Barack Obama continues to show his ignorance of economics outside of a socialist economy. Today he derided “Big Oil” for record profits from Exxon saying “never has an American company made so much profit in a quarter”, while Americans are paying $4 a gallon for gas. I must admit, I hate spending $4 a gallon for gas. I also hate spending $5 for a Starbucks Vente latte. So when Starbucks profits were thru the roof, why didn’t Barack Obama blast Starbucks for gouging the American people for coffee while Howard Schultz was banking?
“The average net profit margin for the S&P Energy sector, according to figures from Thomson Baseline, is 9.7%. The average for the S&P 500 is 8.5%. So yes, energy companies are more profitable than many others…but not by an inordinate amount.”
In 2005, Starbucks’ profit margins were 11.5%. Where were the windfall profit taxes? Profits aren’t the enemy. Why do oil companies have record profits despite only slightly above average profit margins? Because of supply and demand.
You hear many politicians decrying oil speculators for driving up the price of oil. The heads of many airlines have recently issued a statement to the effect of “the government should crack down on speculation” because it’s making their lives harder. Well, I don’t hear anyone decrying those in gold or silver speculation. The price of gold is somewhere around a $950 an ounce, yet you don’t hear anyone brow beating “Big Gold”.
Here’s the bottom line: If the supply of oil continues to decrease as demand increases, the price will go up. As the price goes up and speculators see that there are no efforts to increase supply to meet demand, they will buy oil futures because they know the price will continue to rise. Since President Bush lifted the executive ban on off-shore drilling the price of oil has dropped over $20, despite the fact that not one more drop of oil has been added to the supply.
The threat of increased supply will lower the price of oil futures and the actual increase of supply will lower the market value of oil even more. Oil companies are not to blame for high prices, in fact, they don’t even purely benefit from higher oil prices as refinery branches of oil companies struggle under higher oil prices. If you want to point a finger at those responsible for high gas prices, just point to the Democrats and Republicans on Capitol Hill who continue to deny the American people the right to drill on our own land for additional oil supplies.