Mommy, What is a Profit Margin?
I’m sure you’ve seen the headlines. “Exxon reports record profits!” “Exxon reaps $10 billion in profit for the quarter!”
This news has prompted a bunch of Democrat politicians to suggest, you guessed it, increased taxes on gas to punish the oil companies, once again proving that the “D” after their name represents the grade they got for sleeping through Economics 101. Who do you think will pay if taxes are levied against gas companies? Why… people who buy gas. Shocking!
And of course, the whole business of “windfall profits” is extremely misleading in the first place.
“It doesn’t look like they made money off the storms,” said Tina Vital, who covers the oil industry for Standard & Poor’s. “They made money off of high oil and natural gas prices.”
Indeed, some of the firms — including Exxon Mobil — have reported lower profit margins in their retail operations than Wall Street expected, Vital said. That suggests those companies didn’t pass on to customers the full crude-oil price increase, keeping gasoline prices at their service stations lower than they might have been.
“It does appear that they ate a bit of the cost on the marketing side,” she said.
To be sure, the industry’s profit margins have swelled in recent years. But that increase has roughly followed, and even lagged, the rise in crude oil prices.
Got that? Oil companies kept prices low by reducing their profit margins. Of course, that’s not a headline that would sell newspapers. People need to be frightened by big scary words like “PROFIT!”
Update: On every gallon of gasoline made, the government makes twice as much money as the oil companies.
