Monday, May 01, 2006

Chevron's earnings up 49 percent... How does that make you feel?

OK folks, as your friend and mine, Dr. Phil would say, it's time to get real. I was surfing the net a little while ago and noticed that Chevron, our nation's second largest oil company, reported on April 28 that their quarterly earnings were up 49 percent to $4 billion dollars.

Yes, $4 BILLION. That's a number four with nine zeros and three commas behind it. So many zeros and commas that we just type in "billion" because it's hard to keep track of that many zeros and commas. Exxon also had its largest first-quarter earning in history at $8.4 billion in profits. Yes, that's profit. Apparently, a billion dollars doesn't go as far as it used to.

I'm going to go out on a limb and say that since gas was roughly $2.89 at the time of this report (about $3.10 now), we aren't consuming 49 percent more gas as a country.

Here's some math for you. If you take the cost of gas at the time of this report, $2.89, and subtract... Oh, let's say 49 percent from it, what do you get?

About $1.47, a reasonable gas price in this day and age. At $1.47, Chevron's earnings are "normal" at roughly $2 billion. Meaning that's what they average and at $2 billion they are still the second largest oil company in this country and it doesn't cost $65 for me to fill up.

The problem I have with the explanation of the high prices is that oil companies always say that prices are going to go up this time of year in anticipation of the summer driving season. I'll admit that people might be more inclined to go places in the warmer months. I'll admit that many will take vacations, but I think they are blowing this driving season thing out of proportion.

When it gets warm, how many times have you heard someone say, "Hey it's warm and pretty outside how 'bouts me and you go drive around in my hotbox of a car for a while and sweat." You can make the air conditioning argument, but if you have to roll up the windows and run the A/C, you are driving because you have to and not because you want to.

Leisurely Sunday drives are a thing of the past. People will increase their driving somewhat, but I doubt it will be enough for the oil companies to hint around at raising prices to $4 and $5 per gallon. I don't know a single person that simply drives a whole lot more when it gets warm. Maybe some local little league games and a vacation to Florida for some folks, but Piccu and I make up for it by not going anywhere but work and home.

Maybe I'm wrong, but I just don't buy it. When it's warm we have the "summer driving season." In the fall and early winter it's the Thanksgiving, Christmas and New Year's "holiday driving season." So technically we are in the only non-driving season right now and Chevron is doubling its profits.

We can call it the "profitable driving season." Where oil companies raise their prices and lower their volume of production in anticipation of the "summer driving season" where they'll raise prices due to demand because they lowered their volume of production during the non-driving season.

The crazy thing that I've been thinking about is what if a car company actually builds a super fuel efficient line of cars that actually saves money in the long run? What if Thomas Kasmer and his Hydristor actually doubles the world's gas mileage cutting our fuel needs in half?

When Exxon gets used to making $8.4 billion per quarter at current prices and volume what happens if we only need half of the oil we do now and they are only making $4 billion? In the books, that's a 50 percent loss in profits. That's not a good thing in business and they'll have to do something to fix it.

And no matter what solution anyone comes up with, we'll always need oil. We may not need oil-based fuels in the future, but we'll always need oil for lubrication and a quart of motor oil is pretty cheap and always has been.


Travis said...

It's hard to say. If you tell me/convince me that the price at the pump directly correlates to their profits, then I'm annoyed. But I don't pretend to know how they correlate, what else is involved, the percentage of our prices paid in taxes, what their profits were last year, what dividends their shareholders are getting, etc.
What I'm saying is I think people are really oversimplifying the issue of gas prices. We're talking commodities and futures and complex, huge, sprawling corporations. We're talking government restrictions on additives, different formulas for gas in different states due to environmental laws, differing tax levels from state to state, and limited supply and ever growing demand. Its just too complex to look at gas being nearly $3 and oil company profits and concluding if A then B.

BUT, I'll say this. I believe on average there are 50 cents of every gallon sold paid in taxes. Profit margins on a gallon of gas are closer to 9 cents. So if you want your gas prices lower, I'd look to government and their tax levels first.


BRATCH said...

I'm not going to say that it's cut and dry gas prices, but these are still profits. Profits as in, we've paid everyone, taxes, operating costs, etc., and came out with billions of dollars more than the usual billions of dollars we normally make.

The gov't might be taxing the crap out of them, but they are still coming out pretty good.

The only problem with your flat tax idea is that once you've made this much money for this long, if you lower their taxes, are we guaranteed that they'll lower their prices? Why would they lower their prices when the tax break gets them even more money?

I can see the board meeting now. "Why lower prices? What can the people do? Not drive?!?!" The CEO says as he lights a cigar with a flaming $1,000 dollar bill.

I honestly can't how to solve this problem. Believe it or not, I have a little bit of knowledge on the subject of people being used to making ridiculous money simply because they are the only game in town.

We have to have oil and they've got it. They could raise gas prices to $10 a gallon and we couldn't stop them. It's almost the summer driving season for Pete's sake!

Travis said...

I'm not talking about the taxes on the oil companies. Do you think they care about the 50 cents per gallon tacked onto your gasoline purchase? No. But you should.

What government doesn't get and never has is if you tax less people can spend more. If people can spend more, then at a smaller tax rate the government can actually make more money.

While its convenient and plausible to blame the current administration for gas prices, policies over the last 25 years have greatly shaped the current situation. No new refineries in 30 years. No new drilling in areas supposedly rich in oil in our own country. No serious advances in alternative fuels because of the collusion between big oil and the Big Three automakers.

Government shouldn't be talking $100 checks and tax holidays. Those are band-aids placed over a bullet wounds. We need progress for a change. We need increased supply (drilling and refineries), we need decreased demand (more fuel efficient vehicles) and we need a technological revolution (hydrogen, ethanol, etc) What I don't need is bipartisan bickering and washing of hands.

Piccu said...

As long as the government (no matter which party is in power) is in bed with the oil companies, nothing of any substance will be done.

The only way to send a message to oil companies is to find every way you can to not buy gas. Try not to go anywhere but work and home. If you do go anywhere, pack as many people as you can into the vehicle.

I don't understand why the auto industry or airlines don't try to do something about the price of fuel. It is hurting them as much as anybody. The high gas prices are hurting SUV sales and I'm sure new car pruchases as a whole. Less cars means less need for fuel, why would the oil industry try to kill their biggest user of fuel? Same thing applies to the airlines. Higher fuel prices will mean higher ticket prices and may mean less people flying. How many times a year do we hear about some airline facing bankruptcy? This certainly can't be helping.

Maybe this will inspire someone to truly try to find a viable alternative fuel and perhaps it will get some actual backing from the government or automobile industry, instead of the usual lip service.