Yesterday a Senate panel blamed the executives of 5 major energy companies, including Chevron and Exxon for high gas prices. As gas hit a record of $3.83 today, it’s expected that prices will keep climbing. News publications report the oil companies’ increasing revenue while consumers struggle to pay the price.
Revenues only tell part of the financial story, so let’s take a look at net profits. In the first quarter of 2008, Exxon made a net profit of 9.3%, which is similar to their profits from past years. Is that too high? We could compare it to the profits of other companies. In the same quarter Apple reported a net profit of 13.9%, eBay made 21%, and Nike reached 22.6%.
It may be hard to accept that a company makes money producing something we depend on, but why should they not receive a profit for their work, just like everyone else? Nobody has complained that iPods are too expensive, or Apple has profited too much from them. If you have any mutual funds in a 401(k) plan, you have profited from the higher oil prices as well, since most mutual funds hold Exxon stock.
We will never again see a gallon of gas at the prices it used to be. I am convinced that the politicians know it, but rather than display foresight, they make indignant sound bites designed to lure votes.
- They don’t mention how local, state, and federal taxes add an average of 45.9 cents per gallon. That doesn’t include the taxes that the oil companies have already paid the government.
- Those tax dollars are used to build more roads for cars, so we can be more dependent on oil, rather than investing in efficient public transportation. Efforts to generate alternative energy are stalled and rejected by legislation.
- No one on the Senate panel yesterday remembered the windfall profit tax (WPT) created in 1980 to tax domestic oil companies. Rather than helping consumers, it limited production and made us more dependent on foreign oil until it was repealed eight years later.
When oil is pumped out of a 10,000 foot hole in the desert and then transported 8,000 miles via an oil tanker before it is refined into gas, which is then transported to the gas station near your home, there are costs involved. Every other country in the world wants that oil too and is willing to pay up for it. Why did we ever expect that a gallon of gas should cost less than bottled water?
Instead of becoming discouraged, let’s prepare ourselves for it. Not only will the cost of gas never go back to what it was in years’ past, but at some point we will face gas rationing and shortages. I think we are in for a rough road ahead, and we need to be ready for the rising price of oil to have a permanent impact on our household budgets.
What can we do?
- Get rid of debt to be able to withstand higher gas prices.
- Learn about growing our own food, since food prices will rise as well.
- Live closer to work to reduce commutes.
- Choose efficient cars and household appliances.
- Purchase higher-quality goods that will last, rather than disposable products.