Oil profits are not outsized. They are taking around a 10% profit on their revenue. That’s about what most small businesses make. Why begrudge them? For years and years their profit margin was way lower than that.
The Australian has a great article on the subject:
SOMETHING weird happened yesterday in Washington, capital of the land of capitalism.
Oil industry executives were called before the US Senate for a public flogging. They were forced to defend their massive profits. They were asked to fund government programs. There was even talk of price controls.
Pete Domenici, chairman of the Senate energy committee, said there was a “growing suspicion oil companies are taking unfair advantage” and insisted the executives “owe the American people an explanation”.
What transpired was a lesson in Economics and Capitalism 101. If any politicians should know the business rules, you’d think it would be in the home of private enterprise. It’s not as if this were a seminar for the Australian Democrats or the Greens.
But the chiefs of the biggest oil companies in the world helped expose what the show at the grand Dirksen Room of the Senate was all about - populist politics.
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The numbers are big - that’s the oil industry. But the profit margins are not that spectacular from a business perspective. For each dollar of revenue made, banks and pharmaceutical companies, among others, are more profitable. Of the Fortune 500 companies in the US, Exxon’s gross profit margin last year puts it at number 127.
Furthermore, gas in the U.S. is still incredibly cheap by world standards:
There was no rush, for example, to point out that petrol prices in the US are still cheap by OECD standards. If you filled your tank up around the corner from the Senate yesterday, you paid just 88c a litre - about 30per cent cheaper than the price of petrol in metropolitan areas around Australia.
It’s all playing for the cameras:
The song and dance in the Senate was on the old stomping ground of attacking Big Oil. Forget the reality of the marketplace - the surging demand from China and India, and the recent hurricanes in the US that knocked out a third of the oil industry’s refining capacity. What was needed was someone to blame.
The oil companies need these profits to finance projects that won’t bear profits for decades:
“In politics, time is measured in two, four or six years, based on the election cycle. In the energy industry, time is measured in decades, based on the life cycles of our projects.”
ExxonMobil had just announced the first oil and gas production from its Sakhalin-1 Project in Russia’s far east, he said. “We began work on the project over 10 years ago, when prices were very low, and we expect it to produce for over 40 years … that’s more then 50 years for one project. Fifty years is 25 congresses and 12 presidential terms. Fifty years ago, Dwight Eisenhower was president of the US.”
Furthermore, last time politicians tried to mess with it, it was a disaster:
He warned that short-term policy fixes for oil industry problems were a recipe for disaster, highlighting Washington’s response to the 1970s oil crisis.
“First price control, then punitive taxes were tried to manage petroleum markets. They contributed to record prices, shortages and gasoline lines. As the government withdrew from attempting to manage the markets, prices began to come down.”
