Meet the Press was pretty bad yesterday. The topic was oil prices, and Tim Russert just couldn’t get the concept of supply and demand even though Energy Secretary Sam Bodman talked him through it:
MR. RUSSERT: Mr. Secretary, if, if demand is up but supply is down, why are the profits so high?
MR. BODMAN: For that reason.
MR. RUSSERT: No, think about that.
MR. BODMAN: You know?
MR. RUSSERT: Play it out.
MR. BODMAN: Demand is up.
MR. RUSSERT: Correct.
MR. BODMAN: Right?
MR. RUSSERT: Right.
MR. BODMAN: So you’ve got more demand, you’re going to force price up.
You’ve got, you’ve got limited supply, and you’re going to have…
MR. RUSSERT: But that’s a decision by the oil companies.
MR. BODMAN: No, it is not. That is a decision–those are–oil is traded every minute of every day, and it’s traded basically 24-by-seven. And it’s, it is determined in marketplaces in New York and London and Tokyo, all over the world. That’s the, the–the oil companies do not determine the price of oil; the producers determine the price of oil.
Ugh. Did Russert sleep through Economics 101?
But Senator Dick Durbin was even worse. He said the oil companies made too much of a profit. I’d like to know the definition of too much profit.
SEN. DURBIN: Am I the only one of your guests here that think that profit taking is a problem? I mean, I understand the basic laws of supply and demand. I understand that if the input costs have gone up, it’s going to reduce your, your profitability. But here we have the most enormous profits in the history of the United States of America in business. The equivalent of $1,000 per household in America for profits. All of the market factors you described may suggest that the product is going to be more expensive to sell, but they don’t forgive what I think is an outrageous profit taking by this industry.
And let me also say to Mr. Cavaney, to suggest that these are average, average profits–they’re the largest profits in the history of American business. And to suggest that Mr. Lee Raymond’s retirement gift is an average gift of $400 million for his service to the company? That’s $3 for every household in America that they paid for Mr. Raymond’s going-away gift.
Senator Durbin said this later in the program:
I mean, the bottom line is this: If you do not tax these corporations at this level they will continue to run up the profits to sky heavens.
Let’s take a closer look at the profit Senator Durbin was so upset about. This is the break down of the price of gas:
Based upon a $3.00 gallon of gasoline, the average break-down is as follows.
Gasoline Retailer $.01 cents per gallon
Oil Company $.08 cents per gallon
Refining $.29 cents per gallon
Marketing/Distribution $.32 cents per gallon
Taxes $.59 cents per gallon (state and federal)
Cost of crude $1.71 per gallon (delivered)
The value of 8 cents per gallon profit for oil companies is an average. Exxon Mobile made 9 cents per gallon profit the first quarter of 2006. So, I’d like to ask Senator Durbin: who’s actually making the profit here? Perhaps we need to implement a windfall tax on the government.