Forbes is reporting that Exxon-Mobil is posting a record-breaking first quarter profit–a 10% rise over profits in the previous quarter.
I put gas in my 2007, extended cab Chevy Silverado yesterday and paid $60.00.
Does anyone NOT understand why I am alarmed?
Here’s how it’s supposed to break down. We have political upset in Venezuela, Nigeria, or the Middle East. The market reacts by organizations trying to buy as much crude oil as they can; since the demand went up, those selling the oil charge more for it. Still more organizations are buying, and the price spikes, even more organizations try to get in while the oil is “cheap.” By the end of a trading day, crude oil has risen by sometimes dollars per barrel. This is then passed on to us, the consumer…but not at the same rate as the crude oil market fluctations.
The problem with this is that while crude oil can be considered a commodity, i.e. it doesn’t matter where you get it because all of the products are essentially the same, it is the lifeblood of a good portion of the West. There is no question that this is a product that all consumers, commerical, governmental, and private, must have. Couple this with the fact that most of the world’s oil prices are set by a cartel called OPEC, and you have a recipe for disaster.
Furthermore, there is the refining process which is controlled by several multi-national companies. These companies, like Exxon-Mobil, act as a gate keeper to consumers. They take the raw material that we can’t directly use and turn it into a product that we can use, attaching to it all of the costs associated with the conversion, plus a mark-up to ensure profitability.
Our expectation, as Americans, is that these companies will maintain a consistent mark-up, based rationally on a percentage of raw material cost or operating capital. However, oil companies have realized that they need not do this. We must have this product, therefore we will pay for it. Never mind that rising transportation costs drive inflation; never mind that lining the pockets of a large corporation lowers that standard of living of the lowest socio-economic elements of our population.
Is this act wrong? It depends on your perspective, I suppose. When I’m filling my truck at the gas station, I certainly feel free to complain about it. I can shake my internal fist and damn all profiteers to the fiery hell of bankruptcy, but when I do so, I am kidding myself with a double standard.
For better or worse, a free market economy has arisen in the last two hundred years. There are trends in the market the control what price a given item, commodity or not, will go for. When the price of raw material is controlled by a cartel, and when a few, very similar gate-keeper corporations control the flow of finished goods, the situation is ripe for big profits.
Exxon-Mobil is cashing in on this as we speak.
And can we blame them, really? They have a duty to justify their expenditures, prices, etc. to stock holders. We may think we have a God-given constitutional right to low-cost gasoline in America, but the sad fact is that we also have a need for the same product. Profiteering is never right, but do we want to open the Pandora’s box of setting price controls over a commodity, necessary or not? Down that path is socialism.
The way to lower prices is to increase supply or lower demand. There is no incentive for OPEC to increase supply, because they get fewer dollars (or camels, since I think that’s the Saudi Arabian currency) per barrel of oil. There is no way for consumers to lower their demand, so we’re stuck with prices that are high.
The answer to this is a cheap energy source that is independent of government and commerical control. This is a favorite “green” dream of environmentalists, and while no one can dispute that it would be wonderful, I think this dream will remain unrealized for the foreseeable future.
Our dependence on oil will only make the rich, richer; it will cause us to protect “national interests” in areas that are only good for scorpions and barbaric people. Until we break the habit, we are doomed to repeat this cycle.