We all know how expensive gasoline is these days. We have also heard about the oil companies’ making enormous profits. According to ExxonMobil’s 2007 Annual Report, the company’s return on average capital employed was over 30% for 2005, 2006, and 2007. That is staggering.
Now, I am not begrudging the oil companies’ making a profit — whatever the market will bear. I am not accusing them of collusion to keep prices up. The problem is not the companies, but the market. In a normal market, when returns are that high, a company will lower its prices to sell more of their product. In the long run, this lowers prices to the consumer and increases the profits to the company.
The reason the oil companies are not lowering their prices is that they simply have no more gasoline to sell. Their refineries are running at capacity. Normally, a company whose plants are running at capacity would build more plants. Unfortunately, because of short-sighted government officials and rampant NIMBYism, no new refineries have been built in the United States for years, and none will be for years to come.
The best the oil companies can do it to increase productivity at existing plants, and that will simply not be enough to meet the increasing demand. Might I recommend a Dividend Reinvestment Plan?