Big Oil's Windfall Profits

As reported in the Washington Times (see here), Big Oil has actually profited from hurricanes Katrina and Rita. In spite of the fact they have suffered and must pay for major damage to refineries and gulf oil rigs, they are still going to see record profits. Now mind you this is not coming from left wing environmentalists, this is being reported by the Washington Times.

The other day I took a look back in my business records on the "good ole days". Back during the Clinton years when diesel prices were low. My records show that on Dec 30, 1998 I paid 77.9 cents a gallon for diesel at the Flying J truckstop in Rutherglen, VA. My records also show frequently paying 79.9 and 80.9 cents, but 77.9 cents was as good as it got. What does this mean? Back in 1998 the oil industry was able to pump oil out of the ground, refine it, transport it to the retail outlet and still make a profit at 77.9 cents a gallon. I guarantee you they were not selling the money at a loss. They made money at 77.9 cents. Even allowing for inflation, today's price should not exceed a dollar.

OK, OK, but the price per barrel of oil has gone up. We do have to pay the Arabs what they want for a barrel of oil after all. But what about the oil that is pumped here domestically? Whether you realize it or not, America is still one of the leading producers of crude oil. Often this crude oil is even pumped out of federal lands under lease to the oil companies. Oil companies were able to remain profitable when they were selling diesel for 77.9 cents a gallon. The national average for diesel last week was about $3.139 a gallon. Is it any wonder that even though the oil industry has suffered record damage they are STILL going to make record profits?

As reported in the Washington Times, "They are just printing money right now," said oil analyst Fadel Gheit at Oppenheimer & Co. in New York. "They are making so many trips to the bank because they can't take all the money there at one time." Exxon Mobil Corp., Chevron Corp., BP PLC, ConocoPhillips Co., and Royal Dutch Shell PLC are expected to report a $9 billion, or 46 percent, increase in their combined third-quarter profits, according to analysts' estimates compiled by Thomson Financial. Last year, the five companies earned $19.6 billion in the July-September period.

Funny isn't it that they can actually boost profits in the face of hurricane damage? Heck, not too queer a result when you look at diesel still hovering at over $3 a gallon. Gasoline prices have fallen in most markets, but diesel remains exceptionally high. In Missouri I noted a price differential of over 70 cents a gallon. Truckers have to have the diesel no matter what the price. Most of them are protected by a fuel surcharge which is going to be passed on to consumers eventually. Voters are going to object to long term high gasoline prices but they probably won't even notice as the price of their box of corn flakes (and everything else) creeps up by several cents per item.

Now don't get me wrong. I understand how market forces can help us overcome regional shortages of diesel fuel. Truckers typically have the capacity to carry at least 200 gallons of diesel along with them. They can cover 1000 miles or more on a single fill up. They will try to fill their tanks were diesel is cheap and buy only the minimum necessary in expensive locations (where there is a shortage) to get them back to where it is cheap. This works to lessen the demand in shortage areas. It means there is less need for tanker trucks, that will also burn diesel, to replenish retail outlets in shortage areas.

But meanwhile oil companies make record profits. Even though they have suffered record costs repairing damages caused by the hurricanes. Does anyone else smell a rat? We have been informed of the shortages. Prices spiked. Prices did not just go up in shortage areas they went up everywhere. Truckers would have been motivated to "help out" whether they wanted to or not by a lower average cost but at existing price differentials. The oil companies claimed they were not going to take advantage of the situation, but even though they suffer from record damage they will still report record profits. Come on people, are you idiots?

America has suffered a tremendous calamity in back to back punches to the Gulf Coast from hurricanes yet Big Oil still finds a way to increase profits. Don't you think it is time for a windfall profits tax on Big Oil? This tax could be used to pay for Katrina relief. Instead of Dubyah holding his hand out to the Chinese asking them to buy additional treasury bills, we could start paying for some of what we want to do ourselves. Can most of us afford an increase in taxes? Maybe not. But can most of us afford to pay $3.00 a gallon for fuel? Big Oil can afford the tax increase. Big Oil actually BENEFITED from Katrina.

Think about it. Every time a hurricane comes calling Dubyah is going to say (as he should) that we should help the victims. And every time a hurricane comes calling Big Oil is going to make more money. Along the Eastern Coast of America people gather in their churches to pray for relief from hurricanes. But in Texas they pray for another one to hit.


Post a Comment

<< Home