Originally posted by: Mill
Originally posted by: LegendKiller
Originally posted by: DealMonkey
Okay, if gas prices are purely a matter of economics, then please explain big oil's record profits.
Now, even as high gasoline prices continue to anger motorists and aggravate financial problems at General Motors Corp. and Ford Motor Co., the oil companies have begun to report record quarterly profit. Yesterday, British energy giant BP PLC reported a $6.53 billion third-quarter profit, up from $4.87 billion in the same period last year. And tomorrow, analysts expect Exxon Mobil Corp. to show that it earned nearly $9 billion over the past three months -- the largest corporate quarterly profit ever.
Um excuse me,
largest corporate profit ever. Can anyone explain it? Where's all of the extra profit coming from?
Let me ask you. If yesterday, you paid $5 for some lemonade mix and charged $10 for a gallon of lemonade on the street corner, and then tomorrow lemonade mix costs $10, would you not also charge an appropriate amount more? Say $15?
Would then, your other costs (labor, cups...etc) scale with the cost of lemonade mix, or stay the same?
Would we consider the fact that your profit is now $10, instead of $5, a doubling of your profits? Or is it merely passing the cost increase onto the consumer?
Would we also only consider absolute dollars, or would we look at it as a ratio, like normal non-mathamatically challenged financial analysts do?
So, to apply the extrapolation. The oil companies are pushing the added costs of oil onto consumers. Since their corporate structures are still going to be the same, whether their input cost doubles or not (it doesn't take 2x as many people to sell something that costs 2x as much, does it?). That means that their profit, on an absolute *AND* relative term, will not scale linearly with oil costs.
I guess some people need to take remedial economics and finance.
All you are talking about is price inflation of one component of a product, and then arguing that the inflation makes it ok for higher profits. Let's get real.
If lemonade mix changes from 5-10 dollars, and you only bumped your price up 5 dollars to 15, your profit wouldn't be higher.
It would be the same. REVENUE would increase, but *not* profit. Very simple stuff. I've seen this argument before on this board and it doesn't work out if you pay attention. It is almost a number's con to confuse people who are bad at math.
Let's say Exxon-Mobil has fixed costs of 15 dollars a barrel when refining, producing, storing, salaries, etc to create 100 gallons of gasoline. Let's say Exxon was buying oil at 30 dollars a barrel. So, basically, 45 dollars per barrel of oil is their cost to produce 100 gallons of gasoline. In effect, .45 cents a gallon. Let's say Exxon sells to distributors and its gas stations at a rate of .55 cents-a-gallon. 10 cents-a-gallon profit or 10 dollars a barrel profit.
If oil doubles to 60 dollars a barrel, why would their profit go up? Suddenly it costs them 75 dollars a barrel to create the same 100 gallons of gasoline, but how are they making more money? Now, gas is .75 cents a gallon, yet if Exxon prices their gas at the same 10 cents-gallon profit level and moves gas to .85 cents, then how would they have higher income? Their income would still be 10 cents-a-gallon profit or 10 dollars a barrel profit.
The oil companies are pushing the added costs of oil onto consumers.
Which, exactly, is what they are denying. They are pushing the added cost of oil by allowing wholesale gas prices to remain high, with the argument that futures trading and worldwide problems are what's taking the profit. Which is a lie. If they want to add the cost of oil, then they'd still be having similar profits but much higher revenue. Instead, they have both... which can only lead to one conclusion.
I guess some people need to take remedial economics and finance.
You should learn the difference between revenue and income/profit.
