I see that the media and the left-wing foundations are in a state of hysteria over oil company profits. Exxon Mobil reported profits of about $10 billion for the last quarter of '05, and this has driven certain people who don't really know a lot about the oil business or how gasoline gets into their Volvos insane.

Kindly allow me to make a few points that won't make those people calm down but might make independent-minded thinkers think.

First, Big Oil did not make these profits "...off the suffering caused by Hurricane Katrina," as I actually heard someone say on the radio on Monday. Exxon Mobil made these profits because it has invested upwards of $10 billion a year in exploration and development for hydrocarbons, in good years and bad, in years when they made as much as they spent and in years when they made less than they spend exploring.

That meant they had oil on hand and the wherewithal to transport and refine oil when Katrina struck. But the suffering of the Katrina victims did not make the price of oil and gasoline rise. That rise came about because oil and gasoline traders at desks in investment banks went into hysteria mode when Katrina struck and bid up the price of oil and gasoline to hysterical levels. Because the big oil companies had a lot of oil on hand to sell despite the damage to refining and production caused by Katrina, they made money on some of that oil. (They had to buy some on the world market and they did not make anywhere near as much on that oil.)

The situation is precisely what happened to U.S. wheat farmers periodically in the 1970s and 1980s. If Russia had a poor harvest and needed to import grain, wheat farmers made good profits because world wheat traders bid up the price. They did not make money off the suffering of Russian wheat eaters. They made money because world wheat traders bid up the price based on Russian wheat conditions. (Before there was a world wheat market that included Russia, Russians and Ukrainians just starved when the wheat crop was poor.)

The oil situation is exactly the same.

Good stuff.  Go read the rest. 

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