How Big Oil Keep Breaking Profit Records

I’m going to keep this very simple.

There recently was a hearing in Washington with Big Oil regarding the high consumer price of gasoline and the increasingly huge profits these companies are making.  You can read about that here, and the absurd argument made by the CEOs  about their continuing need for tax breaks.

That is understandable, the CEOs are under a legal obligation to maximize profits, and free government money is free money, and there’s no way they are going to say they don’t want it or “need” it.

All of that is neither here nor there in this discussion.   I’m going to talk about market psychology and ripping people off.

What I had noticed in my personal life recently is that the trend in consumer gas prices is linked to price of crude oil…but only in one direction.    When you hear about the price of oil going up in the news, gasoline retailers immediately raise prices, justifying this by the increased commodity prices.

Why the commodity price plunges dramatically, as it has the last few weeks, the price at the pump….holds steady.

Not being one to just assume my general observations are correct, I did some light digging and found these two charts…very simple.   Here’s the first one, from AAA’s site that tracks this.

Note where the graphs divergeThat charts seems to indicate exactly what I was thinking.  You can see right around last August, there was a large drop in crude oil prices…and a slight rise in gas prices.   Currently there has been a HUGE drop in oil prices…and the price at the pump holds steady. 

Now, that graph above is lacking in correct units for oil prices, so I looked up a similar chart to make sure of the correlation.


Now one can see how the AAA graph for oil prices is essentially the same curve as the market chart.   One can also see that large dip in Aug-Sep ’10, and the non-existent corresponding dip in gas prices.   To bring one up to the present, one can easily see the recent plunge in oil prices…and the non-existent corresponding dip in gas prices.

So what does the difference between the two graphs represent?   Record profits.  BTW, that linked article tries to use energy analysts to explain this isn’t really Big Oil’s “fault”…but as you can see from the graphs…that’s total bullshit, they are milking this situation for as much as possible.  

It’s not even nefarious ultimately, this is just how markets function when you have big players setting the price of an inelastic product: they reap huge profits that everyone else pays for.

In 21st Century America, however, this does get more nefarious, a portion of those record profits are funneled back, untracked, to the politicos to make sure they keep on flowing.  And they do.

Even with the Senate’s two independents and both Republican Senators from Maine on board, there was no way it could pass. So, S. 940, the Close Big Oil Tax Loopholes Act, bit the dust late Tuesday, with only 52 votes in favor of a motion that would have allowed the bill to be debated. Three Democrats joined the GOP side.

Yep, only 52 out of 100 votes…which means it fails.    BTW, the three Republicans (now two) on the Debt Commission, all votes against removing these tax breaks, making their other job (who to screw over to pay for them), that much harder.

Clearing off the desktop…

…sometimes I fall behind.  So to catch up, I just dump a lot of stuff with short commentary and reboot the browsers so my computer can think again.

Here goes…

First up is an acknowledgement of the change to Arizona law.  This took away the worst of it, but I’d expect the rest to be bad enough to fall on its own.

Here’s some of the local reaction to the immigration law.  The march took place before the changes.

Some Fox revisionism.  Seriously, WTF.

The smoke monster gets lose in the gulf.

They caught some guy who doesn’t know how to make a good bomb.

Who did what now?  You don’t say.

Federal money is only *sometimes* evil.  How very Hindu of you

No need for that extra $130 for a 3G iPad.  $99 3G iPhone works fine.

Some speculation by a sci-fi guy about Jobs hatred of flash.

More on the immigration law change in Arizona.

Tattle tales!  How silly.   I say let people strip in the name on art, like that.  This’ll get tossed.

The global warming witchhunt continues in VA via the Cooch.

A good Street Fighter movie? Unpossible.  Possible…

It’s like a cliche now.

The Tea Party takes the Republicans to a new dimension, and beyond.

The alternate question about who “introduced” nukes to the Middle East.

Wonderful reading about the longest living organism(s).

Drill, Baby, Drill!!!

WASHINGTON (AP) — The House, responding to growing public demand for more domestic energy, voted Wednesday to end a quarter-century ban on oil and natural gas drilling off the Atlantic and Pacific coasts, giving Republicans a major victory on energy policy.

An extension of the ban for another year was left off a $630 billion-plus stopgap government spending bill that President Bush had threatened to veto – possibly shutting down the government – if the anti-drilling measure were included.

The bill was approved 370-58 and now goes to the Senate, where it is likely to be approved within the next few days, also without the drilling ban.

WWL – AM870 • FM105.3 | News • Talk • Sports | OnDemand@1350 – AP – content.

My guess is that if Obama is elected, we’ll probably see a bit of a drawback on thiis one.  If McCain/Plain are elected, it will be expanded.

Opening up drilling doesn’t do much for now, but might help a tiny bit in the future.  If we structure the deals right, we could make some money, but without real pressure, expect to get raped like we were before.

WASHINGTON — As Congress prepares to debate expansion of drilling in taxpayer-owned coastal waters, the Interior Department agency that collects oil and gas royalties has been caught up in a wide-ranging ethics scandal — including allegations of financial self-dealing, accepting gifts from energy companies, cocaine use and sexual misconduct.

[full story]

What this group did was collect money on the oil and gas we are already letting be “drill, baby, drilled”.  This office was rife with corruption as the profits involved in the gas business, and the payments tied to them, have skyrocketed in recent years.  What Big Oil realized was that by boozing and blowing certain humans that represented the government, they could avoid paying any extra taxes on those record profits.

This was one of the tactics in their strategy to maximize shareholder value.  And is something that would be multiplied a couple-fold by allowing more drilling (it’s really not going to change the equation that much).