When people think of the oil business, they think of the Texas Millionaire in his mansion and cowboy hat. When people hear terms like “big oil” and “windfall Profits” people conjure up evil images of Haliburton, Exxon Mobile, and Dick Cheney. Of course, there is no greater evil than an evil that can’t defend itself – like the term “big oil.”
Demonizing “big oil’s, windfall profits” is the easy way out. The fact is that when it comes to “windfall profits” the oil industry is no where near the top of the list of windfall profits. Not to mention, since when was it evil for an American company to make impressive profits. It is hard to dismiss such a conception because it’s not far off from the truth that oil makes its money on volume, not price gouging.
Oil is a globally traded commodity. That means any oil that is pumped goes into a global marketplace at a globally traded value, whether it’s here or in Nigeria. The term “supply and demand” is the evil culprit in this game.
These numbers are just estimates. The going rate for crude oil is $114 per barrel. There is roughly about 42 gallons in a barrel. That makes the cost per gallon of crude $2.71. It costs $0.58 to refine a gallon of crude. Keep in mind that when you refine a gallon of crude you actually don’t get a gallon of gasoline. You get less. There are many byproducts, such as natural gas, that are produced. For argument sake and ease of numbers, we will say it produces a gallon of gasoline. So the cost of the gasoline is now up to $3.29 per gallon.
When you add in State of Illinois Tax of $0.05, Cook County Tax of $0.06, and City of Chicago tax of $0.05, a total of $0.16 per gallon is added bringing the cost to $3.45 per gallon. The fill-up station takes about $0.05 for its costs. That makes a gallon of gasoline cost $3.50. At $4.00 per gallon, that would give the oil company about $0.50 per gallon on a fill up of 10 gallons. That comes out to about $5 of profit.
That profit number in actuality is less because it takes more than a gallon of crude to make a gallon of gasoline. It takes about two gallons of crude to make one gallon of gasoline so that means a Saturn (10 gallon gas tank) can be filled up and the oil company makes about $2.50 in profit on that transaction. Not really a huge percentage margin when compared to other companies, and the other costs of doing business that have not been mentioned, such as transporting the fuel, utilities in office buildings and wages for employees.
According to Nathan Burchfiel of businessandmedia.org, Exxon-Mobil had 10 percent profits last year while Conaco-Phillips and Chevron reported profits less than that. When compared to other companies, such as Bank of America that reported an 18 percent profit margin, oil companies do not make huge profits. “By the newspaper industry’s standards, oil companies must be on the verge of collapse. Newspapers, in spite of incessant fears that the industry is declining, reported pre-tax profit margins ‘in the high teens’ in 2007, according to the Project for Excellence in Journalism,” said Burchfiel.
Every company in America is allowed some kind of profit. They owe it to their shareholders to do so. The irony is it is very possible that you can be a share holder in oil. 401k and mutual funds are all invested in large corporations. That was one of the big issues with bailing out investors in the Fannie Mae and Freddie Mac. Government bail out is that the largest amount of investors are tied into a 401k, money that people are counting on for their retirement. Profit is all a part of a capitalist society. Oil has the right to make some profit, although it really isn’t as much as you think.