Oil company profits

A couple of weeks ago on right wing radio the topic was oil industry profits, and how insane it is that people are angry over how much money oil companies make. The defense being offered is that the gross margin of oil companies is actually in line with most other forms of production in the US at around 13%. Seems commonsensical, why are people getting angry?

Well, as it turns out, margin on sales is not a reliable way to compare profits across industries. Some industries are high volume/low margin, some are high margin/low volume. Both can be extremely profitable. A better way to compare is “return on capital employed” which is simply the amount of money earned divided by the amount of money invested to earn it.

Given a fair way to measure profitability across industries, it turns out that oil company profits are almost 30% higher than any other industry at the moment. Presenting only gross margin is extremely deceptive as is outlined in this article.

Another way to think about this is: If the oil industry was a money machine, I could put $100 dollars in, and get $127 out the other side. There’s no other money machine that’s even close at the moment.

But all this accounting trivia aside, none of this is what makes people mad. People are mad not because oil executives are becoming richer and richer. It’s because they believe they are becoming richer and richer off the broken backs of common americans. Which is completely true.

Those increased profits are coming directly out of our pockets, for no corresponding increase in value in our lives, and directly into the coffers of oil companies. And everyone understands that we can only reduce our own usage so much to alleviate the pain. We still have to drive to work. Add to that price increases in almost every consumer product including food and it’s easy to become resentful of those who profit off of our misery. Who cares that oil companies themselves aren’t driving up prices? They certainly aren’t doing anything to reduce them.

For the record once again, I don’t personally begrudge the oil companies for the profits they’re bringing in. They didn’t drive up the price of oil, we did. We’re the ones who invaded the middle east and destabilized the whole region. We’re the ones who have spent 30 years since the last oil crisis talking about reducing our dependence on foreign oil and doing nothing about it. We’re the ones who deregulated the trading markets and allowed for speculation to drive up prices.

But let’s not pretend that all this anger is baseless and non-sensical. It’s completely justified to feel anger when oil companies make record profits while you struggle to pay your bills. It’s a natural reaction to feeling helpless and abused. And let’s not lie to ourselves that oil isn’t currently a ridiculously profitable business. It is.

Leave a Reply

Your email address will not be published. Required fields are marked *