Wednesday, October 26, 2005

ConocoPhillips Unholy Profits?

I've been seeing this story everywhere, including Drudge today, and it was mantioned on Rush this morning, and I get the impression that people are upset that an oil company's profits went up over the last quarter. Even worse, I have heard people refer to the story as ConocoPhillips making 89% profits.

That's just not the case, and I don't see that this is much of a story at all. They made $3.8 billion profit on revenue of $49.7 billion. Not even 8%. But the 89% number is what sticks out. All the 89% really means is that last quarter they made about half that percentage of profits, almost 8%.

As an example, if you were selling a chair you bought for $40, and you spent a couple dollars on transportation and your time, and you sold it for $50, you'd be in roughly the same boat, and I doubt you'd be excited about getting rich or you'd think you were "gouging" anyone. If you put $46 billion on the line, you better hope you're going to get a few back.

Just a quick look at another story from today, also reported by Reuters. Motorola made $1.75 billion profit on revenue of $9.42 billion, or almost 19%. I don't see any similar coverage or implications around this story, though, even with double the profits by percentage.

I applaud both efforts of course, but I wish people would take a second and realize exactly how much ConocoPhillips has at stake to make that much in profits. The best news of all is that when profits are increasing, there is more room for competition at the pump, and gas prices will likely continue to fall. Which, again, puts the lie to the gouging idea. Why would companies in collusion, on a product everyone claims is absolutely necessary regardless of price, reduce prices by more than 10% in a month?


Blogger Graham said...

I agree that I don't think gov't intervention is the solution to this problem.

5:26 AM  

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