce.

So then why is gasoline price so high? There are many factors that drive this and I'm sure I don't know all of it. Some that I can think of :

1. With high oil prices, it drives gasoline (and other fuels, like jet, diesel, heating oil, etc.) price higher.
2. Gasoline supply and demand - even with high prices, gasoline demand is high. As some mentioned, US refining capacity at or near it max.

Why is oil price so high? Simple - there is higher demand for oil than the supply. A few years ago, OPEC successfully controlled oil prices ($25-35/bbl) by adjusting each OPEC country's quota. Recently, OPEC has basically allowed every country to produce as much as they could. Still, with higher demand in China, India and other developing countries, along with annual increases in the major consumers, like the US, demand for oil has exceeded the supply.

To drive oil prices lower, we need to :

1. Conserve.
2. Develop alternative sources - with higher oil prices, other sources become more competitive.
3. Find and produce more oil.

Hope this helped!!!!

BTW, dawgfan, I don't know of any government (US) subsidies that oil companies receive. Also, I'm not a supporter of any government intervention on issues like this - governments have notoriously poor record at managing free market systems.

[dawgfan]

Originally Posted by The Shadow

BTW, dawgfan, I don't know of any government (US) subsidies that oil companies receive. Also, I'm not a supporter of any government intervention on issues like this - governments have notoriously poor record at managing free market systems.

I'm not certain of this, but I was under the impression that oil companies get subsidies from the federal government in the form of tax breaks or other means for the purpose of R&D - drilling, developing alternate energy sources.

If they indeed receive any form of government subsidy or tax break, I can't see how, with the record profit margin they have, they should continue to do so.

I'm relatively neutral on the concept of government oversight in terms of pricing, but given the huge role the oil companies play in our economy by virtue of gas prices I could be persuaded it's a good idea in this instance.

[flere-imsaho]

Bush has changed his tune and is now talking about tapping strategic oil reserves: http://money.cnn.com/2005/09/26/news...ex.htm?cnn=yes

Thoughts?

He's also encouraging people to conserve, especially with regard to gasoline. Personally, I think this marks a change in administration policy. Thoughts?

In other news, I heard on the radio this morning that Jeb Bush made a public show of trading in his SUV for a hybrid (don't know which one).