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"Big oil" is not the problem: Alexander Green's perspective

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This post is based on an article written by Alexander Green, Investment Director of The Oxford Club. My thanks to Mr. Green for his straightforward insight.

Let me begin by stating that my only argument against the oil industry has been their "the only game in town" attitude. Never have I complained that oil companies show too much profit. I have never accused the oil industry of gouging or unjust profiteering. With that stated, let us continue:

Oil companies DO NOT set gasoline prices at the pump. Those prices are dictated entirely by supply and demand economics. The single biggest driving force in the economics of crude oil today is the increasing demand by growing industrialized nations, China being the biggest by far. Even the United States Supreme Court declared that they find no evidence that oil companies are manipulating oil prices in any undue manner. This issue will, of course, remain in hot public debate.

When you go to the gas pump and cringe at the current price per gallon, I want you to think hard and remember one important thing. The single most oppressive factor in the price you will pay for gasoline does not issue from the corporate offices of Exxon Mobil Corp. (NYSE: XOM) or BP (NYSE: BP). It is mandated upon you by your legislators. Government fuel taxes can exceed 20% of the cost of filling your tank. Additionally, did you know that the federal government gets a larger cut at the gas pump than the oil producers do? Estimated profit per gallon for Exxon is .10 cents. The feds take you for upwards of .18 cents per gallon. New York gas taxes equal an additional .68 cents per gallon. So who's gouging you now?

Mr. Green's article states that "Exxon's profit margins are only 10.7%. Profit margins at Microsoft, on the other hand, are 26%. Perhaps we should pass a windfall profits tax on software companies." Mr. Green makes that Microsoft comment tongue in cheek, I assure you. But it serves to illustrate the absurdity of our government's handling of the gasoline pricing issue. You don't pay nearly as much in tax on your software purchases, which are mainly discretionary, as you do on gasoline, which is mostly essential.

If you want to get on a soap box to decry the price of fuel, please go right ahead and do that. I'll be proud of you. However, before you start waving your fist and screaming that we're paying too damn much, please be sure that your soap box is turned in the right direction. The truth of the matter is that taxation is going far deeper into your pocket than the oil companies are. In my personal opinion, the right direction for your soap box would be to face your very own state capitol.

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Last updated: November 23, 2009: 12:02 PM

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