That Gouge in your Wallet is the Oil Companies

In case you missed it, oil company CEO's were asked to testify before Congress this week to defend the profits their companies are racking up. But some are actually defending the oil industry for its profiteering ways. Is it the American public's fault that we use so much gasoline and that we aren't willing to support drilling in ANWR?

Of course, it is. Regardless of what the problem is, you can always blame the American public for voting in the dolts that allow things to happen as they do. So, there is some point to be made that we are personally responsible for the oil companies ripping us off.

Just on the chance that the oil execs weren't 100% forthcoming, I looked up the figures on gasoline prices and consumption at the Energy Information Administration (I'd reference it separately, but I still don't know how to link to Excel and Adobe files). There's some interesting data.

Here are the figures for gasoline consumption (in thousands of barrels per day):

Month 2004 2005 % change
Jan 7955 8094 +2
Feb 7979 8203 +3
Mar 8101 8040 -1
Apr 8232 8487 +3
May 8447 8411 -1
Jun 8336 8537 +2
Jul 8369 8289 -1
Aug 8356 8345 <-1
Sep 7992 7949 -1
Total 73,767 74,355 +0.01

Now, everyone knows that oil prices have been higher in 2005 than in 2004. That accounts (at least partially) for a higher price for petroleum products - like gasoline. Basic economics teaches us that higher prices lead directly to lower consumption. While we still see some small amount of growth from 2004 to 2005, it is so small that we can say it is negligible. In this case, oil prices rose just enough to keep America's gasoline demand roughly constant.

(Profit) = (Profit Margin) x (Amount Sold)

The above equation is pretty much right out of an Intro to Economics textbook. If the Amount Sold was roughly the same from 2004 to 2005, but Profit rose; then there is only one way for that to happen - the Profit Margin had to increase.

In other words, not only did you get charged more for gasoline this year, but a larger percentage of that amount went into the bank accounts of the oil companies as profit.

Now, understand that "profit" means all the money that is left over after you pay your bills - which includes the higher price of crude oil and the increased salaries of the oil execs and the money poured back into future exploration. "Profit" is "money we don't know what to do with" - and ExxonMobile (by itself) had over $9.9 billion of it in the third quarter alone. Notice the numbers above - the third quarter is July, August, and September. So, ExxonMobile managed to pocket an additional 75% of profit between 2004 and 2005 while demand remained roughly even.

There is no way to argue (though some attempt to do so) that the oil companies did not rake in a disproportionate amount of money this year. You can't make more money with the same demand and not raise the profit margin. You can average that cost out over ExxonMobile's entire operation to make it look more reasonable, but the fact remains they made record profits while demand remained the same (unless someone can show me how ExxonMobile managed to caputure a huge chunk of the market during the 12 months between July of 2004 and July of 2005).