Oil companies are an easy target for the current high gas prices we are now facing in this country.
Examine the facts:
In 1950, $1 would buy you a lot of goods and services. Today, that same dollar is worthless in comparison. What cost $1 in 1950 now costs $8.78 today. Gas prices in 1950 were about 30 cents a gallon. Today, adjusted for inflation, gasoline prices should be $2.64, assuming taxes remained the same.
But taxes have gone up. In 1950, taxes on a gallon of gas amounted to 1.5%. Today, taxes on a gallon of gasoline make up 20% or more of the posted gasoline price.
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 has forced this issue for more than 30 years. This is likely why building a refinery right now will have little immediate impact on the price of oil. It is, as they say, "too little, too late". Buying oil from countries who have nationalized oil fields puts a risk premium into the price of oil that we must buy from them.
Lastly, about 9.5% of the price of gasoline goes to the oil companies. A whopping 20% goes to Federal, State, and local taxes. A very small percentage goes to privately held gas station owners and the rest is used up in the cost of production and getting the product to market.
If "windfall profits" were the real concern, then politicians would be hitting up other industries that have higher profit margins and - all other things being equal - make more money per product sold.
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 just let them be. Don't blame the oil companies. Demand fewer coercive laws, regulations, and demand lower taxes. - 15224
Examine the facts:
In 1950, $1 would buy you a lot of goods and services. Today, that same dollar is worthless in comparison. What cost $1 in 1950 now costs $8.78 today. Gas prices in 1950 were about 30 cents a gallon. Today, adjusted for inflation, gasoline prices should be $2.64, assuming taxes remained the same.
But taxes have gone up. In 1950, taxes on a gallon of gas amounted to 1.5%. Today, taxes on a gallon of gasoline make up 20% or more of the posted gasoline price.
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 has forced this issue for more than 30 years. This is likely why building a refinery right now will have little immediate impact on the price of oil. It is, as they say, "too little, too late". Buying oil from countries who have nationalized oil fields puts a risk premium into the price of oil that we must buy from them.
Lastly, about 9.5% of the price of gasoline goes to the oil companies. A whopping 20% goes to Federal, State, and local taxes. A very small percentage goes to privately held gas station owners and the rest is used up in the cost of production and getting the product to market.
If "windfall profits" were the real concern, then politicians would be hitting up other industries that have higher profit margins and - all other things being equal - make more money per product sold.
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 just let them be. Don't blame the oil companies. Demand fewer coercive laws, regulations, and demand lower taxes. - 15224
About the Author:
David Lewis is a financial consultant and provides objective financial information about life insurance, SPIAs, bank CDs, stocks, and other topics related to retirement & financial planning.
