When you buy shares in a retirement account, you purchase at the current market value of that fund. When you go to sell, you sell at the current market value at that time. If the selling price is higher than the purchase price, you make a profit. If the selling price is a lot higher than the purchase price, you make more of a profit. Do you control the purchase or selling price of the funds?
So why do people blame the oil companies for high prices when they don't set the price? It's the same basic principle. They buy the crude oil at the current market price, then sell it at what the current price is at the time they sell it. If the price at the time they sell is higher than the price at the time they purchase it, they make a profit.
2007-11-13
04:14:08
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6 answers
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asked by
Mutt
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Politics & Government
➔ Politics
Wow good analogy, if the oil companies were not gouging the public by manipulatig the price of crude you would have a good point.
2007-11-13 04:18:34
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answer #1
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answered by MY NAME MICHELLE I HATE AMERICA 5
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I wouldn't go so far as saying that oil companies manipulate oil prices on the global market, as they can't. OPEC, a cartel, has that power and it is something that negatively impacts Oil/Gas companies. Which is why ExxonMobile and Conoco have posed negative earnings surprises and will continue to if the prices go higher. The higher the market price the narrower the spread for the Oil Giants...see they cant always keep the spread the same, irregardless of the price per barrel, cause then the price at the pump will really soar...so as it gets higher, they actually lose more, while OPEC gains more. As for retirement accounts, the spread between the NAV and the Market price is where a profit is made by the fund manager, as well as sales charges and their expense ratio. This is perfectly legal and they do not control the purchase or selling price of the fund...if they had any kind of real power over that, every fund would be a 5 star fund. The market sets the tone for their prices, which is determined by the assets under management and the effectiveness and success of the Fund Manager and his/her team. The better they are, the better the prices are to their favor. Funds do not operate like traditional stocks, so the real value is not in the prices, but in the assets undermanagement. If you put 100K into a fund and it yields a 30% return that year, your value went up 30K because of the Fund teams aggressive and saavy investments, the entry and exit price of the fund will only change as more people fight to get in.
2007-11-13 12:26:18
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answer #2
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answered by Kiker 5
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People are blaming the oil companies for several reasons. Your model is correct--IF that is wha twas actually happening. There are, however, at least three ways in which your model does not reflect the actual situation--and those are the source of the anger.
Your model assumes the standard "ideal type" of neoclassical economics: a "perfectly competitive market" unaffected by manipulation, state interfeirance, etc. The oil futures market is NOT such a market. First of all, a large part of the supply is controlled by governments who rais or lower the supply for political purposes. Second there are only a handful of corporations-end users--and they have close ties to those govenments. In short, any pretense this is a true free market is just that--pretense.
Second, do a little math. There are 55 gallons (more or less) per barrel. Not all is converted to gasoline--but virtually all is used for something--so it balances out. To keep it simplle, then, I'll assume all is converted to fuel of some kind. The price per barrel back when gas was $1150 a few years ago was about $35. Now, its about $80 (the most recent junp hasn't gotten to the pump yet--I'm using this to keep the numbers simple). If you work this out, it means that the price should have jumped to about $265 (factoring in taxes). But at that point it's already well over $300. And keep in mind--a jjump in the price of oil doesn't affect production costs--jsut the raw matieral. Now--here's the kicker: the oil companies DON'T get all their oil on the open market--about half comes from their own reserves. So--if they had just passed along the actual added cost to consumers--which would be entirely legitimate--the price would have only risen to around $2.10.
Those are rough figues--but you get the idea. The discrepancy is simply too great not to assume the oil companies are adding a lot more to the price than their added cost.
The third point: the oil companies are openly manipulating supply. They do this in two ways--one is by simply slowing refinery production. The other is that , despite urgings from the government, relaxation of environmental restrictions and subsidies by the bush administration, they continure to refuse to start building new refineries--despite the fact that current national capacity is barely adequate. THAT is why Katrina played such havoc with oil prices--shutting down a mere 5-10% of the national refining capacity for a few weeks created a real--though very temporary-shortage.
To summarize--given a free market, your arguement would be valid. But it's not a free market--and THAT'S wha tpeople are angry about.
2007-11-13 12:38:34
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answer #3
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answered by Anonymous
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I see where you're going with your question but it's an oversimplified and erroneous analogy.
Oil companies buy crude, pay to transport it to refineries, pay to refine it into diesel fuel, heating oil, gasoline, motor oil, etc. then pay to package and distribute it. They pay taxes on each phase.
Oil companies realize approximately .07 cents per gallon of gasoline sold at the pump while the federal government realizes approximately .48 cents per gallon and state and local governments realize another (approx.) .32 cents per gallon. There's approximately .05 cents built into the pump price for the cost of operating the retail facility and the owner of the facility to make a small profit.
U.S. oil could be used instead of buying from OPEC but our EPA will not allow refineries to be built and restrict U.S. production for "emergency surplus" only. The EPA has also set ridiculous standards for refined fuels resulting in nearly double the refining costs of other countries.
The last fact that is always overlooked is that China and most European countries are willing to pay WAY more per barrel of crude because they have NO CHOICE!
If the United States wants to buy OPEC oil, they must pay competing prices. Illustrating why MARKETS set prices and NOT OIL COMPANIES!!!
2007-11-13 12:41:36
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answer #4
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answered by Ed Harley 4
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Your question is complete nonsense. The oil companies are an oligarchy that control the supply of their product through their shipping and the operation of their refineries. They're reaping world-record profits at the expense of all Americans. They populate and control our government as well. Bush and Cheney are old oilmen, and are making tons of money for their ceo buttbuddies. It's all crony capitalism, and there is no free market at all with this crap. They all deserve to be ripped apart.
2007-11-13 12:21:52
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answer #5
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answered by Anonymous
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i don't blame the oil companies for price.
i blame them for asking for and then getting tax cuts.
i blame the govt for giving them the tax cut.
why should those paying the high prices at the pumps also subsidize the tax bill of the company that is selling the gas at that high price?
because out govt has failed us - AGAIN!
2007-11-13 12:19:33
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answer #6
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answered by nostradamus02012 7
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