Posted on 08/29/2006 7:58:05 AM PDT by PDR
As families brace themselves to pay high gasoline prices over the Labor Day weekend, they might be surprised to know that they are not alone in bearing this burden.
A new economic study by the Phoenix Center shows that contrary to popular rhetoric, the profitability of the oil industry is actually significantly lower during in times of high gas prices.
“It may be fashionable to beat up on oil industry profits, but it appears that these firms do bear at least some of the burden of high oil prices,” said George S. Ford, Phoenix Center Chief Economist and author of the study. “Our analysis shows that when gas prices are at their highest, oil industry profitability is at its lowest.”
The study examines the financial statements of eleven American oil companies over eleven years and compares company profitability during times of low and high gasoline prices during that span. The study found that the “profitability of the major integrated oil companies is actually lower during periods of extremely gas and oil prices.”
The analysis found that for every 10% increase in gasoline prices, the profits of these firms decrease 1.8%. The study also analyzed smaller companies and companies principally in the business of refining oil and selling retail gasoline and found that “as gas prices increase, these firms have lower accounting profit margins.”
“The study shows that in the last decade, the integrated oil companies we studied are most profitable during times of moderate oil and gas prices,” Ford said. “The data clearly show that when oil prices rise sharply, as they have in the last year, these firms are less profitable, in terms of profit per dollar of revenue.”
The companies analyzed were ExxonMobil, Chevron-Texaco, ConocoPhillips, Shell, Marathon, Hess, Sunoco, Giant, Frontier, Tesoro, and Valero and their predecessors. The study also compares the overall profitability of these firms to other industries, noting that “selling beer or bleach is more profitable than selling gas and oil, even during times of ‘record’ profits for the oil.
http://www.phoenix-center.org/pcpp/PCPP26Final.pdf.
The purpose of this POLICY PAPER is to contribute to the debate over gas prices and industry profits by deciphering the relationship between oil company accounting profitability and retail gas prices using publicly available data. We focus on profitability rather than on the level of profits because rhetoric of high gas prices and profits hinges on the belief that oil companies are unfairly profiting from high gas prices, and this argument implies that the profit margins are higher at high prices than at low prices. In this POLICY PAPER, profitability is measured as the profit-sales ratio of firms.10 The profit-sales ratio is computed from financial forms filed by firms with the Securities and Exchange Commission (“SEC”). We apply several empirical tests to these data to examine the
relationship of oil company profit margins to retail gas prices.
Exactly.
$1 a gallon, 10% profit, profit is 10 cents a gallon.
$2 a gallon, 9.82% or 8.2% profit depending on how you read it, profit is either 19.64 or 16.4 cents a gallon.
$3 a gallon, 9.82 or 8.2% profit, their profit is either 29.46 or 24.6 cents a gallon.
Those poor poor robber barons. Where can I send a check to help them out?
Those robber barons as you call them are investing a lot in our future.
Oilpatch Faces Long List of Multibillion-Dollar Decisions in Next 4 Months
http://www.freerepublic.com/focus/f-news/1691717/posts
Its business. They are only investing because they think it will be profitable.
Find a quote in any of those investment portfolios or reports that says in some way 'we are finding new sources of fuel because we care about people, even though we think we will lose money'
What business do you think does or should operate that way? How heavily do you invest your own money is such a venture?
I just paid $2.599 a gallon at my local Fuel Warehouse.
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