Only 6% Of Exxon’s Profits Came From Gasoline Sales

Only 6% Of Exxon’s Profits Came From Gasoline Sales

Rob Port
SayAnythingBlog.com
April 28, 2011

I know it’s irresistible to some grandstanding politicians to rail against the oil industry every time gas prices go up, especially since it obfuscates the government’s primary role in those spiraling prices. I also know that some in the public at large have so thoroughly swallowed the koolaid about gas prices conspiracy theories that no facts will ever dissuade them.

But it’s worth noting, as Exxon releases record profit numbers, that those profits really don’t have much to do with gasoline sales:

Exxon argued that most of its profit comes from overseas operations, and that earnings in its refining business, which converts crude into gas, make up only 6% of its earnings.

The company said the recent surge in oil prices is due to strong global energy demand, and a stormy political climate in the Middle East and the weak U.S. dollar.

In addition, Exxon said federal and state taxes make up 40 to 60 cents of the price for a gallon of gas, compared with the 7 cents per gallon that the company earns.

Exxon also lashed out at the task force recently created by the Obama administration to crack down on speculation in the oil and gas market.

In response to recent criticism of tax loopholes for the oil industry, Exxon said it has paid nearly $59 billion in U.S. taxes over the past five years, including $9.8 billion last year.

In other words, all the big government talking points about Big Oil are wrong.

But those talking points are easier than admitting that the principle cause of run-away gas prices, beyond what the forces of supply and demand in the free market would dictate, is government policy.

Take away the restrictions on drilling, take away the huge taxes and the absurd regulations, and take away the sliding value of our dollar and gas prices would be a lot more stable and a lot lower.

Exactly!!!! That latter bit is only common sense! All those who say Presidents or national leaders cannot do anything about the price of oil or gas are ignoring the corrosive effects of taxes and regulations on the production of anything! It is just a denial of reality!

14% of your gas money goes toward federal and state fuel tax. Yes, the government does have the power to change this. But the federal fuel tax rate has not been changed (from its current 18.4¢ a gallon) since 1993. (And it's not indexed for inflation, so it's lost a third of its purchasing power). Meanwhile gas prices have been skyrocketing--even (especially!) under the Bush tax cuts. What gives?

68% of your gas dollar covers the cost of crude oil. (The remainder: 7% for refining, 10% for post-refinery costs such as distrubution and marketing). Our government does have a non-zero influence over the price of crude, but it's probably close enough to zero that we can treat it as being zero.

Immediately lifting any and all drilling restrictions would have a very slight and gradual effect on the price of crude oil (and thus gas.) It'd take us decades to save a few cents per gallon at the pump. The idea that we can suddenly flood the market with oil and send prices plummeting is a fantasy.

The painful reality is that the magic bullet you want to prescribe does not exist. Oil prices are on an eternal heavenward trajectory, driven by the growing gulf between supply and demand. This is a huge macroeconomic trend beyond anyone's control.

In theory we could make all fuel completely tax free, reducing the cost by 14%, but then, gas prices are certain to rise well beyond 14% no matter what we do, so this could only be a stopgap measure. (Note also that the resulting rise in demand would drive prices back up.)