High Oil Prices = Certain Doom For Legacy Carriers

[Old PSA]

Just a Note from History.

The old PSA actually own (particpated in) oil and gas exporation in Indonesia. It also own oil storage facilities in Arizona. It had a deal with Shell Oil for trading crude oil, refining and distribution. PS Group supplied Jet-A to PSA (airline) and several other airlines at a few airports. This allowed PSA to control its access to fuel. Of course, Group charged the airline slightly higher prices then the market. This just one of the tricks PS Group used to keep the airline at a break-even position. When USAir came into the picture, they bought the airline only and had to continue to pay PS Group for fuel for 5 years (at slightly higher then market prices).

 

[Dog Wonder]

The oil companies are getting their last licks in, just in case their patron saint George gets an involuntary retirement.

Oil prices will drop after the election no matter who wins. More price gouging is a good, not ethical, business practice.

 

[jimntx]

Well... the charts show one thing... That in the May/June time frame, gasoline prices grew at a faster rate than crude oil rpices... gasoline was up 27% (roughly, per the chart) when crude was up 13%. Thus today's "stability" is a result of being overcharged at the beginning of the summer, assuming you believe that crude oil prices have an effect on gasoline prices... which I do.

Ok, prices at the pump rose twice as fast as the cost of crude, but the cost of crude is the reason for the increase in the cost of gasoline? What the "stability proves is that they reached a point of price resistance. The oil companies raise prices until they sense resistance--i.e., people doing crazy things like driving less, carpooling or taking the bus.

(from your previous snazzy charts post)

You are either a liar or incrediblly ignorant, though probably both.

But, no disrespect? Gee, how do you show disrespect then?

(No disrespect jimntx... but come on, the cost of the #1 ingrediant of gasoline has a little something to do with the price.

The #1 ingredient in hard liquor is water. Do you think the cost of water controls the cost of vodka or bourbon at the store?

While, I am sure there is merit to your argument, charge what the market will bear, I also believe there is merit to the argument: if costs go up X%, then revenue must increase X% in order to maintain profit margin Y%. If one were to follow your assertion to a logical conclusion, that would indicate that the cost of beef is irrelevant to the cost of hamburgers... and that simply isn't true.)

[post="171020"][/post]​

Your argument is overly simplistic, but more importantly, it is fallacious. The profit margin on food products is, and always has been, very narrow. IIRC, the last figure I saw is that the average grocery store has an overall profit margin in the 1% range. And, from farm to table that profit margin is tight over every stage of production. In such cases, the cost of raw ingredients does, in fact, have a major influence on the selling price of the "finished product."

However, in a market where demand is based upon personal preference rather than true need--A person driving alone in a Suburban or Hummer next to the bus or light rail line that could get him/her to the destination quicker; Or, the price of liquor or jewelry--the producer gets to charge whatever the market will bear.

Remember, the 1% profit margin for food? ExxonMobil (the largest, but by no means the only, integrated oil company) had gross revenue of $264billion for the year ending last quarter. They had a revenue growth of 20.70% with an earnings growth of 87.70%. That did not come from putting excess cash into passbook savings.

In the quarter ending 30JUN, XOM had gross revenue of $70.693 billion. Gross cost of revenue was $32.478 billion. That's a gross profit margin of slightly over 45%.

 

[RowUnderDCA]

What's "WTI Cushing?"

 

[funguy2]

You are either a liar or incrediblly ignorant, though probably both.

jimntx:

Umm... That is an issue you need to take up with usair_begins_with_u... Not me. I (funguy2) did not show you any disrespect. I (funguy2) did not create the snazy charts, I only reacted to the data presented.

With a profit margin of 45%, I can see the day when we find alternative energy sources. We need to anyway (oil is a finite resource), and anyone who can do it for a little bit less can undercut the oil guys.

I find it very hard to believe that what the market will bear almost doubled in 5 years (I remember in 1998/1999 paying under $1.00/gallon). Some of that increase is certainly due to the increase in the price of oil... That is also a convenient "excuse" for the oil companies to use to get Joe-Consumer to tolerate higher gasoline prices. How does the cost of crude today compare to 1998/99? I'll bet its higer. However, due to America's reliance on oil and oil products, in the short term, oil companies can raise the price of gasoline, and stick it to consumers... Eventually, the consumers will stick it back to the oil companies, when we demand more fuel efficient Hummers and SUV's (and airplanes, and lawnmowers, etc). You might recall that the fuel crisis of the late '70's saw American's flock to low-milage Japanese cars and reduce the speed limit to use gas more efficiently... It can happen again... Remember, as the price of gasoline increases, the economics of the hybrid engines become more in favor. At todays prices, hybrid cars do not pay for themselves... Add another $1 onto the cost of gas, and reduce the cost of hybrid engines, and that equation changes... Airplanes too... isn't the 7E7 supposed to be 20% more fuel efficient?

 

[jimntx]

jimntx:

Umm... That is an issue you need to take up with usair_begins_with_u... Not me. I (funguy2) did not show you any disrespect. I (funguy2) did not create the snazy charts, I only reacted to the data presented.

With a profit margin of 45%, I can see the day when we find alternative energy sources. We need to anyway (oil is a finite resource), and anyone who can do it for a little bit less can undercut the oil guys.

I find it very hard to believe that what the market will bear almost doubled in 5 years (I remember in 1998/1999 paying under $1.00/gallon). Some of that increase is certainly due to the increase in the price of oil... That is also a convenient "excuse" for the oil companies to use to get Joe-Consumer to tolerate higher gasoline prices. How does the cost of crude today compare to 1998/99? I'll bet its higer. However, due to America's reliance on oil and oil products, in the short term, oil companies can raise the price of gasoline, and stick it to consumers... Eventually, the consumers will stick it back to the oil companies, when we demand more fuel efficient Hummers and SUV's (and airplanes, and lawnmowers, etc). You might recall that the fuel crisis of the late '70's saw American's flock to low-milage Japanese cars and reduce the speed limit to use gas more efficiently... It can happen again... Remember, as the price of gasoline increases, the economics of the hybrid engines become more in favor. At todays prices, hybrid cars do not pay for themselves... Add another $1 onto the cost of gas, and reduce the cost of hybrid engines, and that equation changes... Airplanes too... isn't the 7E7 supposed to be 20% more fuel efficient?

[post="171255"][/post]​

Wow, it's like deja vu all over again! Not really making fun. It's just that everything you said here about consumers "sticking it to the oil companies" and "demanding more fuel efficiency" and "alternate energy sources" was all said 30 years ago. Difference being that at the time instead of gasoline having doubled from 90 cents/gal to $1.80/gal, it had just doubled from 25 cents/gal to 50 cents/gal.

I worked on the inside of the oil business. Big oil companies are no more capable of "thinking outside the box" or "looking at alternate business plans" than big airlines are. In the early 1980's we were "looking at" alternate energy sources. The technology was already commercially viable then. Problem was, we (the oil companies) couldn't figure out a way to make the same 45% profit margins with the alternate energy sources because the cost of raw materials and production was a lot higher than petroleum products. The look at alternate energy was abandoned.

Did you see consumers rising up in protest when the auto companies got SUVs classified as trucks by the government so that they didn't have to meet the fuel efficiency standards of passenger cars? Or, for that matter, did you see anyone protesting when trucks were exempted from the fuel efficiency standards "to help the family farmer and the small business owner?" How many of the trucks (including SUVs) on U.S. highways are owned by farmers and small business owners? I would hazard a guess that it is less than 20%. Possibly even less than 10%. For chrissakes, I know a hairdresser that owns a BIG truck "because it's cool." (Of course, he also thinks that because he works out at the gym daily and dyes his hair that no one knows that he's past 50.) He certainly doesn't "need" a truck in his business.

As I said before, the American people are incapable of denying themselves anything. Even when the lights go out and the pumps run dry, we will be sitting in the dark trying to figure out who's to blame (certainly not us)--must be them A-RABS.

 

[insp89]

funguy2, Seems jimntx has his mind made up.. Please don't confuse him further with facts...

 

[Rob]

Just a Note from History.

The old PSA actually own (particpated in) oil and gas exporation in Indonesia.

[post="171048"][/post]​

AMR did, too. They bought a bunch of domestic producing wells in the Jimmy Carter days. I don't know what happened, but they no longer own them today.

 

[TomBascom]

Real prices in 2004 dollars are still lower than 1980 ($85/bbl) or 1990 ($60/bbl).