From: "Gary Britt" 


"Geo"  wrote in message
news:439ffe63$1{at}w3.nls.net...
> "Gary Britt"  wrote in message
> news:439ee2a2$1{at}w3.nls.net...
> > If the oil companies could set the price of gas anywhere they wanted
> without
> > relation to market forces gas prices in this country would be $3 to $5
per
> > gallon all year, every year.
>
> 43 BILLION DOLLARS. Amazingly it took an extra 2 months for the price of
> home heating oil to drop after the price of gasoline dropped, why oh why
do
> you suppose that particular type of oil lagged just enough to catch
everyone
> when they got their first tank filled for the winter?

That's affected much more by the refining capacities of the oil companies
than some evil plot.  We were coming out of a gas crunch and problems with
several refinieries because of Katrina and the oil companies couldn't
switch over and start producing home heating oil out of the refineries as
soon as normal because they needed to catch up gasoline
supplies/inventories.  So as a result home heating oil supplies/inventories
were a little lower than normal which bid up the price until the gasoline
and home heating oil supplies leveled out.

>
> They don't have the ability to keep gas at $3/gal because usage levels
will
> drop if the price remains high, so they have to up it then lower it back
to
> a reasonable level or they lose business long term.
>

Your statement above proves my point, they don't have the ability to ignore
market forces, and if they charge too much demand drops and they are forced
to adjust prices.  Likewise when supplies are short compared to demand
prices rise.  That's how free markets function George.

Every company, even yours, charges as much for their services and products
as they can get away with charging.  The oil companies are no different in
this regard, if they could get away with charging more for their products
they certainly would AND SHOULD.  Its called capitalism, and as long as
there isn't a single company monopoly that is the most rational and
efficient basis for allocating short supplies.

The fact remains that oil company profits are not excessive as a percentage
of sales or as a return on the capital invested in machinery and equipment,
inventories, etc.  This statement is confirmed by oil company stock prices
which trade at a multiple of earnings below that of most other companies.

If instead of investing their money in plant, equipment, inventories, and
management overhead, they bought a $500 Billion dollar CD at 6% interest,
they would make $30 Billion dollars a year, with almost no risk of loss and
almost no management problems.  In exchange for risking losses (which they
have fairly regularly) and investing their capital in plant, equipment,
inventories, payrolls, management overhead, etc they make SOMETIMES a
better rate of return on those investments than they would on a CD.  That
is the same decision all company's make, in effect, when choosing to take
the risks of operations for the potential of a better return on their
money.  Oil company's are being rewarded for these investments at a rate
(profit margin) which is LESS than what the average corporation is so
rewarded.

Gary

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