Friday, August 2, 2013

Busting Conspiracy Myths

There is always a lot of ranting about big oil profits and the fact that they are spending it to buy back their own stock rather than creating jobs or going after more oil.  Whenever the price jumps, the “pain at the pump” brings out accusations of Big Oil gouging, conspiring to fix prices.  Years ago people would swear there was a connection with the Bush administration, implying that some government higher-ups were profiting personally from this plot.

Critical thinking requires research before jumping to conclusions or buying into the arguments of known opponents.  According to Forbes, Big Oil’s average profit from gasoline is about 7 cents per gallon.  This website confirms the 7 cent figure but goes on to blame the current administration:  “Gas prices are increasing because of costs of new regulations by the Obama administration and failed policies in the Middle East.”  Apparently presidents always get blamed by one side or the other.

 Overall oil companies make a lot of money, around $100 billion for Exxon, Chevron and BP together, but they do it by selling a lot of gasoline and other products.  For a good comparison use profit as a percent of revenue; for every dollar we give them, how much do they get to keep?  For Big Oil the answer is about 10 cents.  And who benefits?  “Compared with a small fraction of oil stocks (about 1.5%) owned by corporate management, the vast majority of such investments are held by average Americans, primarily via retirement accounts.”  The latest news on Big Oil, Exxon and Chevron, is that they are experiencing cost increases greater than price increases.  If they really controlled the price of oil and gasoline, how could this happen?

The airline industry is another recipient of constant complaints and overall disapproval.  They keep charging us for things that were once free:  checked luggage, in-flight snacks, extra legroom, etc.  Then they shrink the lavatories to squeeze in a few more seats.  Prices for flights change from hour to hour, and it seems like no two people are paying the same amount for a ticket on the same flight.  It’s ridiculous, frustrating and maddening!

It's no wonder we suspect them of ripping off passengers.  That’s why I was very surprised to learn that in 2012 they earned only about 37 cents in profit per enplaned passenger – including all fees.  That’s about the cost of the peanuts you don’t get for free any more.  Overall they lost money in the first decade of this century.  (See the exhibits.)  This year may be better with projected profits around $4 per passenger.

Now McDonalds, Apple and Starbucks earn about double the rate (profit/revenue) of oil companies and many times more than airlines with substantially less risky businesses, yet we don’t hear conspiracy theories and price-fixing accusations about those companies.  (For the quarter ending June 30, McDonalds earned $1.4 billion on revenues of $7.08 billion That’s 19.8% of sales.)  It’s curious how the concept of enemies can spread through society with so little effort to challenge or verify the data.


  1. So here is my take. You haven't followed the trail of the money far enough to understand people's real frustration. If Exxon makes 3 billion in profits this quarter, even though its only 7 cents a gallon, where is that profit going? Are they reinvesting it? Giving it to shareholders? Paying multimillion dollar salaries to presidents and VPs? Ah, there is the loop being closed. Its not that Bush might have been profiting "directly" but what about money that those Exxon fat cat millionaires were giving to the campaigns to keep them in power? Of course we should use critical thinking to see a more complete story, but the effect of being in power shapes how the society is run, just ask the democrats about the judges that Bush appointed or the republicans about Obamacare. My take is the frustration of the majority of Americans is that this big profit is used to benefit the rich few and not consider the interests of the many.

  2. First, I am not saying that these industries should be held up as models or heroes, but there is not some secret conspiracy to rip off the consumer. Profits per gallon are modest and not manipulated.
    On your other points, if money can buy elections, who’s fault is that? Is it the fat-cat contributors or the voters who don’t really understand who they are voting for and why? Are we being led astray by slick advertising and charming personalities instead of substance? Then shame on us.
    I agree that there are people in America being paid more than they deserve. It includes oil executives, many movie stars, professional athletes and team owners as well as the guy who tells his doctor his back hurts and then stays home collecting workers compensation while doing yard work more strenuous than his job. That’s an entirely different subject.
    Finally, the big profit of Big Oil is distributed (to the many) as shown in the reference above – “nearly 50 percent of all corporate shares are held by public and private pension and retirement funds, including 401(k)s, and IRAs. Individual investors own 20 percent, while financial institutions and asset management companies own 27 percent. That's 97 percent. Less than 3 percent is owned by corporate executives and board members.”


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