Price Gouging

[Brad Johnson]

R.H. Lee wrote-

ConocoPhillips profit UP 89%

Yeah, and...? If I made nothing last year and $89 this year, my profits would be up 89% too. But I would still only have $89 in my pocket.

Why are you so mad at someone who found a way to be successful? Do you, as part of your normal daily routine, try to actively undermine your ability to promote yourself and your well-being? Unless the answer is an emphatic "NO" then you are doing the same thing as the people you despise, just on a smaller scale.

R.H. Lee wrote-

40+ mpg AND Japanese. My way of sticking it to corporate America AND the unions.

And my car is a used Ford Crown Victoria. It's my way of riding around comfortably in a car I can afford, and paying for it with the evil profits I get.

Brad

 

[R.H. Lee]

Yeah, and...? If I made nothing last year and $89 this year, my profits would be up 89% too. But I would still only have $89 in my pocket.

From the article

The Houston company's net profit in the third quarter rose to $3.8 billion, or $2.68 a share, compared with $2.01 billion, or $1.43 a share, a year earlier

'Nothing' is a looooooooong way from $2.01 billion. The increased profit comes from what reasonable men call 'gouging'.

 

[auschip]

From the article


'Nothing' is a looooooooong way from $2.01 billion. The increased profit comes from what a minority of people call 'gouging'.

Fixed

 

[Brad Johnson]

The Houston company's net profit in the third quarter rose to $3.8 billion, or $2.68 a share, compared with $2.01 billion, or $1.43 a share, a year earlier

'Nothing' is a looooooooong way from $2.01 billion. The increased profit comes from what reasonable men call 'gouging'.

You know, it's really laughable sometimes. People want to stick it to the "eeeeeevil" oil companies for making a profit without thinking about where that money really goes. Thank you for illustrating the glaring obsurdity of that thought process so effectively.

The net profit increased from 1.43 a share to 2.68 a share. That means that every pensioner, every parent with a college fund for their kid, every single mom putting money into a mutual fund, and every person who is trying to grow their financial standing who has stock in the company, or stock in a mutual fund invested in the company, has profited.

Want to know another well-kept secret? That money does not go into a large, black hole in the ground somewhere and never used again (GASP!). What doesn't get paid out as dividends gets reinvested in new exploration, new technologies, and new equipment - all of which creates NEW JOBS. Then you know what happens? If the corporation is successful, they make even more money! The sky is falling! The sky is falling!

The "eeeevil" oil company is you and me. We, the stockholders, are the ones who profit. Do you have a retirement portfolio? I bet you do. There is a very good probability that one, or even several, of the mutual funds in your portfolio have stock in the company ("Obscene profits" like that do not go unnoticed). So in pitching a fit about "big oil" you are really griping and moaning about..... yourself.

Brad

 

[R.H. Lee]

That means that every pensioner, every parent with a college fund for their kid, every single mom putting money into a mutual fund, and every person who is trying to grow their financial standing who has stock in the company, or stock in a mutual fund invested in the company, has profited.

And a much, much larger number of pensioners, parents, etc., indeed everyone in the country is being economically punished by increased prices on everything due to greatly increased transportation costs as the result of the unabashed greed of a few oil companies. That's good for us all, how?

 

[Geno]

Okay, now that's crossing the lines of real life--

The profits get reinvested? Development? Not! Have you checked out Fox news lately? Even CNN? The oil industry has been at Congress' doorstep, begging for money...subsidy. They just got it, some of the largest ever given, and now, they are racking record profits?!

Regarding the "reinvestment", we have had nearly no development in how many years? We have oil...we don't have refineries.

IMHO, and I admit I am not Harvard Business School Graduate, it seems to me, that we have a MANUFACTURED crisis, followed by trumped-up inability to process the oil, not due to Katrina damage, but due to failure to build refineries.

Big business is still what is has always been...not free market, and not supply & demand; rather, it is manufactured crisis followed by price-fixing.

Doc2005

 

[Brad Johnson]

The profits get reinvested? Development? Not! Have you checked out Fox news lately? Even CNN? The oil industry has been at Congress' doorstep, begging for money...subsidy. They just got it, some of the largest ever given, and now, they are racking record profits?!

Go back and read your high school econo books on how corporations work, especially the part about stockholders. The money that doesn't get reinvested gets paid as dividends to the stockholders (like I pointed out above). So where does all that "obscene profit" go? Hint - It doesn't end up locked in a bank vault somewhere. It goes right back into the pockets of the stockholders.

Okay, so they had a record profit last year (or last month, or last quarter, or whatever). They paid out the extra to the stockholders and stuck some in the bank for operations. Now they are facing a multi-billion dollar loss of infrastructure and future revenue. Judging from your statements you feel that the people who have all that "obscene profit" should ante it up to pay for all the rebuilding. Okay, so when would you like for the govt to begin forcing everyone who got paid a dividend to give it back? After all, that's where most of that "obscene profit" ended up.

You seem to think "big oil" is some etheric malevolent entity with no connection to everyday society or your particular position in the economy. Well, sorry to have to break it to you - "Big oil" is nothing more than "big group of stockholders". And the stockholders are us. WE are the ones who get all that "obscene profit". If you want to keep griping about it, start by pitching a fit to the person you see in the mirror each morning.

And take a course on economics, with an emphasis on corporate finance. Sounds like you need it.

Regarding the "reinvestment", we have had nearly no development in how many years? We have oil...we don't have refineries.

You might want to check with the enviro-freaks and their wacko liberal-socialist cronies in all the govt regulatory agencies. They had a small say in the matter...

Brad

 

[Waitone]

I agree. We have a contrived petroleum supply problem.

The disagreement come when we debate the source of the supply problem. It is mindnumbingly expense and grandly time consuming to permit and build a refinery. Why? Go find your favorite environmental nazi and give 'em a great big wet kiss because that is the source of the problem. Don't bellyache over a lack of refineries when you let the nazi's get away with choking supply.

BTW, gas in these parts is $2.39 / gallon, down from a peak of $3.39 /gallon. I guess the milk of human kindness over came evil greed of oil companies. I demand to know who the sweet person is who forced prices down even though evil oil companies were still raping the consumer. What a crock !

 

[R.H. Lee]

You might want to check with the enviro-freaks and their wacko liberal-socialist cronies in all the govt regulatory agencies. They had a small say in the matter...

and

Go find your favorite environmental nazi and give 'em a great big wet kiss because that is the source of the problem.

Yet oil company profits are at historic highs along with gasoline prices, but it's someone else's fault???? Do you guys even listen to what you're saying? You would make a Democrat blush........

 

[JGR]

Profits are at historic highs because demand is inelastic, and as demand increases relative to supply, the market-clearing price increases and profits increase. You cannot look at profits to determine whether or not there is collusion. Draw a supply & demand graph with an inelastic demand curve, then move the demand or supply curve up. You'll see that at the market clearing price, profits increase. If prices were to be artificially suppressed, whether voluntarily or through coercion, then you will have shortage, which means long lines or inefficient rationing schemes, and people who need it won't be able to get it.

A couple references:
http://cafehayek.typepad.com/hayek/2005/09/a_fair_price.html
http://www.econlib.org/library/Columns/y2005/Robertsmarkets.html

 

[jefnvk]

If I made nothing last year and $89 this year, my profits would be up 89% too. But I would still only have $89 in my pocket.

No, it would be up an infinite amount.

If you made $1 last year, and $1.89 this year, your profits would be up 89%.

As for profits being up, who cares? Profits is what drives our economy. If there was no money to be made in oil, no one would be making oil.

As for the Jap car, my guess would be that it was made in America by union workers.

 

[Brad Johnson]

Yet oil company profits are at historic highs along with gasoline prices, but it's someone else's fault???? Do you guys even listen to what you're saying? You would make a Democrat blush........

Your passion is admirable, but your economic knowledge is pitiful. As a result you are attempting to relate two distinct and mutually exclusive issues, relying on emotion to bridge the gap.

We broke the problem down to the component issue and gave you the answer. Sorry it was not what you wanted to hear.

You still think that the oil corp is this entity out there that sucks money into it's clutches, never to allow it to see the light of day again. The "oil company profits at historic highs" means that the money is paid to the stockholders and is gone from the corporation's bank account. Gone as in in someone else's bank account where they can use it for other stuff. Gone as in back in the economy buying other stuff and making other investments. Gone as in no longer there. They don't hoard money. They can't. The stockholders would never stand for it.

And, yes, the environmental movement is directly responsible for the lack of new refineries. This is not up for debate, it is established fact. Trying to argue otherwise is the equivalent of saying that two plus two does not equal four. Environmental regulations and associated public pressures have made new refineries so economically unfeasable that the oil companies have turned their attentions to making the current infrastructure and technologies as efficient as possible.

As for the Jap car, my guess would be that it was made in America by union workers.

Probably. It usually causes great distress and consternation when people find out that their "All-American" Harley has less domestic parts content than the Marysville, OH-assembled Honda GoldWing.

Brad

 

[Bruce H]

And, yes, the environmental movement is directly responsible for the lack of new refineries. This is not up for debate, it is established fact. Trying to argue otherwise is the equivalent of saying that two plus two does not equal four. Environmental regulations and associated public pressures have made new refineries so economically unfeasable that the oil companies have turned their attentions to making the current infrastructure and technologies as efficient as possible.

Brad

Yep, the refineries are paid for. They aren't allowed to build any. They can't drill for new sources because drilling is bad and we can't have that. When there isn't any way to spend the money you make expanding your business, or looking for new material supplies, the cash accumulates.

 

[Waitone]

Yea, you're right. I don't hear my self

I only ran a commodity business when costs of raw materials declined and I ran the same business when raw materials increased dramatically. I was the guy who took the calls from customers who wanted to give me business at <insert unit price of choice> I was the guy who had to weigh current costs, standard costs, current raw costs, future raw costs, future raw costs possiblities, potential raw shortages during life of a contract, equipment loading, management support, sales ability to service contract, logistics ability to get product to destination at the cost agreed to, competitive responses to price levels, gamed out competitive response and customer substitution, and a whole host of other factors I have submerged in my memory. At the end of the day I had one response: yes, I'll take the business or no I won't.

Note: market price levels were presented to me and I got to choose to participate or decline. That's it. I did not set market prices. Market prices were handed to me and I got to decide to play or not. Know what? During raw material shortages our gross margin (first line profitability) rose to unheard of levels. At one time GM levels were 3 times historic levels. Why, because a scarcety of supply drives market prices up. Our strategic sourcing group had long term contracts from all over the world. A disruption in the US supply caused us to shift to european sources. Our costs went up but we had raws. Some of our competitors got use to continuously declining prices and failed to write long term contracts in favor of buying on the spot market. Good plan as long as costs decline; bad plan when slapped in the face with a raw shortage. They ran out of raws and had to exit the market. Reduced supply drove up the price. I didn't drive prices up. The market did. Know what else? Just as soon as raw material shortages resolved, market prices declined. I didn't drive prices down. The market drove prices down because supply increase.

In the face of natural shortages (hurricanes) and contrived shortages (environmental nazi stopping the building of refineries) the cost of gas is behaving just exactly as I'd expect; including its drop of a dollar a gallon in recent weeks. It will continue to drop until production catches up with demand at which point the decline will stop and stay relatively constant. I guess then we can debate how evil oil companies and their obscene profits collude to keep prices high. After all, prices were declining and the mysteriously stopped. Gotta be some evil oil pricing game being foisted on the dumb-as-a-stump customer.

 

[Art Eatman]

So the profits were $2.68 a share. Okay, fine. What was the share price?

A price of $50/share means about 5.4% profit. McBurgers probably does better...

Art

 

[c_yeager]

'Nothing' is a looooooooong way from $2.01 billion. The increased profit comes from what reasonable men call 'gouging'.

DId you read the article you posted? It was made pretty clear that the profit increase was due to the market price of crude oil. That is NOT a price that is set by the oil company. Who is doing the "gouging" in your little scenario?

 

[R.H. Lee]

Ay-yih-yih. Where to start?

The "oil company profits at historic highs" means that the money is paid to the stockholders and is gone from the corporation's bank account. Gone as in in someone else's bank account where they can use it for other stuff. Gone as in back in the economy buying other stuff and making other investments. Gone as in no longer there. They don't hoard money. They can't. The stockholders would never stand for it.

Wrong. And what are the big energy companies doing with all this money? Mostly sitting on it. Their cash reserves overflow. also see
ConocoPhillips said Wednesday that it had about $13.6 billion cash on hand during the third quarter, $1.3 billion of which was generated during the quarter. The company invested 63 percent of that cash into capital programs, or new projects to expand the company

So they're using the largest percentage of gouged profits on mergers and acquisitions, further consolidating their monopoly.

As for the Jap car, my guess would be that it was made in America by union workers.

Wrong Made in Japan, specifically, Toyota City. And if it were built by union workers it would have cost $24k, not the $12k I paid.

So the profits were $2.68 a share. Okay, fine. What was the share price?

A price of $50/share means about 5.4% profit. McBurgers probably does better...

Remember, that $2.68 is just for the quarter, so in the above scenario the annualized gain would be 21.6% at a time when gas prices are at an all time high.

DId you read the article you posted? It was made pretty clear that the profit increase was due to the market price of crude oil. That is NOT a price that is set by the oil company. Who is doing the "gouging" in your little scenario?

First, your statement doesn't make sense. If the cost of crude goes up that increases the cost of goods sold, not the profit. Unless the oil company had options on crude purchased when the price was much lower; artificially inflating the CGS to current market levels and pocketing the difference. Also, please note the article says

"ConocoPhillips, like other major oil companies, has reaped a windfall from.....better refining margins..."

and

Profit at its refining and marketing operations rose to $1.39 billion from $708 million a year earlier

So, $1.39 billion of the gouged profit comes from refining and marketing where both supply and price are determined by the oil company.

Record gas prices=Record oil company profits=Gouging.

 

[R.H. Lee]

You want to know why gas prices are dropping, just a little? The oil companies are realizing they've overreached. Even the Republicans are jumping on the bandwagon GOP to target Big Oil profits

 

[wingman]

Record gas prices=Record oil company profits=Gouging.

Simply truth, I love it. Anyone old enough to remember old cowboy movies
where the indian said white man speak with forked tongue, well that is a way
of life now in corporate American and sad to say our government. We can all
spin "profit" anyway you like but we are being gouged by oil companies because it's the only game in town and I do not expect it to end soon.

 

[Waitone]

So they're using the largest percentage of gouged profits on mergers and acquisitions, further consolidating their monopoly.

Explain how a company is to increase its dollar volume sales when it is prohibited from expanding production. A company that is not growing is dying. If it cannot expand production on its own the only alternative is to purchase production from a willing seller (merger and acquisition). No, don't tell me a company could simply purchase additional gas from another oil company and resell under a different brand. Commodity markets reward production. There is insufficient room in the gross margin for a re-brand.

 

[auschip]

FOllowing that logic Apple has been "gouging" in the United States also.

Today’s announcement comes 24 hours after Apple reported record earnings, with a net annual profit of $1.335bn (€1.113bn), an increase of 384% from 2004.

Apple generated revenue of $13.93bn (€11.62bn), a 68% rise from the year before.

http://212.2.162.45/news/story.asp?j=3375465&p=337548x&n=3375557

Profits (even large profits) are not proof of gouging. In fact, if you do a little digging, you can see the flaw in your logic. Lets look at Conoco-Phillips numbers over the last 3 quarters.

Q1 2004 - $1.6B Compared to Q1 2005 - $2.9B

Q2 2004 - $2B Compared to Q2 2005 - $3.1B

Q3 2004 - $2B Compared to Q3 2005 - $3.8B

So what was the gouging that went on in Q1 & Q2? I don't believe we had any hurricanes blowing through in February & March.

 

[R.H. Lee]

So what was the gouging that went on in Q1 & Q2? I don't believe we had any hurricanes blowing through in February & March.

Why do you thing gouging requires hurricanes? The oil companies control supply and price with and without hurricanes. Gas prices (and profits) have been sharply increasing for the last 3 years. Hurricanes are just the latest convenient excuse.

FOllowing that logic Apple has been "gouging" in the United States also.

Talk about faulty logic.........

Have Apple's prices doubled in the last two years? NO,
Does Apple control the computer supply? NO
Does the cost of computers increase the cost of everything else as do increased gas prices? NO

You're zero for three, but you can play again.

 

[jefnvk]

Have Apple's prices doubled in the last two years? NO,
Does Apple control the computer supply? NO
Does the cost of computers increase the cost of everything else as do increased gas prices? NO

He is talking about a specific company, you are talking about an entire industry.

And just because it didn't just start happening, doesn't mean computer manufacturers haven't been gouging.

If I can build the same system that Dell is, for half the price, are they gouging?

 

[Beethoven]

Assuming there's free-market competition, and assuming there's no collusion going on, there is no such thing as "price gouging." All prices are exactly what they should be.

I don't think that any intellectually honest person can say with a straight face that there is no collusion in the oil industry.

 

[Camp David]

As a follow-up to all those that foolishly denied price gouging by oil executives...

Exxon's $10B net a U.S. corporate record
October 27, 2005: 1:25 PM EDT
http://money.cnn.com/2005/10/27/news/fortune500/exxon.reut/index.htm?cnn=yes
NEW YORK (Reuters) - "Exxon Mobil Corp. posted a quarterly profit of $9.9 billion Thursday, the largest in U.S. corporate history..."
~
I hope these people all die soon and their children all get cancer and die horrible deaths...