Texas oil production is higher than it’s been since 1985. It has doubled in less than three years, and the boom doesn’t seem to be stopping anytime soon. Meanwhile, gas prices keep going up. Why?
The most major reason is inflation. If you look at an inflation-adjusted curve for gasoline prices, you’ll notice that inflation-adjusted prices have gone up and down over the past eighty years or so based on supply and demand, but during that fluctuation, the non-adjusted price of gas has done nothing but rise.
The constant refrain we’ve been hearing about “record oil company profits” only works because most of us assume that the steadily increasing prices in gasoline are due to either the consumption of a fixed resource or the greed of big oil. Let’s tackle both of those issues.
People think that oil is a non-renewable resource. They assume the price of oil is rising because we are using up oil, and as we use more of it, it becomes more scarce. All the while, demand for it is also increasing. So it seems like simple economics: rising demand and fixed supply equals steadily rising prices. But the oil price graph indicates otherwise. There have been great fluctuations in the availability and production of oil. Most people assume that, like gold, new sources of oil may be found, but new oil itself cannot be generated. I believe this is false, as I have written elsewhere.
I also do not believe that oil companies are making unreasonable profits. The crux of the misunderstanding lies in the fact that it isn’t about profits, it’s about profit margins. Sure, there is a tanker-load of money in oil. It’s a fairly expensive international commodity with a huge daily demand. So of course, lots of money is involved. But people focus too much on the dollars being generated rather than on the percentage of initial capital investment those dollars represent. Rich Smith crunches the numbers:
When you consider that $41 billion [Exxon’s profit in 2011] is less than 10% [the profit margin] of the revenues that Exxon started with, it turns out that Big Oil isn’t really all that profitable a business. ((Also consider that the civil government (federal, state, and local) adds an average of 48.8 cents onto every gallon of gas you purchase. The daily average for a gallon of regular unleaded gas yesterday (July 11, 2013) was $3.518. That means that the civil government made 13.87% “profit” and they didn’t have to do anything at all. Outrageous!))
For example, car companies aren’t often considered profit monsters. . . . Yet somehow, Ford Motor manages to earn a profit margin of better than 13% on its cars and trucks.
What about the granddaddy of all profit machines, Apple? It boasts a jaw-dropping profit margin of 27%. That means that when somebody walks into an Apple Store and spends $1,000 on the latest hot Apple products, Apple can expect to end up, on average, $270 richer—after paying all the costs of inventing, manufacturing, and shipping the gizmos to the store, software included.
Yet somehow, you never hear consumers wailing and gnashing their teeth, demanding that Apple’s dominance of the smartphone market be “broken up” or otherwise “regulated.”
I imagine that many of the bloggers, reporters, pundits, and whistleblowers who are demonizing Big Oil are writing up their rants on Mac computers and smart devices. Somewhat ironic.
In the end, neither the supply of oil nor big oil profits can account for steadily rising prices at the pump. In the end, the biggest culprit is inflation. Your dollar just isn’t worth as much today as it was yesterday. And the major perpetrator of inflation: your overgrown federal government. On a related note, the second biggest culprit is environmental regulations that drive up the price of oil while subsidizing less efficient means of producing energy. And the culprit there? You guessed it again: your overgrown federal government.
So I guess it’s true: oil prices are up because a corrupt, money-greased, inefficient bureacracy of elitist fat cats profit from high oil prices and inflation. We’re just pointing the finger at the wrong fat cats.
Reading this article led me to go read the other article on oil’s renewable qualities. Seeing the oil field refill certainly is explained better by a renewable resource than by a fossil fuel. Even if it is still from fossils, the mistaken notion that it would take millions of years for fossils to break down just doesn’t match the rest of science The article helps oil production make more sense. Great job Michael!
Terrific article, and an eye opener, for many, I’m sure.
Your comparison of oil and gas costs to APPLE is specious at best. Energy, is something we need to survive. A new Apple “gizmo” is a choice to spend spare dollars on a “toy”. Nobody will die, without the latest aps for sale in an Apple store. Without energy, you are very dead! You will cook in the summer and freeze in the winter, and you cannot get to work. The closest public transportation from me is 35 miles away. Energy (oil and gasoline) should be controlled as a public utility company. Instead of jacking up the price 10 cents a gallon because it is a holiday weekend, before ANY price changes, the oil companies must have rate hearings. And the public should be able to request those hearings when prices are too high, and oil companies refuse to lower them. Some commodities are are just to valuable to living to be in a free market. Gasoline is one of them. AND, include the price of gas and food, when you consider my Social Security raise next year. What are the 2 biggest items in a senior budget? Energy and food. And this lyin, theiving government does not consider those 2 things in figuring our cost of living increase? They are a sham!
drasher
Are we going to to get a SS raise next yr.? Have noticed how groceries have gone up horribly. Anything fresh has gone crazy and lousy quality IMO. Mostly out of Mexico. The bread I like is no longer on my list since it jumped over a dollar a loaf. I can’t do white bread but that has gone way up I noticed. And that is all on sale. We oder SS people and low income people don’t stand a chance with ihis admin. I look for power to sky rocket with Obutthead waging war on the coal companies and his refusal to sign the pipeline bills and EPA has cut back on letting drilling permits. And the inflation list just keeps growing . And real jobs are really stagnant no matter what the lying government says. The real math is never released,
How did you feel about that big fat 1.7% raise we got? And then notice not long after the total new raises for the government emplyees came to about $8 billion with Biden getting a $6,000 raise.
LarryChambers There’s several yrs we got no raise but everyone else did. And Medicare pmts went up along with the rest of ins. They never take in any energy costs such as electricity , heating oil , gas, etc, in their COLA costs. So with this attitude of Obutthead I don’t expect any COLA next yr. Only reason we got the last one was because it was election yr. IMO
Exscellent articlke. Opens eyes and makes us think about what we truly NEED and what we want. Energy is a necessity. I do believe it should be better controlled. an accident in Canada should not raise gas prices 10 cents in a matter of days. The supplies are already here and witing. that gas wasn’t even refined. Will be replaced by another shipment. Why the price hikes?
The real inflation rate has been hidden from the people ever since that famous 30 year serial adulterer and known liar Willy Clinton managed to drop fuel and food and fuel from the calculation…
so its just a meaningless bold lie now…as are many things told us by the gov-meant.
It also irks me that the Federal Government points their fingers at the “greedy” oil companies and their “excessive profits” when taxes (combining state and federal taxes) on every gallon of gas you buy are more than ten times the profit the oil companies are making on that gallon.
Government is why our gas prices high and keep going higher.
How about when a refinery or 2 goes down in a area like the midwest & there is a major knee jerk reaction in gas prices going up.A few days ago the price here was 339.The it hit 359 and the yesterday driving home Wal Mart I noticed that stupid &%$%*(O))_ price shot up to another 16 cents to 375.What is really going on here??????????
Last week I filled @ $3.55.9 . Went by the same station today & sign was $3.69.9 in 6 days. Saw two places was $3.78.9 . Don’t understand the difference in approx. 2 miles. Exxon and Shell highest. Probably wouldn’t mind the prices if they still did full service like the use to. It was nice to get oil , fluids and tires checked. Some places even checked belts and had full service bays.
But we keep being told that Obama has nothing to do with the price of gas….BS!!!! Obama’s EPA continues to pile on the regulations and policies that assist in the rise of the price of gas. If anyone expects the Obama administration to be truthful about the horrible, socialistic things they have done or have in store for us, you are kidding yourself. Secrets and hiding things are some of the things the Obama administration and the Democrats are really good at!!!
The refineries in this country are all old…yes, the oil companies do a great job of keeping them maintained and they have to keep reconfiguring them to keep up with the EPA’s ever growing mandates. If one of these refineries ever goes out, prices will skyrocket exponentially. The current refineries can produce only a certain amount of gasoline. The EPA has made it financially unfeasible for any oil company to build new refineries.
My perspective is from how much room there is in my wallet after I go to any store whether it’s to buy gas or groceries it’s all getting expensive – and that includes the rising cost of health care (CommieCare).
The only thing hidden about inflation is the leftist double-speak covering Bernanke’s tracks: printing money automatically inflates money. All Dear Leader and his Marxist cronies have done is to destroy the dollar and our entire economy. All we’re left with is the mirage of inflated prices which give the Obama trolls something to crow about – it’s nothing more than a giant balloon that has to pop – and then America will have to pay the piper.
So, even if we did drill for our own oil, O and the EPA would still tack on ridiculously high regulations. This nation holds more oil than we would ever use in a lifetime. But, I think O is holding out on drilling so he can sell that land to the Chinese or some other country. Also, their are some huge mineral deposits that have been discvered that along with our oil deposits could certainly help us get us out of debt. Yeah, it’s time for anoher BUT IF.
LarryChambers If you can find something on Agenda 21 the US and the UN have going, look it over. I haven’t been able to find it again lately. But the gun control is one part of it. Then comes, turn over control to the UN of many things here in America. Public lands, water rights, minerals, hwys, and more public holdings. All (I believe) is the set up for that new world order. Well it’s not new since they’ve been trying for that for more than my 73 yrs. I also think with this admin., that is selling us out in many directions, that it just maybe closer than any of us realize. I have been hearing the gun control with the UN could be signed by Obutthead when Congress & Senate go on vacation and no one around to even try to stop it. Sure hope that info is wrong but don’t trust Obutthead.
I agree, nothing should surprise us about our entire political system. We simply cannot trust them. All of these areas you’ve mentioned(as far as I’m concerned) are control areas. I too believe they are planning something massive. If our present politicians don’t hurry up and find a way to stop this evil storm; we are literally going to be blown over. I don’t even think he’s going to wait for them to go on vacation. Why should he? He already does what he wants and they say or do nothing. Only God can help us, may He hurry and come.
dmac72LarryChambers
Search YouTube: Georgia Guide Stones Agenda 21
Or for : Agenda 21 For Dummies
dmac72 LarryChambers F.D. Roosevelt signed a treaty with the league of nations( which is the UN now) to turn over the sovereignty of the USA in 2007. and they have been slowly but surely since then. they do it little at time to keep us from revolting. like the frog in pot of water.
For those who believe there has been no inflation, they should review the size of the packages of foods they got two years ago compared to the size of those packages today. And gasoline was $1.89/gallon when Obama took office, not $3.69/gallon of regular. And stop shipping gasoline abroad. The economic health of a nation is tied to cheap energy prices.
OhGator How about coffee. No more 3 lb cans for a long time (yrs) but the price is even higher than what 3 lbs use to be. 5 lbs sac of sugar no longer 5 lbs but 4 lbs. Just a couple examples I could make a long list. The price of Jello has almost doubled in a yr,
Try buying a gallon of Clorax Bleach for under $2.00 or anywhere from $5.00 to $9.00 for a quart of motor oil. Oh! And beware of buying postage stamps. O has ordered the Postal Service to sell the EID Muslim holiday Forever Stamps, they are the ones with the butterfly on them. I’ve received a few emails urging me to pass on a message to give to the Post Office. Tell them that you do not want those stamps on your letters or mail, and refuse to purchase them, instead, you want those with the American flag on them. To purchase those Muslim stamps would be a slap in the face of all those Americans they have killed. Make sure you read the lables on ALL your products. There are tons and tons of foreign products being imported and the FDA is turning their heads to a lot of it.
dmac72 OhGator Interestingly, in spite of the price increases we have seen almost across the board, food prices being the easiest for most to relate to, the CONSUMER PRICE INDEX has not changed that much over the last year. Obama’s boys are cooking the books, as would be expected. And, of course, the press hasn’t picked up on it.
OhGator it is greed that causes the price to rise, but there is also the price of everything else making the cost rise also. rise price of gas and price of everything else rises also. But the price of gas drops, the price of everything else stays same or rises. down to greed
MikePurdin OhGator
The biggest factor isn’t greed – actually greed works against itself in an open market.
Look to Dear Leader – when the dollar loses it’s value by 50% you have to double the price.
Liberal economics is to blame for what’s destroying our economy, from printing money, to spending what we don’t have, to borrowing to make up the difference, to flooding the economy with gov’t money that has to be stolen from workers which shorts their wallets, to crony capitalism, etc.
I need help understanding something. How can the government borrow, print, and tax us into oblivion and still wind up broke? To me, this is like a drug addicts mentality; there’s just never enough. But what really burns me is them borrowing trills and then give them away. They don’t get anything out of the deal. But America’s needs always have to answer to sequester. Somebody needs to get a big baseball bat and knock a few homeruns.
LarryChambers
Oh but they do get something out of the deal. We’ve seen what the Tyrant and the socialist dems have bought with our tax money.
They’ve bought legions of foot soldiers, and scores of capitalist (well, the crony variety). The corrupt democrats have made the dynamic their operating principle.
Always a Marine MikePurdin OhGator But we really don’t have an open market, and greed is the problem on every level, everyone wants to have everything now. and more, no one is happy with what they have. if we had a open market, there would be price wars, which when there is it is a joke. a penny difference between prices isn’t a price war. i am 51 years old and remember when there use to be competition between companies.
MikePurdin Always a Marine OhGator
I agree that there is too much gov’t involvement in the economy (actually every aspect of our lives). However, I cannot attribute greed to be the sole, and universal, contributing factor.
I’d say that the gov’t is the principal culprit in inflation and the increase in prices.
You said you’re 51, I’m 66 and remember when a brand new VW cost $1,600. When I came back from Viet Nam, I bought a new ’68 GTO – $2,800 off the lot. An inexpensive car today is $25-30,000. What was a dollar’s value in ’68 vs. today?
I guess you’ve all heard or read where O has ordered the Postal Service to sell the Muslim holiday EID Forever Stamp. It’s the one with the butterfly on it. Please, I urge you not to buy those stamps but buy the ones with the American Flag printed on them. Just be thoughtful of all the Americans who have lost their lives at the hands of these evil people. No matter what is said, Obama is a Muslim, he is not a Christian and he cares nothing for our nation and neither do those who support him.
LarryChambers
I buy the Purple Heart and American Flag stamps.
How hypocritical that the ACLU, the demoncrat party, and the Clown in Chief who feel authorized to persecute Christians in every way they can under their phony, leftist interpretation of “separation of church and state” would have no problems promoting Islam on official gov’t stamps.
Always a Marine LarryChambers
Would you believe I’m still using my Christmas stamps.
dmac72 Always a Marine LarryChambers
Sure, do you still have your Christmas lights up also?
Always a Marine dmac72 LarryChambers NOOOOOO —–hahahaha. Didn’t do as much mailing in Dec or since.
How is it he can just order the Postal Service to do something like this? To me, this is like him having total control over the rest of the governing bodies. Also, it’s like he is trying to ram Islam down our throats. I wonder how much more before we (who really care for our nation) hit the boiling point?
this writer has no idea, first of all the high price is due to speculating the price of oil, not due to how much we have in the world. it is a flim flam gimmick to rise oil prices. and the oil companies make a huge profit, they do as some other businesses, they make it look like they are putting more into research and exploration.they are overstating their expenses it is called smoke and mirrors.
MikePurdin
True, speculators can make a bundle on the oil market, but for the real cause look to gov’t.
Oil companies are making Hundreds of billions in profits & yet taxpayers STILL subsidize them! BTW, the inflation rate is 1.4% & they use the SAME formula they have been using for EVERY president.
BobE
Oil companies making profits – I thought that’s what they’re supposed to do.
Non-working citizens (Obamabots) are raking in more money (UNEARNED) than the oil companies EARN – and yet taxpayers STILL subsidize them!
Re. the inflation rate – one of the 3 types of lies, “Lies, damned lies and statistics.” The real inflation rate is experienced at the grocery store, etc.
Always a Marine BobE Christians could care less about tax payers subsidizing oil companies making hundreds of billions in profit but the thought of feeding a hungry family that’s out of work makes them see red & go berserk!
BobE Always a Marine
Normally, I’d say “you’re talking out of your hat,” but in your case, let’s move lower for the source of your opinions.
Conservative are known for a number of things- free markets (no gov’t subsidies), no taxpayer money for private business, and charity. Haven’t you noticed how the socialists are the ones who are happy to spread the subsidies around (of course not, you can’t acknowledge the truth). Didn’t you catch the socialist behavior of your marxist savior – giving billions away to his pet businesses (most of which went bankrupt).
There are numerous studies that prove conservatives give more than any other group in America. Now, that’s the truth, and what you’ve accused Christians of is a flat out lie (but it’s what lefties do).
How many hospitals across this nation bear the names of Christian denominations? How many rescue missions are run by churches? Same goes for community food banks, etc. Booby give me the names of 1/2 doz leftist organizations that go around the world as missionaries to establish hospitals schools, etc. I’ll give you 100 missionary organizations for every one you might dig up.
Always a Marine BobE You’re a COMPLETE IDIOT! Take a look at the GOP farm bill & then tell me that Conservative are known for a number of things- free markets (no gov’t subsidies), no taxpayer money for private business, etc. conservatives give more than any other group in America because that figure counts to $ given to the church that goes for things like the opulent lifestyles of preachers,
BobEAlways a Marine
Take your meds. You can’t answer any facts. Nothing but propaganda, lies, misdirections and attempt to discredit and slander.
You’ve got diarrhea of the mouth. Nothing comes out of your mouth but waste. GIGO!