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OPEC has had limited success in adjusting crude prices, which are set by exchanges in London, New York, and Rotterdam. They have no interest in sky-high prices anyway, since historically high prices are followed by a crash.
Still, OPEC is far and away the dominant market participant through supply control on the world stage. There are not many cartels in the world with the price clout that OPEC holds at the margin. It is amusing to claim that speculation on world exchanges does not take into account the major supply cartel underlying the base commodity. Of course it does. That is why OPEC's announcements, whether relevant or not are immediately greeted with price "adjustments" on the commodity exchanges.
As far as high prices being followed by crashes, who cares if you are selling a commodity which is critical to so many phases of global growth? All in all, the cartel distorts competition which will necessarily raise the average level of pricing. Why else have a cartel? They control a dwindling resource for which they will extract maximum return on investment.
The true question is - would average prices be higher or lower without OPEC. I submit lower. Otherwise there would be no need for them to still exist.
The oil companies themselves are usually running at full capacity in all their operations and have limited ability to adjust prices.
Oil companies are essentially valued on reserves. Reserves come from exploration. Exploration budgets are not at "full capacity" from a historical perspective. In fact, I would submit to you that the recent large consolidations among the majors is a sign that exploration budgets will continue to shrink, as they have been for years. In fact it is striking how little the recent record prices have spurned new investment in exploration.
All US companies have preferential tax treatment, if they pay any taxes at all.
Some more than others. Average effective tax rates for corporations have been declining for decades. The oil industry, through many accounting gimmicks, is high on the list tax avoiders along with military suppliers like GE, with full support of a corrupt US Congress and Executive branch.
They all have political clout and anti-trust is pretty much nonexistent any more.
None have as much in the current admin as the energy sector. How many secret meetings did Cheney hold with the computer manufacturers? Or the incredibly powerful pharmaceutical lobby?
As far as anti-trust, I would submit that the original creation/rise of OPEC, which could be argued was at the behest of the US majors, was a very clever way of skirting anti-trust price fixing charges in the early 70's. After all, West Texas crude had to rise to match the new fixed price from OPEC. It was out of their hands.That coupled with Nixon's trashing of Bretton Woods and his elimination of the gold peg, provided the needed fiat cash ammo for the great oil-sham-con stagflation of the 70's.
And they all pollute and transfer heal;th and other costs as much as they can get away with.
This still doesn't address the externalities argument. That this becomes a subsidy that is born by all, regardless of energy use/efficiency. Therefore true cost adjusted demand is not reflected in the unit of energy in the marketplace. Demand is stimulated at the margin due to inefficient pricing not reflecting large externalities.
I'm not sure how much the military is protecting Venezuelan, Russian, Indonesian, Nigerian, or Mexican supplies. Or Exxon's Singapore and Carrbbean refineries. The military will be out there anyway, oil or no oil.
Then you do not understand the breadth of the Neocon/Neoliberal vision. I suggest you read the infamous PNAC document to see how critical the convergence of US global military superiority (full spectrum) and projected US energy demands is. Energy, its availability and price, is the limiting factor in not only economic growth, but economic survival in this century. That is why we are in Iraq. That is why we are attempting to overthrow Chavez. That is why we backed the murderous Suharto. That is why we are now pressing the initiative in Africa, especially West Africa where large offshore prospects are becoming more viable. That is why we are involved in any country that is critical for energy assets or transport. (BTW The bases built in Afghanistan are built on a proposed pipeline route.) Notice where the "trouble spots" are and by and large something related to energy assets or transport will be found.
And many other industries (Boeing, Raytheon, GE, Bath Iron Works...) are supported/subsidized by military spending. Some, such as shipbuilding, exist almost entirely on military spending.
This further illuminates my point. These are the two critical industries for the failing American empire. Guns and oil. They go hand in hand. The primary (unspoken) mission statement for the US military is energy security and control. Therein lies the true power over life and death. That is why neither are allowed to function in a true market environment. They are too important in the modern industrialized world. "Freedom is on the march" indeed...
I'll go with the return being a little high for some sectors, but it might be transient because of current oil pricing FIFO/LIFO accounting and other factors.
I trade the stock and options markets for a living and have for over 20 years. This is an amazing level of corporate profit for this level of sales in what is essentially a commodity market with low elasticity and rather predictable demand rates of growth. That being said, the oil business is subject to boom and bust cycles as is any cyclical business. I assert that the difference here is the extraordinary level of government/private sector/cartel collusion that places the energy industry as completely outside rational demand/supply analysis. In other words, they have their cake (cartel economics) and are eating it too (windfall profits).
Note that Verizon just made 1.2 billion on 17 billion revenue in the first quarter:
"Verizon’s operating income margin -- adjusted to exclude special and non-recurring items as well as, for purposes of this calculation, net pension and OPEB expenses of $22 million in the fourth quarter 2003 and $275 million in the current quarter -- rose from 18.3 percent to 20.4 percent over the same period. Consistent with past practice, Verizon believes that excluding these effects enhances comparability and provides a better picture of operating cost management."
And Verizon ain't alone.
This seems like a rather poor comparison. Verizon is at a much smaller sales level.
VZ
Sales: 71.28B
Op Margin: 18.40%
Profit Margin: 10.19%
Earnings Growth: 154.5%
ROA: 4.44%
Essentially VZ posted these great numbers with very rapid acceleration in EG. No such excuse with the more "cartel-like" returns of XOM.
Let's look at WMT for at least a comparable sales comparison to XOM.
Sales: 288B
Op Margin: 5.93%
Profit Margin: 3.65%
Earnings Growth: 13.4%
ROA: 9.37%
XOM
Sales: 298B
Op Margin: 13.84%
Profit Margin: 8.50%
Earnings Growth: 17.80%
ROA: 13.79%
Return on Assets is close to 50% higher at XOM. Profit margin is over 100% higher as is operating margin. It could be argued that WalMart is close to "cartel status" with their business model efficiency, superior execution, control over supplier pricing, and lack of effective competition in many of its markets. But at least WalMart has some competition. How much pricing differential is there among the major oil company outlets? How are their products/services differentiated. How much demand/supply elasticity is involved. The oil business is unique both in its cartel supply structure and lack of competition on the demand side. I contend that it effectively functions as a monopoly...a monopoly currently enjoying windfall "cartel" profits.
I have nothing against profits. I have nothing against windfall profits. I have a big problem with cartel's, monopolies, fake "free-markets", lying business "leaders", government collusion, corrupt politicians who cater to special corporate interests, environmental degradation linked to subsidized externalities, people being murdered to service an aggressive, destabilizing foreign policy directly linked to dominance over a global resource.
This is not a free market, no matter what "cover" is bestowed by speculators on the commodity markets. It is a monopolistic cartel and exhibits all the characteristics of one.
Let's call an oily spade a spade.
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