The Oil Drum

Would it also be safe to say that the cost to the oil companies of producing and distributing the domestic fraction of our oil did not appreciably increase in lock-step with the run-up in prices on the open world oil markets?  Why should it, as the oil companies who pump this domestic oil out of their own wells did not buy this oil, as they already own it. So then, unless I am seeing something wrong, the domestic fraction of US oil production is sort of getting a free ride due to the sharp price increases on the global markets.

Regarding profits: Of course the oil companies are entitled to a reasonable return on their investment. But what I find puzzling is that in other businesses, when the cost of raw materials for their product goes up, the business usually suffers rather than prospers, as they get squeezed between what it costs them to produce the product and what they can sell it for.

However, in the case of big oil, it seems that the worse the raw material supply situation gets, the more money they make. Why is that?  I supspect the reason, as I expressed in an earlier post, is that on the consumer level we don't really have a true market operating for refined products. It is more like an unregulated utility in which the supplier of the utility has far more control over the price of the product than does the consumer of the product. So, I don't think this is solely a matter of supply and demand and the workings of an 'efficient' market, but rather a reflection of the degree to which our vital resources are in the hands of a very powerful oligopoly.  

As far as gasoline at $3.00/gal being so 'cheap', as I pointed out earlier the true price of that gasoline is much higher, largely because of free subsidies to the oil companies (such as the military costs of securing the oil supply) that is not included in the price at the pump but rather shows up elsewhere, i.e., the
taxes we pay.  I'd like to see the price even higher .... IF the oil companies were made to pay for these subsidies themselves and our taxes lowered accordingly. (This will of course never happen.)

Then we have the other question:  how much of the huge pile of cash the oil companies are now happily sitting on is likely to be invested in new capital for energy production, or alternative energy?  I suspect the answer is: very little, as most of it will probably go toward more attractive investments,  such as buying back stock, acquiring other businesses, or a variety of other ventures. For that reason, I am very skeptical of the private sector being willing to provide the enormous capital required get alternative energy going in any  significant way.