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...for your insight. I wish more people would learn about how the petroleum industry operates, and think about the economic consequences of their whining. Maybe they could learn something about the petroleum business.
Yes... petroleum is an exploitative industry. I happen to work in it, I should know. But not in the way that so many people seem to think.
Profit margins, particularly in the mid and downstream (also known as retail) segments of the industry, are notoriously thin. Petroleum companies in these sectors buy and sell gas from each other, and competition is cutthroat. In other words, (and I wish I could scream this from the rooftops every time I hear another person complain about "price fixing" or "gouging"), most of the time THE PEOPLE YOU BUY YOUR GASOLINE FROM ARE PAYING MORE TOO. I haven't the space for a detailed explanation of business practices of the industry, but thats the gist of it.
Yes, some oil companies, particularly the big, vertically integrated ones, are making money hand over fist right now... but that profit is almost entirely captured from the upstream segment (exploration and production) segment. It costs the same to pull a barrel of oil out of the ground whether it will sell for $30 or $100. That is where the money is. By the time the gasoline reaches its ultimate consumer, it might have changed hands between 10 to 15 companies, all of which are trying to "buy low/sell high" against each other.
Your friendly neighborhood gas station is competing with dozens of others, some independantly owned, others integrated with the parent company. They have a very strong incentive to cut prices to sell more gas -- this is known in the business world as "economies of scale". They would love to steal business from other stations by cutting prices by a buck or more -- but they can't do that and stay in business. Petroleum companies just as much a part of the supply and demand curve as the ultimate consumer.
I understand people's reactionary anger at the industry. But the real culprit is not the gas companies, it is our insatiable demand for cheap gas. America has had this coming for a long time -- 50 years of unsustainable growth in consumption is now being checked by elementary economics that are out of the control of any one company, even big bad ExxonMobil.
In my view (as Mr. Leonard's) these high prices are a good thing environmentally and socially, as people will be forced to cut back on their consumption habits by driving less, using mass transit, living closer to where they work, etc. This will be painful, but was bound to happen sooner or later to a fungible commodity such as petroleum, which has an ultimately limited supply, not to mention refining capacity.
I certainly don't think the big oil companies are blameless in this, and by their arrogance, political skulduggery and uncommunicative attitudes they certainly haven't made things easier for themselves. But whining about high prices, as if to lower prices would solve our problems, is ignorance at best and disingenous at worst. Nothing else but paying ridiculous amounts to fill up that SUV for that 50 mile daily commute to/from work will get through Americans' thick skulls, apparently.
So go ahead and blame the oil industry. Call for government action or whatever populist rant strikes your fancy. Then watch in amazement as nothing changes. High prices are here to stay until people stop demanding more gasoline every year. And we all know how likely that is.
