For those critical to my choice of primary occupation, you should know that I teach Leave No Trace in my son's Scout Troop, recycle as much as possible, car pool whenever possible, practice Tread Lightly in my off-road adventures and purchase products in bulk to avoid wastful packaging whenever possible. My family actively conserves wherever we feel it is possible and economic, and we are raising our children to be aware of resources and be thrifty with them at all times. Our society is inherently wasteful, and that is shameful, but with proper education and child-rearing, at least our decendents will appreciate our resources.
Although it is nobodies business, I'll further volunteer to be even more clear so that everyone can understand the "Oil Man from Houston". I make a few cents per barrel for aligning an independent oil producer with a market (marketing company, pipeline company or refiner) that is willing to pay them more for their production than other markets were at the time. When oil is $10 per barrel, I make a few cents and that does not change with oil at $60+ per barrel. In other words, my pound of flesh remains the same and I am NOT a profiteer, LOL.
VikingVince said:
Do oil companies engage in profiteering? Pretty much a no-brainer for me.
I respect that you don't wish to debate this issue of profiteering, but your insistance on oil companies being profiteers, raises an important question to me.
Where do the profits lay in the oil business today, as compared with times when the natural resources were not priced as highly? When oil and gas sold for $20/bbl and $3/mcf respectively, producers made a profit, refiners and marketers made a profit, other things equal. Now, Oil is north of $60bbl and gas is north of $7/mcf. Nothing has changed anything in the refining and marketing business except for the cost of their working capital, i.e. cost of holding any inventory, whether feedstock, unfinished products, or finished products. Refining and marketing margins ebb and flow, but the margins rarely last in an increased state. It is difficult for refiners and marketers to successfully maintain wide margins because of the alternative supplies available in the efficient commodity system they are locked into. There exists markets which have traditionally had higher margins, such as the west coast, the Salt Lake City area, and the Phoenix area. Their high margins attract supplies from outside their natural geographic production regions, which tend to keep the margins from getting too extreme.
Now that we have bracketed that, one should understand that the major oil companies, i.e. ExxonMobil, Shell, BP, ConocoPhillips, ChevronTexaco, and Citgo control a huge percentage of the giant refineries in the country, but their are some very large independents that play primarily in just the refining and marketing space, such as Valero, and Tesoro.
Of the integrated majors, a small percentage of the reserves they refine come from their own production in the U.S. Most majors have divested of most of their oil production in the U.S. and those producing properties are now owned by much smaller independent producers. There are a few large independent producers, such as Apache, Anadarko, and Occidental, but the lion's share of domestic production is produced by much smaller independent operators. It is THESE independent operators that supply the majority of domestic production to the refiners, including the majors, which supply the gasoline and deisel for transportation and heating fuels and have the brand recognition that makes them the favored targets when price-gouging accusations are flying about.
All of the above is to accurately point to the independent producer as the "profiteer" in the mix. Yes, their profits are extraordinary right now. However, these are the same independent producers who struggled to pay the light bill when oil was at $8-$14/bbl. Street gasoline prices were sub $1 then, and if an oil well went down, it was common to defer maintenance on it because the cost of maintenance could not be justified in the return on that investment. They could barely feed their families, so you could buy gasoline for less than a dollar a gallon.
It is upsetting for me, as someone who purchases oil from small independents, to sit by and watch industry outsiders criticize the "oil companies". They look at the majors, who invested in engineers to design more economic drilling, extraction, refining, and transportation technology, and done so at great expense. They look at the majors that made a bunch of money when the remaining production from their larger fields (remember they have divested almost all of their smaller fields) and from their vast investments in international production as world market prices rose to record high levels, driving the cost of the street price of gasoline to record highs in the U.S. Because of the major's overwhelming presence as household names due to their large branded jobber networks and company-owned stations on nearly every major intersection, they are the whipping boys of the whole industry. They don't do a very good p/r job to rebut this, so I guess in a way, they deserve it.
However, the naivety of the average finger-pointer is overwhelming. We have a bunch of very lucky business owners who happen to produce oil or gas, and you label them a profiteer because they own commodities that the world market prices extrememly high. The majors, who have the brand recognition and because of thier huge investments, get large profits, get slammed as profiteers, when in reality, they don't own a very large percentage of the component of the industry which makes gasoline prices so high.
I hope this post helps oil industry outsiders better understand some of the dynamics that create the appearance of profiteering. The very one's who profit (the independent producer) are the one's with the least control over the value of their production. That is hardly a definition of profiteering, in my opinion.
