2007/11/05

What's Kvatch Kvetching About Today?

The complete disconnect between the price of crude and the price of gasoline. Check it out at Fran I Am.

2 Comments:

Thanks for gracing my pages! You are always welcome with your insight and wit! And anything else that comes along!!
kvatch, I don't know where you get your oil economics. Your imagination, I guess.

First, you can be sure oil companies will not post losses in the third or fourth quarters of 2007. Neither will they post losses next year, unless the world is beset by a new never-before-seen problem that upsets everything.

Oil economics is too large a subject for this space. But long story short, all of the oil coming from wells today was drilled when prices were lower. All oil was found when prices were lower.

Thus, it is ACCOUNTING for INVENTORY that matters with respect to profits and losses.

Oil Reserve Accounting and Valuation is a huge subject that drives much of the oil industry.

You have also overlooked that huge portion of prices at the gas pump that are federal, state and local taxes. If the price at the pump is $3.00 a gallon, you can be sure that maybe 75 cents goes to the various governments. That leaves $2.25 for the oil company. Still, due to accounting for inventory, the oil company will stay profitable.

Also, you have neglected to account for the gains due to the sales of non-gasoline products. Big fat margins in motor oil and other lubricants. Then there's jet fuel and heating oil.

Anyway, believe what you like, but the oil companies do not control oil prices, and their overall profit margins are unimpressive. In the last year profit margins have been running around 10%.

That's nothing compare with Microsoft, which earns a net after-tax profit of 25 cents on every dollar of revenue. A 25% profit margin.

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