Thursday, November 03, 2005
Oil Price Reality Check
I was going to write a bit about oil company profits and stupidity- both of which are going up. But no one explains it better than Alan Reynolds
, so just read his collum.
posted by LWY, 10:47 PM
Nice column. I think the high oil company profits can be explained thusly - Oil companies have a lot of oil. When changes in supply and demand cause the market price to rise, the owners of the oil will be the ones who capture that benefit, just as the owner of any marketable liquid item (bad pun not intended). If gold prices go up, do gold mining companies not profit, and does anyone have a problem with that? They own the gold, so they SHOULD get the benefit of the increased price. Why, other than the fact that we all use the stuff and are more acutely aware of the price, should oil be different than any other commodity or asset?
What's more, if I was a shareholder of Exxon or Chevron, and they started selling their oil at $10 a barrel below market, I would seiously consider filing a shareholder suit against the directors alleging of waste. The directors of the comapny have a fiduciary duty to (within reason) maximize the profits of their shareholders, and this is no different for oild companies than it is for any other.