Tuesday, April 25, 2006

Oil Again

4/25/06

Oil Prices
What is causing the current price explosion for Gasoline? As usual, it is that old friend, Supply and Demand. India, China and most of the rest of the world are growing. They all are buying cars, opening chemical plants, using lots of petroleum products. Very little additional is being pumped out of the ground. There is lots of oil that is not being pumped but nothing that will help in the short term. As of the last time I saw the data the cost of the oil required to produce 1 gallon of gasoline was about $1.65. The taxes from all the different levels of government was somewhere between $.27 and $.53 in 2002. Those taxes are currently higher. That adds up to near $2 per gallon before you add the cost of refining, the cost of transportation and the cost of the CAFE list of gasoline formulations the environmentalists have demanded.
I think I will scream if I hear another person that "knows" that the problem is price fixing. Or brings up the retirement of Exxon CEO Lee Raymond and his package. A CEO is worth what he makes. Otherwise, the board would not pay him so much. If you took his $400 Million and split it out over the shareholders it would not be but about $.02 per share. In contrast, the price of the stock has risen 3 times its value in the last 10 years. Hummmm. Seems like a good job to me!
Corporations are in business to make money for the stockholders. They lend money to the company with the expectation that they will profit, either by dividends or by the price of the stock going up. Both happened with Exxon.
Yes, they made record profits. Yes, it is a lot of money. Yes, he got it the old fashion way--he earned it. I wish I could but he is welcome to all of it. Congratulations!
If we could somehow increase the supply of oil (ANWAR comes to mind) or new sources of oil (Like maybe the oil shale that might be starting to be price viable) or new ways to drive our cars that could use hydrogen or something else it would be nice. Unfortunately it is not a short term solution. We need some technology breakthroughs. Maybe we can tech our way out!

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