S-Proprietor.com

Oil companies are an easy target for the current high gas prices we are now facing in this country.

Examine the facts:

$1 would buy you a lot of goods and services in 1950. Today; however, what you bought for $1 in 1950 now costs $8.78. The price of gasoline in 1950 was about 30 cents a gallon. Adjusted for inflation, gasoline prices ought to be about $2.64. This assumes taxes have remained the same.

But taxes haven’t stayed the same…not even close. In 1950, the tax per gallon of gasoline was roughly 1.5%. Today, taxes on gasoline make up about 20% of the posted price of gasoline, and a significant portion of the cost you pay to fill ‘er up.

Still, that 30 cents a gallon in 1950 should cost about $3.13. But this assumes supply and demand has remained constant. They haven’t. China and India are probably the most visible examples of this. China and India are quickly rising to the top of the “food chain” in terms of consumption, and they are requiring more and more energy every year.

The last oil refinery built in the United States was completed in 1976. Government regulation has prevented any refineries from being built since then. Other countries have nationalized their oil industry which makes investors nervous about doing business with a dictator or group of dictators (I wonder why) which in turn causes a risk premium to be priced into the oil we must buy from other nations.

What about oil company profits? Oil company profits represent about 9.5% of the price of gasoline while 20% goes to Federal, State, and local governments in the form of taxes. Gas station owners see a small percentage, while most of the cost of gas is tied up into the cost of production and distribution.

Politicians often tell us about “greedy” oil companies. But if “windfall profits” were the real issue, why not go after other industries who have larger profit margins than oil companies?

For example: the [Periodical] Publishing industry operates at a 24% profit margin, application software - 22% profit margins, the shipping industry has 18% profit margins, the tobacco industry takes in 19%, and water utilities boast 10.2%.

How do we solve this problem? Do we cut back on distribution? No, that will cause a bigger problem. What’s another solution? Legislate tighter controls and regulations on oil company profit margins? That will cause oil companies to jack the price even higher in an attempt to meet shareholder expectations and stay in business.These companies already operate on thin margins.

A third option is to leave them alone. Tell your representatives to eliminate coercive laws, regulations, and then demand lower taxes and spending in Washington.

Finances

You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.