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November 11, 2005

Regarding Oil Profits

Recently, executives of oil companies defended their recent spate of high profits in the wake of high prices for consumers as a result of this year's hurricane season.

The executives blamed the Gulf Coast hurricanes, which shut down refineries, and global forces, including rising crude-oil prices. They argued that their business is cyclical, citing weak profits in the late 1990s.

ExxonMobil CEO Lee Raymond told a joint hearing of the Senate Energy and Commerce committees, "There are ups, and there are downs. Our job is to manage for the long term."

But some senators weren't buying it.

"Most consumers find (the prices) terribly unfair," said Sen. Byron Dorgan, D-N.D. "Talk is cheap."

What's wrong with this argument? Oil companies have a commodity that a lot of people want--oil for heating and energy. Sometimes that commodity is in short supply, and as is normal in a market economy, prices go up when supplies run low. It can happen with any commodity, including food.

So now we have senators accusing the oil companies of charging unfair prices while oil execs say they aren't being unfair, and that their profits aren't as big as we might think. We also have senators accusing the oil companies of not building more refineries, but the reason they aren't being built isn't necessarily greed on the part of the oil guys:

[G]etting an oil refinery built is next to impossible, hence the 30-year construction drought. There will always be environmental activists who fight any new proposed refinery, regardless of where it might be located and how environmentally safe it is. And our environmental rules give them the upper hand.

Is it fair for oil companies to be making money while we have to pay more at the pump? Frankly, fair doesn't come into it. Oil companies are in business to make money. They have something we want, and they set their prices according to supply, demand, and what the market will bear. Oil companies have profited from modern society's dependence upon oil, and as long as capitalism is not outlawed, then there is nothing wrong with it. Sure it sucks...but that's life.

The senate jumping in and whining about unfair prices has nothing to do with the reality of the situation--but they do it to make themselves look good to their constituents.

How many times do you hear a kid whining about something not being fair, and then his parents tell him, "Life isn't fair." That's true. And whining about unfair gas prices isn't an argument, it's a way to deflect attention away from the fact that the argument doesn't hold water.

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Posted by Pam Meister at 10:49 AM | Comments (3) | TrackBack (0) | Business

I keep saying, penalize them for their profits, and they won't have any incentive to continue refining oil. Then that measily $3.00 we pay per gallon will be closer to 8 or 9 . . .

Posted by: oddybobo at November 11, 2005 01:24 PM

Good post.

Of course these same grandstanding politicians are some of the same ones that dropped provisions to allow ANWR drilling in the budget bill. How is that for long-term planning?

Today I had to endure the blathering of a Lib during a van trip for a field trip from my son's school to a local theatre production. Another of the dads tried a few weak replies to the blatherings. I decided that with a van full of kids and parents, I was not going to engage in a full-fledged debate. He carried on about the oil company profits, yada, yada. The things we have to endure to keep conversatons peaceful. If I had been sitting across a table from him, without the kids around, I might have engaged in a polite rebuttal, but it just didn't work in the van.

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