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Title: The Only Reason Gas Is $5-A-Gallon Is Oil Companies Have Convinced Us Prices Are Out Of Their Control
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Published: Mar 4, 2012
Author: Ira Kalb,
Post Date: 2012-03-04 19:22:37 by tom007
Keywords: None
Views: 127
Comments: 13
The Only Reason Gas Is $5-A-Gallon Is Oil Companies Have Convinced Us Prices Are Out Of Their Control Ira Kalb, Marshall School of Business, USC | 2 hours ago | 518 | 9 A A A inShare3 California Gas Ira Kalb Email Ira Kalb is professor of marketing at the Marshall School of Business at the University of Southern California and President of Kalb & Associates, an international consulting and training firm. Recent Posts How News Corp Should Have Handled The Scandal Why Taco Bell’s New Slogan Is Just Awful How Whitney Houston’s Death Brought Her Brand To Life See Also gasoline The World's Top 10 Countries For Cheap Gas PETER SCHIFF: Sorry, But There's No Easy Fix For Gas Prices PETER SCHIFF: Sorry, But There's No Easy Fix For Gas Prices Facebook Names Its 11 Most-Effective Advertisers Facebook Names Its 11 Most-Effective Advertisers As gasoline prices have rapidly increased, red and blue sides of the political fence have both speculated that the latest escalation is an attempt to defeat Obama as he presses to end the subsidies the oil and gas industry has received for nearly 100 years. Whether or not this is true, one thing is certain. Oil companies must be marketing geniuses for their ability to raise prices and create outsized profits at a time when the country is trying to emerge from the worst recession since the Great Depression. Huge profits In the 3rd quarter of 2011, the top 5 oil companies had profits of $33 billion – giving them combined earnings of $101 billion for the first 9 months of 2011. These huge profits, even by oil industry standards, are happening as the average price at the pump in the US is expected to hit $5 per gallon by summer’s peak driving season. This is nothing new for the oil industry since the profits of the top five multinational oil companies approached $1 trillion over the first 10 years of the new millennium. How large profits are typically generated Most companies generate large profits by creating innovative, unique, or highly-desirable, got-to-have-it brands. Apple devices and Nike shoes come to mind. The gasoline we buy at the pump is not particularly innovative. It is basically the same as the gas we have been buying since we all started driving. It looks, smells, and works the same as it always has. There also does not appear to be any significant uniqueness between brands. They are pretty much interchangeable. The only perceptible differences are in the marketing – the names, logos, colors, slogans, and other identifiers. In essence, gasoline is a commodity. Commodities typically sell for less – not for more As most economists will tell you, commodities typically sell for less because there is significant price competition and no clear reason for brand loyalty. To have control over price, marketers position their products as unique with no adequate substitutes. The more uniqueness, the more control. If buyers really want or need the product, they have to pay the price because they cannot get the same product somewhere else. Uniqueness, from effective branding, gives marketers a monopoly over the mind-space of buyers. This, in turn, creates an effect similar to that of an inelastic demand curve. With oil, there is very little or no uniqueness - making the high prices at the pump and resultant profits an amazing marketing feat. Continued subsidies More amazing is the fact that the oil companies have been getting tax subsidies from the U.S. government since 1916. In spite of their gargantuan profits, the oil industry has convinced the American public that these subsidies, which currently total $4 billion a year, are necessary to keep their prices lower than they ordinarily would be. If this is not another example of marketing genius, it is hard to fathom what is. Serious side effects from high oil prices It is not just the pain of paying more at the pump. Oil prices are an economic accelerator. Everything that is made or transported uses energy, and much of that comes from oil and gas. The prices of food, clothing, and just about everything are going up because of the rapid rise of oil prices that has enriched oil companies. The oil companies have said repeatedly that they need high profits to develop alternative energy sources and explore for more oil. They may be doing a lot of the latter but very little, if any, of the former. In fact rather than investing in alternative energy sources, the LA Times reported that the oil companies “used $38 billion, or 28% of annual net income, to repurchase their own stocks and invested in politicians to maintain the policies that led to their enormous profits over the past decade.” Meanwhile, consumers are experiencing nasty side effects including… Global warming, which more than a few scientists believe is creating strange weather patterns and erosion of US land Fracking, a process of extracting natural gas, has caused pollution of rivers, wells and ground water with known carcinogens, and in some cases earthquakes OPEC profits have been used to finance terrorism and dictatorships How do they do it? In addition to hiring lobbyists, the oil industry achieves this marketing feat of high prices and profits for a commodity product by doing the following: Using the news media. They do their convincing by sending press releases to the news media, which distribute their messages for free via news programs and articles – warning us that prices at the pump are going up to $5 a gallon. Invoking Supply and Demand. In the press releases, they convince the public that the high prices are the result of supply and demand forces that are out of their control. However, OPEC (an oil cartel) controls the supply and pricing of crude oil so invoking supply and demand, while a clever strategy, is a bit disingenuous. Providing believable reasons. They use world events as reasons (cynics might call them excuses) for supply and demand changes and higher oil prices. Typical examples include the following: China, India, and other large global users bidding up the price of oil Instability in the Middle East threatening supply Refinery outages, which seem to occur at the worst possible times Seasonal demand factors from heating, air conditioning, and increased driving Industrial demand factors from a healthy economy Why is this marketing genius? The fact that oil companies have continued to use the media for free to convince the public that escalating prices are due to forces out of their control is very clever. To do this while receiving $4 billion per year in tax-payer subsidies while making huge profits and not seriously investing in alternative energy sources is evidence of nothing short of marketing genius. Please follow Advertising on Twitter and Facebook. Follow Ira Kalb on Twitter. Tags: Ira Kalb, Marketing, Gas Prices, Gas, The Christian Science Monitor, Middle East, Venezuela, Peter Schiff, Euro Pacific Capital, Madison Avenue, Facebook, Advertising, Awards, Features | Get Alerts for these topics » Read more: www.businessinsider.com/t...trol-2012-3#ixzz1oCI5NI8T
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#1. To: tom007 (#0)
The only option is government ownership of all energy producers. Years ago there was an excess profit tax. Regardless of method, the consumer is always bent over and pays the price...DUE TO LACK OF COMPETITION. Seven local gas stations, all have the same price, every day, all year long.
Wouldn't surprise me if they're all getting their gas from the same distributor. There's probably a couple hundred stations here in Ft Wayne, they all run within a penny or two. In his book "The Energy Non-Crisis" pastor Lindsey Williams stated that government ownership has been their goal all along. With communism, the govt. owns the businesses. With fascism, the businesses own the govt. For a disarmed, cowering, overmedicated population what's the difference?
Only Only exxon has a name, rest of the trucks have no labels.
deleted
The relationship between morality and liberty is a directly proportional one. "If you love wealth more than liberty, the tranquility of servitude better than the animating contest of freedom, depart from us in peace. We ask not your counsel nor your arms. Crouch down and lick the hand that feeds you. May your chains rest lightly upon you and may posterity forget that you were our countrymen.” —Samuel Adams
Oil companies use 4 major insurance companies to jack the price of a barrel of oil. They sign contracts with the companies (one of which is not an American company but does a great deal of business here) to provide coverage of their oil tankers because the Middle East is considered a "constant" combat zone. They do not pay for the coverage - it is just a paper trail that helps justify their per barrel claims. The insurance companies then write this coverage off as a loss at the end of each fisacal year and claim the loss on their federal and state tax. This benefits both the insurance and oil companies and the American taxpayer ends up paying the hundreds of millions of dollars difference in taxes and paying more than 6 times the cost for a gallon of gas because of this fraud. This started in 1972.
The volume of gasoline sold has been going down as it has become more expensive so the only way oil companies can maintain/increase revenue and profits is to keep inching up the retail price. Also, Jew clamor for trade sanctions against Iran to have it stop its nuclear program has reduced the prospects of surplus crude production and consequent backing off of the price of crude. The US$'s questionable value isn't helping either.
This benefits both the insurance and oil companies and the American taxpayer ends up paying the hundreds of millions of dollars difference in taxes and paying more than 6 times the cost for a gallon of gas because of this fraud. This started in 1972. Interesting. + This started in Sept. 1975 and was extended in March 1979, then by Nov. 1979 - voila - catastrophic oil crisis for us: Did you know that by law the US guarantees israel's oil supply - no matter what?...even if it causes US a DOMESTIC SHORTAGE??? ------- "They're on our left, they're on our right, they're in front of us, they're behind us...they can't get away this time." -- Col. Puller, USMC
War, War, and more War. Admiral Urges Rearguard Response To Iran Threats: Renewable Energy - Forbes 2/29/12 ------- "They're on our left, they're on our right, they're in front of us, they're behind us...they can't get away this time." -- Col. Puller, USMC
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx? n=PET&s=A103600001&f=M In spite of Israel's own calls for a boycott of Iran, its citizens profit from the black gold of the arch enemy, delivered via Europe. Israel protested strongly against the gas deal between Iran and the Swiss company, Elektrizitaetsgesellschaft Laufenburg. But investigations show that Israel itself gets oil from its enemy. Israel imports Iranian oil on a large scale even though the country and its products are officially subject to an Israeli boycott. Israel gets around the boycott by having the oil delivered via Europe. A reliable Israeli energy newsletter, EnergiaNews, reported this trade last week (18 March 2008). The newsletter is produced by experienced business journalists, while renowned politicians and business people sit on its editorial board. EnergiaNews got the information about the Iran trade from sources with ties to the management of the Israeli company Oil Refineries Ltd. And these know for sure where the black gold comes from -- after all, the company processes it. According to EnergiaNews, the Iranian oil is highly valued in Israel because its quality is better than that of other crude oils. The report, by EnergiaNews editor Moshe Shalev, states that the Iranian oil is shipped to various European ports. The Israelis buy it mainly in Rotterdam, getting suitable bills of lading and insurance papers. Then the oil is transported to Haifa in Israel. The importer is the Eilat-Ashkelon Pipeline Co. (EAPC), which conceals the sources of its oil. Half of EAPC actually belongs to Iran, as it was founded in 1968 by the Shah, jointly with the State of Israel. In order not to embarrass Iran, the legal work was done through a company in Geneva, Trans-Asiatic Oil. Since the fall of the Shah, Iran has taken legal proceedings against the company, because Israel refuses to recognize Iranian claims of debts to the extent of several billion dollars.
Thank you for that educational post. It vaguely reminds me of a forum discussion years ago about oil companies changing their names and routing their product on the sly to America's West coast by way of Russia or China, iirc. Might have had to do with charging us higher prices that way. Don't quote me on those details because I could be wrong. I suspect, though, if no transportation vehicles and other machinery were using oil, much would still be used in oil- based products like plastics, linoleum, tires, asphalt, etc. That aspect of the industry was discussed here not so very long ago. Edited for spelling. ------- "They're on our left, they're on our right, they're in front of us, they're behind us...they can't get away this time." -- Col. Puller, USMC
They haven't convinced me of shit.
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#2. To: Cynicom (#1)
Seven local gas stations, all have the same price, every day, all year long.
Mike Flaherty: Yeah, it's been there a long time. I wish I knew which corner.
My Man Godfrey (1936)
#3. To: Cynicom (#1)
The only option is government ownership of all energy producers.
#4. To: Esso (#2)
Wouldn't surprise me if they're all getting their gas from the same distributor.
#5. To: Buzzard (#3)
#6. To: tom007 (#0)
#7. To: tom007 (#0)
#8. To: bush_is_a_moonie, All (#6)
Oil companies use 4 major insurance companies to jack the price of a barrel of oil. They sign contracts with the companies (one of which is not an American company but does a great deal of business here) to provide coverage of their oil tankers because the Middle East is considered a "constant" combat zone. They do not pay for the coverage - it is just a paper trail that helps justify their per barrel claims. The insurance companies then write this coverage off as a loss at the end of each fisacal year and claim the loss on their federal and state tax.
#9. To: tom007, All (#0)
rather than investing in alternative energy sources, the LA Times reported that the oil companies “used $38 billion, or 28% of annual net income, to repurchase their own stocks and invested in politicians to maintain the policies that led to their enormous profits over the past decade.”
“Every time the price of a barrel of oil goes up by 10 bucks, the military has to scramble in readiness accounts and come up with $1.2 billion to pay for that delta in the cost of fuel.”
#10. To: Tatarewicz (#7)
(Edited)
The volume of gasoline sold has been going down...
Mike Flaherty: Yeah, it's been there a long time. I wish I knew which corner.
My Man Godfrey (1936)
#11. To: GreyLmist (#8)
#12. To: bush_is_a_moonie (#11)
(Edited)
#13. To: tom007 (#0)
Calling Ron Paul an isolationist is like calling your neighbor a hermit, because he doesn't come over your property and break your windows. - Dave Hebel
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