Sunday, May 25, 2008

Oil companies' profits, or profit margins?

Radio hosts Neal Boortz and Laura Ingraham, presumably among several others, have been defending private oil as it's harangued by Congressional critters Maxine Waters and Dick Durbin. They say it's not profit but profit margins that are relevant to discussions on gouging and unfair pricing.

Well, margins have also been tracking upwards for oil producers (unlike gasoline retailers, who continue to make the same $.02-$.12 per gallon that they made when the stuff cost a third of what it does today). Exxon-Mobil's total profit margin, by year:

'98: 4.8%
'99: 4.3%
'00: 7.6%
'01: 7.2%
'02: 5.6%
'03: 8.7%
'04: 8.5%
'05: 10.1%
'06: 10.8%
'07: 10.0%

If it cost you $1 to pull a turnip last year and this year it cost you $2 to pull one up while not using any more labor or capital to pull it out of the ground this year than you were before, if you were selling it last year for $2 but now you're selling it for $4, you're making twice as much (assuming no inflation) without increasing your workload at all. Patently unfair, no?

So long as demand and supply also stay constant (I'm simplifying, I know), margin is just an abstract idea that doesn't mean anything to anyone.

The argument is made even less forceful when the radio personalities start taking aim at how much income tax receipts for the government have increased over the same period of time as big oil's 'outrageous' profits have--from $6.5 billion the year the Iraq war began to almost $30 billion last year.

True enough, but the tax margin on pre-tax income remained almost unchanged (from 37% to 42%)! Total governmental take doesn't matter, only effective rates of take are worth talking about!

Why not instead point out that Exxon-Mobil hunts down, harvests, and refines the stuff that powers the developed world, and makes $40 billion a year because people think the company creates at least that much value in doing so, while Waters and Durbin don't create anything for anybody?

7 comments:

Anonymous said...

Here's an interesting quote from CNN:

The average net profit margin for the S&P Energy sector, according to figures from Thomson Baseline, is 9.7%. The average for the S&P 500 is 8.5%. So yes, energy companies are more profitable than many others...but not by an inordinate amount.

Google, for example, reported a net profit margin of 25% in its most recent quarter. Should we have an online advertising windfall profit tax?

Anonymous said...

"Why not instead point out that Exxon-Mobil hunts down, harvests, and refines the stuff that powers the developed world, and makes $40 billion a year because people think the company creates at least that much value in doing so, while Waters and Durbin don't create anything for anybody?"

Great post, I've been banging this drum for years. On a regular basis, the dumb shits in Congress call in the oil companies and accuse them of "profiteering," "gouging" and other bullshit. It is sickening and displays a total lack of knowledge and/or willful, purposeful ignorance for political reasons. Americans don't seem to be buying the bullshit from Congress, thank God.
Maybe we could ask why American companies cannot drill in US coastal waters or increase pumping in Alaska? Why hasn't a new refinery been built in over 30 years? I'm willing to bet the same idiots in Congress who creech about Bush's "War for Oil" are the same ones against drilling in the US. Apparently, there is quite a bit of oil to be had in North America, but God forbid we use it!
I also think that there is an element in Congress that likes to see Middle Class, white Americans suffer economically for a variety of sick, twisted reasons and their leftist, white-hating enviromental supporters love it as well. Thanks for letting me rant.

Audacious Epigone said...

Here's a link to the editorial anon1 is referring to.

Anon2,

Ranting is always welcome. There are still a few cloistered places in this crazy world where you can passionately express yourself in a way that might come across as "over the top" without being raked over the coals for doing it. I like free thought.

If there is a silver lining in restrictions on coal-to-liquid, shale cultivating, drilling in ANWR or off the Gulf Coast, it's that if "Peak Oil" hits, or demand perpetually outpaces supply, having untapped black gold to be harvested will be a boon.

Anonymous said...


Great post, I've been banging this drum for years. On a regular basis, the dumb shits in Congress call in the oil companies and accuse them of "profiteering," "gouging" and other bullshit. It is sickening and displays a total lack of knowledge and/or willful, purposeful ignorance for political reasons


Clearly, Anon2 is not smart enough to realize that or should be replaced with and.

al fin said...

I must passionately disagree with your point that Durbin, Boxer, Waters, Pelosi, etc. are just worthless shits. We at Oynklent Green [OTC:OYNK] can take corrupt politicians who appear to be worthless shits, and turn them into useful bio-energy. Our thermochemical process can take any form of garbage--human or otherwise--and process it into clean, renewable fuels.

Our current list of approved feedstocks includes corrupt politicians and trial lawyers. But since we at OYNK are proactive in energy exploration, we are currently assessing governmental and inter-governmental bureaucrats, journalists, and post-modernist university professors for clean-burning content and renewability.

We appreciate your support, for a better future, for the children.

Anonymous said...

OIL COMPANY PROFIT MARGINS HAVE INCREASED 250%!! SEE:


Well, margins have also been tracking upwards for oil producers (unlike gasoline retailers, who continue to make the same $.02-$.12 per gallon that they made when the stuff cost a third of what it does today). Exxon-Mobil's total profit margin, by year:

'98: 4.8%
'99: 4.3%
'00: 7.6%
'01: 7.2%
'02: 5.6%
'03: 8.7%
'04: 8.5%
'05: 10.1%
'06: 10.8%
'07: 10.0%

Anonymous said...

The average gov tax (state/fed) on a gallon of gasoline is $0.47. At $4.00 gallon, that is 12%. Oil companies make 10%. Why isn't any disgusted that governments, who add zero value to gasoline, makes more than the "evil oil company" that makes the product??