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The Illusion of Oil Price Gouging

by Conservativity Staff,
Originally Posted: 11/2/2005 10:59:51 PM
Last Updated: 11/2/2005 11:07:59 PM

The Left has found its latest "Bush Sucks" hot button:  Record oil profits.  Remember in the bizarro-world in which the liberals live, Iraq is an illegal, evil and unjust war that our President fights to avenge his daddy and to make Halliburton and his oil buddies richer with a windfall of supply.  This theory is facially ludicrous; an increase in supply from Iraq would tend to lower prices.  Also, the prices of gas at the pump are dropping every single day.  However the Left, as well as a few less-than-a-full-deck GOP Senators, are decrying the record profits.  This article documents the liberal-fomented consumer outrage.  Example in Chief:  ExxonMobil’s 2005 3rd quarter profit was 9.9 billion dollars on revenues of $100.7 billion.

"Sounds staggering.  Therefore, the Leftists, with an intent to deceive and to justify a tight governmental choke hold on industry (a sure fire economy killer, ask any former Communist country), take the sheer number and knowingly make the false allegation of price gouging."

Sounds staggering.  Therefore, the Leftists, with an intent to deceive and to justify a tight governmental choke hold on industry (a sure fire economy killer, ask any former Communist country), take the sheer number and knowingly make the false allegation of price gouging.  But, it is no such thing!  How can I possibly say this?  Simple:  profit margin.  ExxonMobil has a 3rd-quarter 2005 profit margin of about 9.8% on the reported numbers.  For all of 2004, its profit margin was 9.6%.  In 2003, ExxonMobil’s profit margin was 9.8%.  So, unless making under a dime for every dollar taken in is somehow a price-gouge, there is no merit to the conclusion that this company gouged prices.

Face it, ExxonMobil raised fuel prices commensurately with its costs.  It maintained a steady profit margin in the 9-10% range.  Even if one were to argue that the uptick from 2004 to the 2005 3rd quarter from 9.6 to 9.8% was evidence of gouging, it can be accounted for as a reduction of non-goods costs and overhead relative to the increase in revenue.  Even though the price spiked, demand stayed steady.  So revenues were bound to jump.  The tiny increase of profit margin from 9.6 to 9.8% is understandable.  A decrease in relative non-goods costs would be difficult to predict; the prudent thing for management to do was to maintain a level markup percentage (the percentage added to the cost of goods to determine price).

"Is a 9.8% profit margin not evil if it is on $10,000 of sales, or $980, but is somehow evil if it is $9.9 billion on over $100 billion of sales?  What determines gouging?  Personal frustration over price hikes brought about by a natural disaster that exposed the weaknesses in our supply system?:

Is a 9.8% profit margin not evil if it is on $10,000 of sales, or $980, but is somehow evil if it is $9.9 billion on over $100 billion of sales?  What determines gouging?  Personal frustration over price hikes brought about by a natural disaster that exposed the weaknesses in our supply system?  Does it matter that these weaknesses are caused by a deadly combination of ridiculous government regulations that require refineries to produce hundreds of customized and seasonal fuel blends, supplemented by Leftist environmental actrivists who think that any oil refinery anywhere in America is a temple to Satan?

I thought that the Conservative message got through to people, but they seek a windfall profits tax on oil.  ExxonMobil’s spokesman said it best:  "We earned $9.9 billion on $100.7 billion in revenue -- 9.8 per cent. Citigroup and Microsoft earned 33 per cent, by comparison.  There only seems to be talk about windfall profit taxes on oil, while there are over 20 Fortune 500 companies who made significantly more than ExxonMobil on an ’apples to apples’ comparison -- cents income per dollar of revenue."

How true.  There is no price gouging.  Stop persecuting the oil companies and start getting the government the hell out of their way so that they can develop more sources and thus secure our nation.