Record Prices = Record Profits?

So, I am running through some of my daily news searches – things like “gas prices”, “gas gouging”, “alternative energy”, etc. I ran across this gem:

Gas price gouging becomes even more obvious

It is basically just another ignorant screed from someone who apparently thinks oil companies can just raise and lower prices at a whim:

As long as no significant gasoline retailer breaks ranks and the price at the pump remains fairly constant from one street corner to the next within a region, there is no reason for any oil company not to raise prices. So they do.

An absolutely abysmal understanding of the issues. It is funny that people seem to understand that when the price of gold rises, gold mining companies make more money. And there doesn’t seem to be this widespread belief that the reason they are making more money is that they just decided to raise the price of gold. People understand that they can’t do this. But these same people seem to think that oil companies can just go out and raise prices when they want.

And then this:

Oil companies last fall did all they could to keep Republicans in the majority in Congress because no matter how high prices went during its reign, the GOP never did a thing to rein them in. No hearings questioning oil company executives about their pricing practices. No anti-gouging bills. Nothing.

Prices drop every fall, for reasons I have explained several times. Last year was no different, it just happened to be an election year so it gave the conspiracy theorists something to get worked up over.

As I worked my way through the article, I thought “Boy, this sounds just like the FTCR’s hysterics.” Then I reached the end:

“These figures show that gasoline prices are not about the price of oil, but about maximizing the already obscene profits of oil companies and their refiners,” said Judy Dugan, research director for the consumer advocate Foundation for Taxpayer and Consumer Rights.

LOL!

So, what is the connection between record gas prices and record profits? Absolutely yes, there is a connection. I expect oil companies to once again turn in huge profits (keeping in mind that the profit margins are in line with other industries) and there will be a new round of political grandstanding. Eventually congress is going to be pressured into passing some sort of legislation, but almost everything that will be politically palatable to them will make matters worse for consumers in the long run.

Right now the money is being made in the refining sector. When oil prices stay constant, and gas prices skyrocket, most of that is going to the refiner. Refining margins are certainly very healthy right now. But too many people – including most of the politicians – have their cause and effect backwards. High refining margins do not cause high gas prices. The high gas prices are not a result of the desire of the oil companies to make more profits. (They do desire to make more profits, but they can’t just raise gas prices as a result). The high profits are a result of the fact that gas prices have risen. (And of course some of those high profits are going to pay for things like compulsory ULSD and ULSG requirements, the phasing out of benzene, etc.)

Why have gas prices risen? Is it as the article above suggested – just companies raising prices with nobody breaking ranks? Anyone who takes a bit of time to watch the utilization numbers, imports, demand, and inventories will understand why price moves as it does. I know that takes a bit more effort, and that the lazy way out is to just argue – as Judy Dugan says like a broken record – that the price rise is “about maximizing the already obscene profits of oil companies and their refiners.” And it is obvious that many are ignorant of the basics and too lazy to do the research. The scary thing is that many (most?) of our political leaders fall into that same category.

A fundamental problem, which the Judy Dugans of the world never seem willing to address, is that Americans like to drive whenever and wherever they want. Now that the price of this habit is coming home to roost, they demand that politicians protect them so they don’t have to change their consumptive ways. Tell a European or an Australian about the pain of $3 gasoline and they will laugh in your face.

The best thing for all parties would be to come to terms with the fact that the days of cheap oil and gasoline are over. That era is finished. Start planning for the next one.

25 thoughts on “Record Prices = Record Profits?”

  1. Thomas D. Elias is a Santa Monica based California political columnist who occasionally wanders into energy issues.

    He is a bit of a kook and conspiracy theorist. So frequently wrong with his predictions, it is a wonder anyone takes him seriously.

    He believes among other things:

    Republicans steal elections (except when they don’t)

    Big energy has bought off Gov. Schwarznegger

    Big medical is preventing a cancer treatment and medical marijuana from getting to market

    Except for the tinfoil hat constituency, nobody takes him seriously. You can try to reason with him at: tdelias@aol.com

    If you try it, don’t use your day job e-mail. If the facts get in the way of his wild theories he will just assign you to the big conspiracy.

  2. Robert,

    Excellent blog and excellent post!

    Politically affordable gasoline and the incentive to alternative fuels are mutually exclusive goals, unbeknownst to Washington.

  3. “A fundamental problem, which the Judy Dugans of the world never seem willing to address, is that Americans like to drive [whatever,] whenever and wherever they want.”

    That’s it exactly. I think the “bad cop” message needs to get pushed back:

    “You think gas is too expensive? Don’t buy so much!”

    – odograph

  4. If you want to know how tree-hugging environmentalists go to church

    (You know, I was just saying in another blog:

    “It is also, unfortunately, a politicised environment, where any environmental concern can be painted as extreme, fringe, wacko, …

    For your recommendation to be effective we will need to totally change our approach to environmental issues … a little more “Reason” to borrow from one book title, and a little less talk-radio rhetoric.”)

    Didn’t have to step to far to see the same thing again.

  5. Anon – you ask for reason??? We have politicians holding inquisitions about high energy prices while at the same time throwing up roadblocks to energy development.

    At the Al Gore meeting you two Marin County residents brought their canvas Che Guevera tote bag. Don’t they realize that if Castro and Che had invaded Marin that those two rich white imperialists would have been among the first executed?

    You ask for reason? Tell that to my former employee Babatunde in West Africa. He didn’t show up for work one day. I later learned he had to bury his 3-year-old daughter who had died of malaria. Malaria – a diesease that could be eradicated or greatly reduced by judicous use of DDT – prevented by rich white environmentalists, because they read “Silent Spring” in their tie-dies and bell bottoms.

    The environmental movement has been hijacked by socialists, communists, anarchists, and the do-gooders of the world who want to tell everyone else how to live but don’t want to change their lifestyle.

  6. Well you see I, the lifetime conservative and Republican, see environmental questions drowned out again and again by cheap theatrics.

    AS IF – you could name any particular plan you disagree with and paint THE WHOLE FREAKING SUBJECT with that brush.

    Find someone who is just getting a handle on things and drives their old car down to see AL … what do you do? YOU FREAKING PAINT AL WITH IT!

    If that is Reason, I’ll eat my hat.

    And where the heck did Rachel Carson get into rational energy discussion?

    I don’t know or care the fine lines of the DDT debate, but I can see the nut jobs caring even less. THEY DON’T CARE who does or doesn’t still make DDT.

    Recently made in Mexico, right? Until at least the late 90’s? Still made in India and China, right? (And, LOL, North Korea!)

    WTF?

    Let’s chant “Rachel Carson” and pretend another world.

    – odograph

  7. Documentation for my claim of “irrational bullshit:”

    “QUESTION: T.V. Parasuram from the Press of India. Some years ago, I recall that it was announced triumphantly that malaria had been conquered in India because of DDT. And then DDT being a poison, malaria survives, what’s the situation now, what’s the incidence, and have they found a suitable substitute for DDT?

    MR. HAY: Why don’t we ask Soji Adeyi just on the DDT question, and then, Julian, we’ll pass it back to you talking about South Asia.

    DR. ADEYI: Thank you. Currently, as Julian pointed out, India is actually one of the recent successes in malaria control. I use the word “control” specifically because now the goal, the agreed global goal is control, not eradication. That means reducing it to a level in which it is no longer a huge public health or economic problem.

    In accordance with guidelines from the World Health Organization and also in accordance with the Stockholm Convention on Persistent Organic Pollutants, what the Bank does is to support the program of the government of India with technical sanction from WHO.

    Specifically, it means the government of India is using a range of tools including indoor residual spraying. The government of India actually does use DDT because that is what the government of India wants to do. At the same time, in collaboration with our international partners, we do encourage the use of substitutes for DDT, and there are about 11 or 12 that have been approved by WHO.

    India also uses larvivorous fish. It uses bed nets, and of course treatments. So we have a whole range of tools in our arsenal which gives a lot of hope for the future.”

    Press Briefing: World Bank Malaria Global Plan of Action

    Rachel Carson better reach out from beyond the grave and put a stop to that, eh?

    – odograph

  8. I see the DDT argument as very relevent to the energy debate. Based on very little scientific evidence, William Ruckelshaus, EPA administrator totally banned DDT. The debate became highly political. The hearing examiner, Edmund Sweeney, ruled there was no scientific evidence to ban DDT. DDT was overused, particularly by cotton farmers in the US. A REASONED approach would be to limit DDT’s use to vector control (the conclusion of the Stockholm Convention on persistent organic compounds).

    Environmentalists pressed for a wider ban on DDT. The impacts were felt in Africa and Asia but had little impact on rich white Europeans and Americans.

    Fast forward to today. Now we have companies like Tesco worried about the global warming impact of importing food. Where does that leave the African farmer?

    I see the energy debate has become highly political, just like DDT. Within the environmental movement there are those who want a total ban on fossil fuels.

    Conservation and greater efficiency makes both economic and environmental sense, so does nuclear power. But the same SUV driving, Al Gore worshiping, Che Guevera bag wearing liberal environmentalists won’t let us build anything, anywhere. Not even plants that are less polluting.

  9. You are making a very indirect argument at this point. You are saying that our policies in our sovereign nation had spin off effects in other sovereign nations.

    Perhaps.

    But those influences were not absolute as shown by the Indian case.

    And even then “we [India] do encourage the use of substitutes for DDT, and there are about 11 or 12 that have been approved by WHO.”

    That’s not really part of the talk-radio, psycho-drama, is it? That there are 11 or 12 alternates out there, not banned by Barbara Streisand?

    No. I’m afraid you reinforce my belief that too many of my conservative fellows cannot look at these things rationally … not when they can find a bogey man (or bogey woman) to fear instead.

    – odograph

  10. Odograph – the DDT eggshell story is an example of a myth repeated often enough becomes a “fact”. Eagles were in decline decades before DDT was in widespread use. Loss of habitat, illegal hunting, lead, age, bird size, and other factors led to reductions in eagle populations.

    As for sovereign nations, I suggest you read this NY Times article:

    What the world needs is DDT

    WHO, USAID, World Bank, and other international aid organizations, until recently, witheld funds if they were used for DDT programs. DDT went off patent years ago, so international chemical companies support, newer, more expensive and less effective treatments. DDT doesn’t always work – I have never said it was the only solution. It is particularly effective against indoor biting mosquitos, when sprayed on walls of homes. We used it at the compound I lived in in West Africa. (We leased space from another international company, so my employer was not directly responsible for its use.) I also took Lariam, with no adverse reactions.

    The people pushing the worldwide DDT ban lived in countries where malaria had been erradicated. So they didn’t have to live with the consequences. Just like the rich folks in Marin who drive SUVs to hear Al Gore, they won’t live in the world they hope to create for everyone else.

  11. I’m not sure which of two absurdities I should address first!

    Is it that I quote to you WHO on CURRENT use of DDT, and then you quote back to me that I should look to the WHO?

    Beyond that, I think it is clear you are picking and choosing the bits of truth you tell:

    Wikipedia on DDT

    DDT and associated DDE still have strong evidence tying them to raptor decline.

    And that “first in 30 years” article should be a good “snapshot of history” for any reasonable person.

    For anyone with a background in chemistry, what we are really dealing with here is a question of “half-life” in the environment. People on the two sides of the political divide often take a “chemicals good” or “chemicals bad” perspective … but those of us with a little education should take a more nuanced view.

    What we want, ideally, are chemicals (no matter their source, natural or artificial) that are effective for our goals, and break down quickly to harmless byproducts in the environment.

    In the case of mosquito insecticides we want something that kills them dead, but then breaks down and does not travel through many stages of the food chain.

    The problem with DDT is “a half life of between 2-15 years” in soils. That’s a long time in terms of wildlife life-cycles.

    If you want a “chemical good” story line, I’d suggest you find a hero with a shorter half-life.

    – odograph

  12. Question for Robert, slightly OT. Where is the Oildrum today? I keep getting timed out. Is the site down?

  13. And you quote Wikipedia?

    Getting back to my larger point first. Marin residents who drive SUVs to an Al Gore speach believe fervently in environmentalism – for everyone else. I’d bet if you polled everyone at the Marin event you wouldn’t find a single person in favor of DDT, nor would you find anyone at risk for getting malaria. There is a huge amount of hypocrisy in the environmental movement.

    I do not advocate the indescriminant spraying of DDT where it would easily enter the environment. We are talking about spraying walls and clothing. The reason India doesn’t use DDT as much is because the parasite is spread by outdoor infection, a point I made earlier. The success of DDT in South Africa is proof of its efficacy. I admit that there may be some unwanted environmental side-effects. Have you heard an envinromentalist EVER admit that DDT use has some benefits?

    My concern is needless human suffering. I am a nameless (don’t want to bring them into the debate) service club president and I have personally been involved with the erradication of polio. Once conquered, we will be looking for a new challenge. The current front runners are AIDS and malaria. Of the two, malaria makes more sense to me because we have the tools to do the job. I am frustrated that environmentalists have made it difficult to access one of the most effective tools in our arsenal. I have to be very careful even bringing it up – because such political correctness surrounds it. Here is a good example, we won a major battle at USAID, see how they must tiptoe around the issue:
    USAID and Malaria

    Your argument about short half lives is just silly. DDTs long life is one of its benefits. If we spray it on the walls we don’t have to come back for a year or two to respray. I’d like the same properties for antifungals in paints.

    So Odograph – are you saying that DDT is always bad and there is only one side to the DDT story?

  14. You came out swinging with a talk radio style blurb:

    “You ask for reason? Tell that to my former employee Babatunde in West Africa. He didn’t show up for work one day. I later learned he had to bury his 3-year-old daughter who had died of malaria. Malaria – a diesease that could be eradicated or greatly reduced by judicous use of DDT – prevented by , because they read “Silent Spring” in their tie-dies and bell bottoms.”

    I showed you that DDT is not actually banned by those “rich white environmentalists” and pointed to a wikipedia page on “Criticism of a supposed international ban.”

    Get that? “a supposed ban?”

    Now you want me to take a similarly crazed position:

    “So Odograph – are you saying that DDT is always bad and there is only one side to the DDT story?”

    Well, at this point I just feel sorry for you. I don’t have heart to beat you up if you can’t see what you just did.

    I’ll just leave you with another snapshot from my back yard:

    The State Department of Health Services Recommends: No Eating of White Croakers.

    I never said DDT was all bad, I just didn’t take the talk radio bullshit argument that it was all good.

    (I’m certainly not going to discuss energy with you when you can’t be real about this.)

    – odograph

  15. BTW, on “silly” half-life considerations:

    “More than 20 years after they were deposited, DDT compounds are still present in surface sediments at levels harmful to benthic organisms, he said. In addition, a commercial fishing ban and fish consumption advisories are still in effect.”

    http://pubs.acs.org/hotartcl/est/98/aug/nat.html

    – odograph

  16. It there was no “ban” on DDT then why the change in policy at WHO last August after 30 years? (Which followed the US ban in 1972.)

    Now I see your trick, you say that the US is sovereign and poor countries in Africa are sovereign and they didn’t ban DDT so therefore there was only a supposed ban on DDT. OK, I’ll give you that one, there was no “ban” on DDT. Just a ban on public health funding of DDT by the rich nations giving aid to the poor ones.

    I am very sorry that you can’t eat croakers caught in Santa Monica bay. That must be a real hardship on the subsitence farmers in Malibu and Palos Verdes estates.

    But in the real world (read, not California): Uganda: Stop the Talk, spray DDT now

    And now to circle back to Al Gore and the misguided environmentalists. The DDT saga is replaying istelf with another cheap, effective, persistent organic compound: atrazine. Europe along with several U.S. states have banned it. Here is what Minnesota Democrat Ken Tschumper said: “My goal is to do with atrazine what Al Gore has done with global warming,” Tschumper said. “I feel that strongly about it.”

    It seems like 1972 all over again.

  17. My position is fundamentally that we protected ourselves, in the US, with our ban. And I make a simple factual observation that there was no world ban. It is a simple factual observation that other countries continued to use DDT.

    There is also an interesting history as other countries tested DDT against other integrated methods of malaria control (see below).

    None of that is noted in the “talk radio bullshit” story line:

    “However, a study in Thailand found the cost per malaria case prevented of DDT spraying ($1.87 US) to be 21% greater than the cost per case prevented of lambdacyhalothrin-treated nets ($1.54 US),[84] at very least casting some doubt on the unexamined assumption that DDT was the most cost-effective measure to use in all cases. The director of Mexico’s malaria control program finds similar results, declaring that it is 25% cheaper for Mexico to spray a house with synthetic pyrethroids than with DDT.[82] However, another study in South Africa found generally lower costs for DDT spraying than for impregnated nets.[85]”

    Again, from wikipedia:ddt

    – odograph

  18. Odo – we may have argued ourselves into some agreement.

    I have never said DDT was the best choice for all countries. Sometimes it is, sometimes it isn’t. But it should be in the arsenal. And it is most certainly was better than the arsenic and lead based products it replaced.

    In the US and EU we may choose to ban DDT and other chemicals we don’t like because we can afford the substitutes, or we believe the externalities exceed the benefits from its use. People probably don’t die from our decisions since we have erradicated malaria.

    It is entirely another thing to impose this view on some poor country, where DDT spraying might be a very effective tool. That country may decide that the human benefits exceed the environmental costs.

    The DDT drama is replaying itself with other useful things like atrazine, bovine growth hormone, and genetically modified foods. (I love the Union of Concerned (liberal) Scientists and the “consensus science” on global warming but their continued objection to GM foods. More hypocrits.)

    BTW – I use synthetic pyrethrin in my home based mosquito misting system. The chemicals degrade in sunlight within a few hours, so it requires constant respraying, 3 times per day right now. I have made DDT in the lab (we were chlorinating ethanol and figured what the heck, it is only one more step). It is a really nice synthesis. Kills bugs deader than hell!

Comments are closed.