You're probably shocked. I know I was:
I'm guessing the profit isn't 51 cents. But whatever it is, it's too much! I've heard some people yearn for a windfall profits tax that would reinvest the money in alternative energy, or rebate it back to the consumer. Fine. Apply that to your business. Here's the acceptable profit level. You don't get to make any more than that. If you do, the state will confiscate the property and divide it among your competitors, or give it back to your customers. Have a nice day. But oil is different. It's necessary! So is food. Farmers are doing well. Let us therefore set the acceptable level for corn farmers, take away the excess profits, invest it new forms of sweeteners or biofuels farmers cannot yet produce, and give people rebates for Splenda to compensate for the price of high fructose corn syrup.
It's not that we cannot produce any more oil; you suspect that some are motivated by the belief, perverse as it sounds, that we should not. We should not drill 50 miles off shore on the chance someone in Malibu takes a hot-air balloon up 1000 feet and uses a telephoto lens to scan the horizon for oil platforms. Also, there are ecological concerns. (The ocean is a wee place, easily disturbed.) There's something else that may well be my imagination, but I can't quite shake the feeling: high gas prices and shortages of oil make some people feel good. This is the way it has to be. Oil is bad. Cars are bad. Cars make suburbs possible. Suburbs are the antithesis of the way we should live, which is stacked upon one another in dense blocks tied together by happy whirring trains. So some guy who drives to work alone has to spend more money for the privilege of being alone in his car listening to hate radio?
Good.
Mr. Lileks uses sarcasm better than anyone I know to make his point.
Judging from the people he offends, he's spot on most of the time.
Lileks is teh dreamy.
I think he messed up on the bit about refinery costs and profits. What was being estimated here was the value added to the appropriate amount of gasoline, labeled "refinery margin" by refineries starting with a barrel of oil. Not the profit. Assuming a healthy, normal business (ie, positive costs and profits), then the margin can be split into the cost of converting that barrel of oil to refined products and the profit from doing so. At a glance, there's more confusion possible from ignoring the other products produced by this refinery (diesel, chemicals, etc) which can easily have higher or lower margins.
I don't believe it's the high price of oil that has people upset. I believe it's because it is perceived to be artificially high. The solution is capitalism, competition and government out of the way.
Then no matter what the price of oil, up or down, we would feel ok with it. But when prices double in two years, people rightly get upset. When we pay $4/gal. and you can buy it in other places for 25 cents/gal. people get upset. Actually, I'd heard 6 cents a while back. As others have noted, tankers are highly efficient so there should not be such a disparity.
Oil companies should be able to make whatever profits they can competitively make. 'Windfall profits' could not exist in a competitive market. No country has a monopoly on oil and it's being found in more places all the time. Real competition will bring prices as low as they can go. With prices as high as they are today, other technologies should become viable. That's also good competition.
Crude oil is a global commodity, and is traded as such. If a 42 gallon barrel is priced at $130. that's equal to $3.10 per gallon. Then there are the costs of transporting the crude to the refinery, refining it, storing the various products, transporting it to the wholesalers and retailers, and storing and pumping it at the retail level. If the costs of all these are ZERO and high octane gasoline magically appeared from the magically transported crude, it would cost $3.10 per gallon. Any price lower than that is either subsidized or bypasses the global market.
It shouldn't be hard to divide the price of crude by the number of gallons in a barrel, but it seems congress doesn't have that ability.
Windfall profits is a dumb expression. If you make scads of money at anything, You will be taxed heavily and often in the normal course of things.
If I can clear 90% profit on something, the govt is getting a serious cut already. It should be an opportunity for my competators here, not more booty to be seized.
Whenever I hear certain people (almost exclusivly leftists) complain that we're "not doing enough for the environment" or that humanity is "responsible for Global Warming oh noes omfg", and yet these very same people turn around and complain that gas costs too much, I want to grab them by the ears and shake until their malfunctioning brains reboot. I don't, however, or I'd be spending all my time giving people's heads a shake.
Ed, it'll take a whole new operating system.
""not doing enough for the environment" or that humanity is "responsible for Global Warming oh noes omfg", and yet these very same people turn around and complain that gas costs too much"
Actually, your enviro-people are quite happy that gas costs this much. In their view, this is a Good Thing, and I know this for a true fact, because I have had this conversation. There is no hypocrisy here.
Another true fact is that a lot of the same people believe that folks in West Virginia and parts of Pennsylvania and Ohio are gun-tottin' Bible-spoutin' examples of the Missing Link proving Darwinian Evolution applies to humans.
The deal is that if you are a proper Democrat in Congress, you have to give lip service to your constituents with gun rack-equiped pickup trucks, hence the Big Oil Conspiracies and Excess Profits Tax. Let's channel some of that bitterness towards Big Oil.
Senator Obama, however, was a bit loose with the tongue, first with his critique of the racial outlook on his Mom's side of the family, now with his almost slipping and catching himself that he favors high gas prices as a plank of environmental policy, but in the fashion of Saint Augustine prays, Lord, grant me a chaste carbon footprint, but not quite yet.