Gino Piroli – 5/1/06

This page was last updated on May 1, 2006.

Seems obvious that we’re being gouged; Gino Piroli; Beaver County Times; May 1, 2006.

The subject column also covered illegal immigration. I generally agreed with Mr. Piroli’s points, but he did mix usage of “immigrant” and “illegal alien.”

Below is a detailed critique of the subject column.

“There are two current issues, among the many, affecting our way of life that I feel should be discussed. Since it isn’t a requirement to thoroughly know the subject, as is apparent in our opinion pages, let me offer my beliefs on them: immigration and the obscene gasoline prices.”

[RWC] What makes a gasoline price obscene? On a constant dollar basis, we’re still below the peak of the early 1980s.

“We are given many reasons for the increase in oil prices. What I can’t understand is how with all these problems, the greatest benefactors of all these higher costs are the oil companies. It puzzles me that if, for example, the oil companies made a dollar a barrel when it cost $50, then wouldn’t a dollar a barrel on whatever the present price is result in the same profit?”

[RWC] Where do I begin? In general, most private sector oil companies must buy most of their crude oil from governments (Saudi Arabia, Venezuela, et cetera). When the price of crude oil increases, the primary beneficiaries are those governments. Indeed, when I was in the oil business, our contracts with these counties prohibited us from selling crude oil for more than we paid for it. Those oil companies that do “own” some crude oil also benefit from higher prices.

What business is Mr. Piroli in? Does he believe the profit should be a constant dollar amount regardless of the price of the product? Most profit margin calculations are done on a percentage basis. Over time, oil industry profit margins are only slightly better than average (5.8% vs. 5.5% according to BusinessWeek). The profit on gasoline itself is much smaller, around 3% to 4%. State and federal tax profit on a gallon of gasoline sold in PA is roughly 17% (about $0.50/gallon), and that excludes the income taxes paid by the oil company and the income taxes paid by shareholders on their dividends. Who’s doing the gouging?

“That the public is being gouged is apparent when they announce that in one quarter, they made $35 billion, and now the markets are disappointed that they only made $8.4 billion this quarter. What hurts most is that while oil prices rise, the earning power of Americans goes down and the cost of all goods and health care go up.”

[RWC] Mr. Piroli and his kind ignore an awful lot.

First, increased profits result in increased tax revenue. This increased tax revenue puts a dent in the national deficit and helps state coffers as well. Lest we forget, Mr. Piroli has written at least three columns since 2004 complaining about the deficit and the national debt. This should be a positive development for Mr. Piroli.

Second, increased profits are paid out in dividends to shareholders. Who are those shareholders? Most shareholders are ordinary people like you and me. We own the stocks either directly or via pension funds, 401(k) plans, mutual funds, et cetera.

Third, since about 1980, those evil oil companies paid roughly two to three times as much in taxes as they earned in profit. Who’s doing the gouging?

Fourth, where was Mr. Piroli in the early 1980s when the oil industry hit the skids for a time? I lived in Houston at the time and saw thousands of people lose their jobs and homes. That, of course, wasn’t the only downturn.

Fifth, profit is where oil companies get the enormous funding required for oil and gas exploration. It may come as a surprise to Mr. Piroli, but it’s pretty expensive to explore and build production platforms in places like the North Sea, the Arctic Circle, and in miles of seabed under miles of seawater.

“As usual, those hurt the most are those who can least afford it.”

[RWC] I can’t tell you how sick I am of hearing this mantra about everything. Pick the topic, and folks like Mr. Piroli always trot out the old reliable, “those hurt the most are those who can least afford it.”