Atomic City Talk

I have to admit that for the past few weeks I’ve been irritated by those folks ranting about “record profits” being produced by the evil oil companies, and goofy politicians attempting to punish them for practicing capitalism. Primarily because I was laboring under the delusion that the oil companies don’t set prices. I was under the impression that the price at the pumps was set solely by OPEC and the energy market.

Yesterday, in a conversation with my Dad, he reminded me that America imports about two thirds of the oil we use. For sure OPEC sets the price level for that oil. What about the oil that is produced in this country? Are the oil companies obligated to charge, in this country, what OPEC says? Nope, I don’t think so. It appears to me that the one third of oil produced in this country, by oil companies that we subsidize with our tax dollars, should be far less expensive. Averaging the cost of that quantity of oil with the expensive OPEC stuff should bring down the price at the pumps, shouldn’t it? Unless the oil companies are actually taking record high profits at the expense of consumers and our economic health, as a whole.

I am now officially one of the kooks that I was previously irritated by. I want congress to launch a serious politically unbiased investigation into profiteering by American oil companies. I don’t want our government to tamper with the energy market by price fixing or raising taxes on oil companies, but I do want to know it these companies are taking advantage of us.

I’m a capitalist from way back, but I don’t believe in companies taking unfair advantage of consumers. Oh yeah…and congress….remove restrictions on the ability to drill for oil in this country. Don’t be such political dumb asses.

I think I find myself in the same boat, 9BC. Further, it's irked me for several years that if some nutjob blows himself up in a marketplace in some third-world country that has a bit of oil, our gas prices jump a dime by the end of the day.

Not like the local fuel retailers have seen any of the shortage in those few hours; they're raising prices on something they already have on hand. The commodities markets have gotten a bit out of hand, IMO, and someone smarter than I probably needs to take a good, long look at it.

All good points. The thing one learns in economics courses is that while capitalism in it's purest form is a good concept but that markets are not "perfect" and can be skewed. In a perfect market all the things mention regarding setting of prices would be in effect. In this instance there is an imbalance in the market somewhere along the demand/supply curves. OPEC is part of the problem, not all of it, as a cartel interferes with an open market. Speculation is another part of the equation. Finally, the oil companies taking advantage of the consumers in an impure market is probably the third part.

I just don't buy the supply & demand theory. If that were the case, why don't we have long lines around the block waiting to fill up like I've heard about from the Carter era?

"If that were the case, why don't we have long lines around the block waiting to fill up like I've heard about from the Carter era?"

Because there isn't a shortage?

I think that's due to absurd gas taxes in Europe.

Drill now, yes.

Um, because we already did?

"Since oil companies make a much smaller profit margin than say Microsoft, what aren't we wanting to investigate them?"

Do they make a smaller profit margin than Microsoft? Do computer prices increase every other day, while fixed costs are much more stable, thereby increasing profit margin?
In other words, are the costs of producing a barrel of oil increasing at the same rate as the retail cost of that same barrel of oil? If not, then the profit margins of the oil companies are increasing exponentially as time moves forward.

Should they be able to take advantage of us, the consumer, without reprisal?

From what I understand, and correct me if I am wrong, there is a 40-100 year reserve. Until we can drill why do we not tap into the reserve to give the consumer a break?

The issue is that we are tapping into those reserves. The oil fields have an estimated capacity and we are pumping from them. The reserves is what is estimated left in the ground.

So the question becomes, can they pump more? Are we rate limited? The Saudis announced in increase in output but it is not clear they can actually do that. They are in the process of improving their infrastructure to be able to pump about 20% (I believe), but they aren't finished with that work.