If a minimum wage increase causes product costs to go up, how does the oil industry make record profits when..

Question

the cost of crude rises? Shouldn't they have been making record profits when oil was thirty dollars a barrel?

Answer 1

Interesting isn't it....doesn't really fit the whole supply demand curve very well.

Answer 2

You are correct, assuming that they didn't raise their prices when crude oil costs went up.

The oil companies are quick to raise their gasoline prices (almost within an hour) when there is some little concern or the price of oil (you have to understand that these are future prices) goes up. Whenthe costs go down, it takes a while for that cheaper oil to actually reach the refineries.

The oil companies have also increased their margin per gallon at the refinery level. In California, there are very few refineries and they won't approve any more to be built. This further tightens the supply and allows the oil companies to control the market.

Your idea of comparing the two, just doesn't work.

Answer 3

As someone else pointed out, the oil companies have their own reserves. They sell crude as well. The problem with U.S. oil reserves is that it comes from deep wells. Saudi Arabia and most all the middle east have shallow wells.
Getting oil from a deep well is a very expensive undertaking. The deep U.S. wells cannot pump oil when crude goes down to a low per barrel price. It's very rare that U.S. crude producers can compete with Arabian producers. This is one of those rare occasions.
Normally, companies like Exxon Mobil can only make profits on their refinery production. With Arabian oil sky high, they can profit from deep well production as well.
The magic number about 10 years ago was $38 a barrel. Once Arabian oil dropped below that price, it cost less to buy Arabian oil than to pump U.S. oil out of the ground.

Answer 4

I'm not sure how the minimum wage increase fits into this question, but the record oil profits is simple...they are selling more fuel. Keep in mind that revenue and profit rely on cost of the product, price of the product sold, AND amount sold.

Answer 5

Those two things aren't directly correlated. The Oil industry make their record profits because they sell crude oil too- it didn't actually cost them any more to produce, they just produced less and charged more for it. Other aspects of the industry increased their profits by raising the prices of their finished goods by substantially more than the change of the price of crude, and by retaining those price levels when the price of crude dipped back down.

Answer 6

Your knowledge of macro-economics seems to be close to zero. Minimum wage has nothing to do with oil prices.

Oil is a world commodity. The laws of supply and demand apply. When the demand goes up, the price goes up. The cost to produce may not necessarily go up at the same time. Speculators who buy and sell oil futures move the price up or down, depending on their willingness to buy or sell.

The minimum wage is a de-facto tax on small businesses, those least able to afford additional tax. An increase in minimum wage does not mean an increase in productivity. If a businessman cannot raise his prices, he has to cut expenses to stay in business.

Answer 7

It is called high volume sales. Increases in demand. There have been twelve congressional investigations of the oil industry, there have been no findings of price gouging.

Do you even stop to think of how many products are made from oil? The prophets come from sheer volume.

Answer 8

The company I work for mad records profits last year, shoudl I be mad about it?