Friday, April 04, 2008


Do Oil Companies
Control Gas Prices?

The following highlights from a Business Week article Mar. 21/08 should help shed some light on the reason you are paying more and more at the pumps.
The complete article can be viewed here

Exxon is the largest publicly traded company in the energy business. In fact, it's the most profitable company in the history of capitalism, earning a record $40.6 billion last year on sales of $404 billion. Yet even with crude oil prices near all-time highs, Exxon isn't planning on producing any more oil four years from now than it did last year.

Let the full meaning of that sink in for a moment. That means the company is deliberately not trying to meet demand so that it can continue to raise prices.

Why you might ask? Consider the answer given by Exxon chairman Rex Tillerson when asked the same question:

"We don't start with a volume target and then work backwards," Tillerson explained. Instead, he said, his team examines the available investment opportunities, figures out what prices they'll likely get for that output down the road and places its bets accordingly. "It really goes back to what is an acceptable investment return for us," Tillerson said. In other words, producing more barrels just to ease prices for consumers is not part of the company's calculations.

Last year, ExxonMobil led the industry with a return on capital of 32%.

So why does Exxon not produce more oil? The answer is simple;

The energy giant is being managed to achieve an acceptable investment return for shareholders, not for the benefit of consumers. Less supply of crude oil means higher prices -- and record profits.

Now consider how many dollars all levels of government extract from consumers at the gas pumps, which is kind of a hidden form of taxation. After all when you are filling your car you think you are buying gas, not just paying more taxes.

If the consumer is ever going to have a say in gasoline prices they are going to have to do something about it themselves, as the oil companies have no interest in lowering prices and governments have not interest in lowering taxes.

Original cartoon copyright Dwane Powell. Visit Dwane here.


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