Bell Curve The Law Talking Guy Raised by Republicans U.S. West
Well, he's kind of had it in for me ever since I accidentally ran over his dog. Actually, replace "accidentally" with "repeatedly," and replace "dog" with "son."

Thursday, April 27, 2006

Stop me before I throw up

Exxon Mobil First-Quarter Profit Rises as Oil Prices Surge

Exxon Mobil Corp., the world's biggest oil company, said first-quarter net income climbed to $8.4 billion from $7.86 billion as increasing global energy demand lifted prices.
This coming on the heels of the story that Lee Raymond, Exxon's former chairman, just received a $356 million retirement package. Boy, if this doesn't make your blood boil ...
Bill Maher said recently that if the Democrats don't turn Raymond into their Willie Horton, they don't deserve to be in charge. I think he's right. This is definitely a face that can make people stand up and demand change.

16 comments:

Anonymous said...

This guy even looks like those 19th century cartoons about the Rober Barons. NPR reports today that Nancy Pelosi is drawing a direct link between Bush-Cheney's Texas oil connections and the record price of gas and record oil profits along with tax cuts and subsidies for the oil companies. Sounds like she was listening to Mr. Maher! 

// posted by Raised By Republicans

Anonymous said...

Republicans have called for a $100 tax rebate to each tax payer for the increased. The Democrats are calling for a tax holiday on gas purchases. Bush is saying that they won't buy fuel for the strategic reserve, but let it go out to the open market.

Well, there are problems in Chad (don't forget that oil comes from Africa too!), saber rattling in Iran, war in Iraq,increased consumption in China, limited refinery capacity, handouts for ethnol, etc. What do you expect from the market? Demand is up, instability is high, prices will rise. It's That 70's Show!
 

// posted by USWest

Anonymous said...

Gee $100! Wow! That'll pay for a tank of gas or two depending on the car. Thanks for nothing W!

Time to Mess With Texas! 

// posted by Raised By Republicans

Anonymous said...

Yeah, and it screws with the already complex tax code. See my comments in my posting. 

// posted by UsWest

Dr. Strangelove said...

If you can get rich by building a better mousetrap, that's a triumph of capitalism. But if you can make a huge profit selling a basic commodity... then the free market is broken. Economics 101 says that if the petroleum market were competitive, such profits would get squeezed out--especially in a time of crisis.

Compare oil to groceries, food, automobiles, or any other market... Where are the 10% off coupons in the local newspaper? Where are the glossy club cards and membership discounts? Where are the 99-cent-a-gallon Wednesdays? Where are the 24-hour midnight madness ultra-premium octane blowouts? Where are the goddamn sales?

Instead, we consumers are faced with uniform prices from all retailers that rise and fall as one. There's no real competition... and I suspect the reason is that gas station franchise arrangements insulate the petroleum market from consumer gasoline demands. The oil companies raise their prices with market, as one would expect from wholesalers, but the franchise operators have no choice and are stuck paying those prices... so those prices just end up getting passed along at the pump. What can they do?

So you want to stick it to the oil companies? Pass a law that breaks the franchise relationship. Allow gas station owners to buy their gas from any oil company they please. Forbid long-term locked-in contracts. When Exxon-Mobil has to compete with Chevron on a weekly basis to sell their gasoline, we will see their profits pumped (sorry, couldn't resist) out of the market.

Anonymous said...

Hm. I dunno about the wholesaler-retailer argument. Cigarette prices (at least, according to Cecil Adams) work similarly -- the market is inelastic, the number of wholesalers small. Without explicitly colluding, the manufacturers effectively set prices as they like (a few of the big brands change to a price point, and everyone else goes to meet that point; demand stays steady regardless). The retailers carry all the brands, and it doesn't matter. Presumably one or two major brands _could_ keep prices down when others went up to seek market share, but they've got just as much incentive to keep the market steady at the higher price.

I expect that the market for gasoline is profoundly inelastic, despite the outrage. Too many people can't choose not to buy gas this week.

Not to mention the vast industrial demand: breaking the wholesale-retail relationship doesn't change the fact that a company can sell oil to the retail auto pipeline, the airline/shipping pipeline, and whoever else -- and if the shipping demand is willing to pay $5 a gallon, then the auto pipeline can't get it for cheaper. 

// posted by Bob

Anonymous said...

Bob and Dr. S are both right here. Yes, it's inelastic... for consumers. Consumers cannot stockpile, but retailers could. Large retailers (say, 20+ stations) could buy when cheap, stockpile, and undercut each other. They don't because they don't exist. The small stations are almost all owned by the wholesalers, or have pricing agreements with them through franchise arrangements.

Cigarette pricing is different. There, the issue is BRANDING. For good reason, Marlboro wants to sell its product at similar prices across the country. But it is in competition with different brands of cigarettes. You don't go to a gas station and get to choose from 50 brands of gas, or even two. Just the one. And who cares? Gas is gas (except ARCO - there's a special story there that I will tell if need be). In fact, pipelines that are used to ship fuel don't segregate by producer. If producer A puts X barrels in the pipeline, he withdraws X. But it's not the same stuff - totally fungible.

What we're all talking about here is how the market for fuel is totally rigged and broken. Internationally, it's fixed by big cartels. At home, a few companies have an oligopoly and little vertical integrated monopolies ensuring that they only sell to those whose demand is totally inelastic.

Another example: when the price of oil goes up today, the price of gas rockets up the next morning. Why? Because prices are not set by the market, that's why. Oil is not gas. It's a raw material. When the price of paper goes up, it hurts newspaper profits because competition constrains price increases, and because they directly use the paper. Now when the price of LUMBER goes up, the price of the newspaper does not go up until the lumber is made into paper and then sold, a process of many months, and along the way market forces constrain the middleman's prices. If the price of oil goes up, the price of gas should lag quite a bit, squeezing refiner's profits (higher cost of raw materials, less ability to raise prices).

But they're all the same company here. The price of oil doesn't affect the cost of refining gas out of it, because the oil company owns the refinery. So the oil company doesn't have to pay the market price for oil at any time. Then they own the gas station too. So why raise prices immediately on the news? Because they can get away with it - because all six oil companies price together in a conspiracy of silence.

 

// posted by LTG

Anonymous said...

>Consumers cannot stockpile, but retailers could.

Hm. Wait a second. Individual consumers can't stockpile (for legal/safety reasons, if nothing else), but given the obvious public need for gas, why haven't communities/local governments proposed the idea of "co-op" stockpiling? Farms and companies with auto fleets use their own gas-station type tanks already; adding capacity in order to reduce risk might be looking pretty good right now.

A town/co-op that could buy in bulk could provide gas reliably and with less volatility. (In these days of natural disaster awareness, having a local stockpile of gasoline might be reassuring.) Other than the fact that it's communist, I don't really see a downside...

I did a Google search, assuming that in fact this idea has probably already made the rounds, but all I found was this , which seems to be aimed at exactly the wrong people -- telling oil companies to locally stockpile gasoline. 

// posted by Bob

Dr. Strangelove said...

"Other than the fact that it's communist, I don't really see a downside." -Bob

That's my vote for the funniest comment in this thread! Nice to have you blogging with us, Bob.

As for the wholesaler-retailer argument I had made... Honestly, I'm not sure I buy it either. I was trying to think of some reason why the gasoline market was broken. (Still waitin' for those 99-cent-a-gallon Wednesdays.) Some possible support for my suggestion: does CostCo get their gas cheaper because they aren't tied into a specific supplier?

Anonymous said...

I don't think Costco gets its gas cheaper. It sells it for less profit. A gas station that is 1/8 acre with a small convenience store is dependent on gas sales for most of their revenue and - more importantly - rent and land taxes. Costco devotes the equivalent of a handful of parking spaces to a commodity that they could more or less break even on if it drew in customers to the store. The real question is why Wal-Mart doesn't sell gas, and I know the answer: they can't chisel Exxon-Mobil the way they do the rest of their suppliers. 

// posted by LTG

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