Drip Down Economics

Record quarters seen from Big Oil
By Lisa Sanders, CBS.MarketWatch.com
Last Update: 5:46 PM ET July 24, 2004

DALLAS (CBS.MW) -- Oil is selling over $41 a barrel, with profits dripping to the bottom line.

"Chevron is printing money," said Oppenheimer & Co. analyst Fadel Gheit. "They're having Christmas in April, May and June. Gasoline prices are at record levels and they're making obscene profits."

On Friday, analysts expect ChevronTexaco (CVX: news, chart) to report earnings of $2.70 per share, a sharp increase from the $1.61 a share earned in the second quarter of 2003.

The major integrated oil companies report quarterly results in force during the next week, with high commodity prices and refining margins seen as drivers for record profit reporting.

"If they don't, shame on them," said Gheit. "Oil is at record levels, natural gas prices are at historical highs and refining margins are very close to record levels. And the chemicals business is improving because of global economic improvements. So they're firing on all cylinders."

ExxonMobil (XOM: news, chart) , the world's largest oil and gas company, reports its second quarter results Thursday.

"Exxon had record earnings last quarter, and they will beat that," Gheit added. "My bet is that the majority [of the companies] will."

Analysts polled by Thomson First Call expect Exxon, which has about $16 billion in cash, to earn 87 cents a share, on average. A year ago, the company earned 62 cents.

"Although they are still buying back stock, the money is coming in a lot faster than they are able to spend it," Gheit noted. "I still believe [Exxon is] eyeing investments in Russia. With more uncertainty surrounding Iraq, Russia becomes the only game in town." [emphasis mine]

Commentary:  On 5/11/2004 I posted a blurb about the sudden rise in gasoline prices.  I got the following comment:

The oil companies generally don't have the ability to collude--the execs get put in jail if it even looks like they did that. There's a shortage and oil companies always buy at whatever today's market price is and sell based on today's price, because they have to buy at a constant rate.

It's a little early to be getting worked up over these things--we don't know if it's the start of a trend or not.
Dean Esmay | Email | Homepage | 05.12.04 - 3:43 am | #

More, recently, Mr. Esmay posted on his own blog a bit about how the income tax collections from the federal government are rising.  This was supposed to indicate that trickle-down economic policies are working.  Those who joined in the thread seemed to overlook the fact that federal spending is rising faster than the revenue is increasing. 

As for the notion that monetary benefits for the rich are supposed to benefit the poor by trickling down, well, that is a nice theory, but it is not happening.  The poor are disproportionately hurt by high gas prices, and any extra income they may be getting is all going to pay for the higher prices of basic commodities. 

The current economic policies are generating record profits for oil companies, while the income gap between rich and poor is growing.  In May, it may have been too early to call it a trend.  Now, it is perfectly clear.  "Trickle down" may be the therory, but if so, it is not working.

Seneca (Lucius Annaeus Seneca the younger, aka Seneca Philosophus) wrote a tragedy entitled Medea.  In it, there is a famous phrase: "Cui prodest scelus, is fecit."  This means, roughly, that he who profited from the crime is the one who is likely to have committed the crime. 

Granted, no one is being accused of a crime -- unless you call starting an unnecessary war a crime --  but isn't it remarkable that the White House is inhabited by two oil tycoons, and now oil companies are making record profits?

If you happen to be registered to vote in the United States of America, and if you can afford the gasoline it takes to get to the polls, you might say to your self: "I don't care what the theory (trickle down) says, I am more impressed by the results.  The result of the current economic policy has been to make the rich richer, and the poor poorer.  Is that really a good idea?" 

In evaluating candidates, first listen to what they say, but then look at what they do, and the consequences of what they do.  And remember: Observations are gold; hypotheses, silver; and theories, bronze.

Some may argue that the focus of the current administration is on safety.  That is what the war on terrorism is all about.  Baloney.  The terrorist attacks in the USA killed about 3,000 people.  We could save more lives than that, in a single year, just with tougher enforcement of traffic laws.  And it would cost a heck of a lot less than:




(Update: the cost has outgrown the frame!)