Posted by
Andrews on Tuesday, May 13, 2008 6:41:05 PM
I keep hearing from demagogues about the "obscene profits" oil companies are making.
I have written on this before, but decided to do a bit more investigation. After all I don't want to call office holders and rabble rousers liars unless it is true.Unlike the rabble rousers themselves, I do like to have facts to back up accusations.
So, I decided to go to the stock market. You see, when profits rise, either they get disbursed as dividends, or they are reflected in a rising stock price. It is very hard, thanks to reporting requirements, for companies to hide "windfall profits" from investors. Now, admittedly, investors base their valuation on more than just profits, or even the value of the company, but I would expect a company earning "windfall profits" and with schemes to stick it to consumers, we would see the stock rising rapidly. Even if they paid out huge dividend, I would expect the stock to rise, as those seeking an income stock would buy it pretty eagerly.
And what did I find:
Exxon Mobile (XOM) is trading at 89, a little below where it was in July of last year. It shows a slight upward trend over the past year, but not much. It has consistently bounced against a 95 per share ceiling over the past year.
Royal Dutch Shell (RDS.B) is trading around 78, also about the same as it was in July of last year. It too has been bouncing against a ceiling of about 87 per share, though of late it has dropped somewhat and has not even come close since New Years.
British Petroleum (BP) has suffered a major drop since New Years, though it is recovering and trading at 72, about the average 8 to 10 months ago. Before the drop it was bouncing against a 75 or 76 per share ceiling, except for a small spike in November of last year.If the past week's plateau is the start of a trend, it appears to be settling down around 72 or 73 per share, but it has been volatile enough that I would not bet on that.
As those are the big three of the oil industry, I will assume we can take them as being representative, and I have to say I just see no signs of those supposed windfall profits. Either they have done a remarkable job of cooking the books to hide their earnings, or the investors are missing out on the deal of the century.
Or, perhaps, just maybe, there are not the "obscene profits" that these politicians and demagogues claim? Maybe they are trying to blame the oil companies for price hikes caused by natural phenomena, such as higher demand, as well as impediments imposed by the state itself, such as high taxes, a refusal to allow drilling, or new refiners, and monetary inflation?
I will let my readers decide. If you think there really are windfall profits hidden somewhere, buy the three stocks I mentioned above. If not, then please be quiet. There are quite enough bad ideas out there without adding new myths about evil oil companies as well.