Wednesday, April 19, 2006

Those Evil Oil Executives......

4/19/06

Whenever I hear people talking about the evil oil companies and their executives and their obscene profits, I want to ask them what is it about capitalism they want to change. Supply and demand people! The prices are up. News Flash! So is demand.
If you look at the prices for gasoline over a long term, you will see some trends. When the demand nationally goes up, so do prices. When the season changes, the prices go up. Those evil oil companies are up to it again.
Lets try to do this without oil. If you have a source of some product for which there is a limited supply. Maybe some fruit that all of a sudden has been determined to be a cure for cancer. This fruit (Lets call it Stone Fruit) is grown only in 25 farms in southern Indiana. The fruit has been selling for $0.50 per bushel for the last 2 years. Everyone is happy. Those who like Stone Fruit as a snack have their fruit and they buy it for about $1 per pound.
Now, a report comes out from the CDC that this fruit has a 95% rate of cure for some form of cancer. What happens now?
First, people run to the store to buy all of the Stone Fruit they can. Fights can break out as some lady fills her basket and no one else can get any. The manager of the store calls his supplier and says to get all the Stone Fruit they can. Next, the supplier calls the cooperative that the Stone Fruit growers belong to and says he needs an additional 500 bushels. The coop says that they only have 1000 bushels and 500 suppliers are asking for them. The suppliers start bidding on the fruit. When the bidding is over, the price has gone up by a huge amount. Basic supply and demand. The supply has stayed the same but more demand for the product.
The supplier calls the store manager says I can get more for you but it is going to cost you more. Since the supplier had to pay more, the grocer has to pay more. Therefore, you have to pay more.
Now, imagine that the Japanese decide that this fruit is needed and they start bidding against the domestic bidders. Then the Russians, the Chinese, etc. The price goes through the roof and the consumer is faced with a choice. Either pay large prices for StoneFruit or do without.
Exactly what has happened with oil. The Indian and Chinese have started to grow. They are selling cars and people need oil. The chemical industries in those countries are growing and needing oil. No additional oil or refineries are in sight.
Now, add in the government requirements to create 38 or so different blends of gasoline. When it changes seasons and the refineries have to make a new blend, it costs more AND it cuts supply while the blend changes.......
Supply and Demand. Learn it. It might help you blood pressure as you deflate you wallet. You cannot argue with natural laws. If you try, you get the Soviet Union and its wonderful economic model.

2 Comments:

Anonymous Anonymous said...

While most of your logic is true, you have left out some very important facts that show a very strong slant to the right. Why does the CEO of the major oil companies get multi million dollar salaries? If demand is so high, does it really take that much skill to sale the oil? The skill is their ability to ‘manipulate’ the product so that profits are maximized and they certainly do a good job. With the CEO of Exxon getting a 400 million dollar bonus for the record profits his company has managed during these times of rising prices, its little wonder why he is smiling. While the extreme right continues indicating that anyone that would dare question the oil company executives about price gouging has to be so incompetent that they think all oil companies are evil, it widens the divide between left and right and draws independents to the left. Once again it seems to be no middle ground for independents to take.

2:49 PM  
Blogger Harry said...

While you can ask about the huge bonus the president of Exxon got, you might ask yourself what his contract with the company said. It had to be in his contract. If it is in his contract, that means the board of directors decided he was worth that. That means that some other company would have been willing to pay that much. Otherwise, they wouldn't give him that much.

What a CEO makes, salary or bonus has little or no impact on the company bottom line. If you take the $400 Million dollars and spread it out among the shareholders it would add up to probably $1 per share.

Remember. A corporation is a group of people that have invested their money in the hope that the management will make their shares worth more. That is called capitalism. To interfere with that could be called Socialism.

This country has grown and prospered largely because of the system the private enterprise system works under. Capitalism. Compare the net wealth and possessions of the lower middle class has to the fairly high class in the rest of the world.

IT Works.

2:58 PM  

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