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Distrust the oil companies!

  1. Nov 22, 2005 #1
    http://money.cnn.com/2005/10/27/news/fortune500/exxon.reut/


    So, oil companies make record profits, and gas prices hit record highs. Coincidence?

    And for reference, how many people have seen prices go down more then 20 cents in the past month?
     
  2. jcsd
  3. Nov 22, 2005 #2

    russ_watters

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    Of course it isn't a coincidence, it's economics 101 - but why are you saying that should be a reason to distrust oil companies?

    edit: let me explain the math of that:

    If you have a fixed profit margin of 20% and you sell gas for $1 a gallon, your profit is $0.20 per gallon. If prices rise, for whatever reason, to $2 a gallon, then your net profit is $0.40 - double what it was before.
    Gas prices in my area are down something like 90 cents from their post-Katrina peak and below (due to seasonal forces) what they were right before Katrina.


    HERE is the national average for the past year. A year ago the average was at $1.95, just before Katrina, it was $2.47, the post-Katrina peak was $3.06, and now the average is $2.20.
     
    Last edited: Nov 22, 2005
  4. Nov 22, 2005 #3
    Meh, that sucks.

    Then again, taking advantage of peoples' fear of a natural disaster is perfectly legal, so... yea.
     
  5. Nov 22, 2005 #4

    Astronuc

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    Actually, it has more to do with commodity traders in New York, Chicago and most other major cities around the world where contracts for commodities are bought and sold. The commodities traders work for the themselves and their companies, not the oil companies.
    I have seen the prices of gasoline drop just below pre-Katrina levels. The prices are still $0.20-0.30 higher than this time last year. We did see locally prices hit about $3.59 for regular gasoline during the week following Katrina - way to high IMO since there was no shortage. That is still lower than ~$6.00 in the southeast US.

    What irks me is that gasoline went from about $2.00/ gal to more than $3.50 in the course of several days - but it certainly has not dropped as quickly. In fact the rate of increase was probably an order of magnitude greater than the rate of decrease.
     
  6. Nov 22, 2005 #5

    russ_watters

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    You do understand that oil production was actually disrupted by Katrina, right? It wasn't just about fear? And even if it had been just about fear, fear changes people's buying habits - fear causes shortages as well.
     
  7. Nov 22, 2005 #6

    russ_watters

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    It's always been that way, but I'm not sure what the cause is. For Katrina, specifically, however, the rate at which oil rigs and refineries came back online after the storm had a big impact on the rate at which prices declined.
     
  8. Nov 22, 2005 #7

    Astronuc

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    I think it is the money. Similarly, when heating oil prices rise, we get a delivery AFTER the price increase. We have run out of oil waiting for a delivery. :grumpy:

    Sellers are eager to raise prices, and not so eager to lower prices. And I know that's how a market works.
     
  9. Nov 22, 2005 #8

    Art

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    You do understand this contradicts your earlier post, right? If supply constraint is the reason for high oil prices then the oil companies would not make extra profit as they would be selling less, right?
     
  10. Nov 22, 2005 #9
    Besides, wasn't oil production only reduced on the likes of 5%? (expounding on Art's post) (Not sure about exact percent, but it wasn't too high)
     
  11. Nov 22, 2005 #10

    SOS2008

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    I question limited refineries in the first place. Many believe it is on purpose to keep supplies precarious--though as Astronuc posted, this time there were no lines or gas stations closed due to lack of supply. Very mysterious, and when questioned by Congress, the oil company attitudes were very disturbing, no?
     
    Last edited: Nov 22, 2005
  12. Nov 22, 2005 #11

    russ_watters

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    Asked:
    Answered:
    Thanks! I'm sure either of you can do the math if you want (assume that 5% is correct), and confirm my point numerically.

    But descriptively, that's called demand inelasticity: since people need gas and their needs don't change easily, a small reduction in supply results in a larger increase in price and a net increase in profit, even at lower production.
     
  13. Nov 22, 2005 #12

    russ_watters

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    I think it is largely political - similar to why we are having an electricity supply crunch. That's mostly NIMBYism.
    ???? There were lines and hoarding pretty much everywhere! The first example I found:
    http://www.cnn.com/2005/WEATHER/08/31/katrina.gas.prices/index.html
    What disturbs me is that this was only 3 months ago and already people are remaking the history the way they want to remember it.
     
  14. Nov 22, 2005 #13

    kat

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    The C.N. Brown corp in Maine actually ran out of Gasoline the first night that gas increased so rapidly. Mainly because they gambled and took a chance that it would be more profitable keeping their gas relatively low, expecting others to at least remain competitive. Unfortunate for them..they gambled and lost as their competitors raised their prices considerably and as they stayed that way for some period of time they were then able to sell it at a much higher price.
     
  15. Nov 22, 2005 #14
    I can't think of any other industry where there can be production facilities damaged and closed for any period of time, and then end up making record high profits as a direct result of that period of production shut down.
     
    Last edited: Nov 22, 2005
  16. Nov 22, 2005 #15
    There's one particular Mobil station near me which kept its prices about 10 cents below everyone else after Katrina. It regularly ran out of regular during September. There weren't massive shortages, but supply wasn't unlimited, especially if you made sure to keep your price noticably low.

    Of course, you can count on most any company or industry to do whatever they can to make the most money possible. If people buy it, then the price is justified. However, U.S. demand for gasoline dropped by about 500 million barrels a day from August to September, so the oil companies realized that the dramatic price spikes really weren't profitable to keep up, and prices went back down.
     
    Last edited: Nov 22, 2005
  17. Nov 22, 2005 #16

    SOS2008

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    Historically this was nothing compared to other times of shortages and lines (have people forgotten?), and from the posts in this thread it appears that shortages were associated with particular stations that kept prices lower (obviously), and the shortages were brief. As for oil company attitudes, here's a memory refresher:

    http://www.washingtonpost.com/wp-dyn/content/article/2005/11/09/AR2005110900754.html

    The gratitude to the American people is overwhelming.
     
    Last edited: Nov 22, 2005
  18. Nov 22, 2005 #17
    Yeah they really ought to be grateful to us after we dragged them in front of a Senate commitee to try taking the money we gave them back. If you treat them like an enemy then they'll invariably act like one.
     
  19. Nov 22, 2005 #18
    Making a windfall tax just for the current situation would be rather ridiculous (and of course, won't happen), but what's so extreme about at least repealing their tax breaks? If anyone needs tax breaks in America, it's small business owners, not multi-billion dollar corporations. Lowering tax rates uniformly is one thing, but giving already powerful industries tax breaks does nothing but encourage an oligopoly in which new competition has next to no chance of arising.
     
  20. Nov 22, 2005 #19
    I think that tax breaks should only be given as a reward for doing something that works towards the common good. Say if an oil company invests in alternative energy sources or makes their fuel burn cleaner or something like that. I don't think that they should necessarily get tax breaks just because they are the ones that control a vital resource. At the same time I don't think that they should be penalized for being the ones in control of that vital resource. When the executive quoted above by SOS said that repealing those tax breaks wont hurt the oil companies he was right. The taxs any business pays is simply a cost of business and when the cost of business increases the businesses cut other costs and increase prices. Ultimately the consumer and the worker are the ones that pay for the tax increases.
     
  21. Nov 22, 2005 #20

    SOS2008

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    I think energy should be nationalized and considered a matter of national security, as I believe all basic needs should be. Though these oil companies are private doesn't mean they aren't regulated, so Congress was completely in their right to investigate price gouging (or fixing, or as waste mentioned, anti-trust laws, etc.). True that companies pass costs on to the consumer, but in the Bush energy bill $16.2 billion in tax breaks go to oil, gas and coal companies, a generous amount to snub...unless your making record profits so don't give a ***t.
     
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