Conservative apologists for the oil industry defend the recent record profits of these mega-corporations by arguing that there is nothing wrong with these windfalls, because they are still realizing the same percentage of gross sales as profit. I don’t know the exact numbers, but let’s say they were making 10% profit when their basic raw material, crude oil, was selling for less than $40 a barrel. When that price rose to over $70 a barrel, they still maintained that 10% profit over gross sales. I agree that is good business for them, but is it good for everyone else?

Now, let’s say the reverse of the current trend occurred. Suppose that a new source of cheap petroleum was discovered and the price of oil dropped under $20 a barrel. Does anyone believe that the oil industry would be satisfied to maintain that same percentage markup if it meant that their profits would be reduced tremendously? I don’t believe that big business works that way. Their motto is more like, “Heads – I win. Tails – You lose.” No major corporation would willingly let their profits take that kind of plunge.

And it is the oil industry that is benefiting from the current situation. Your local gas stations make a few cents a gallon on gasoline sales; it doesn’t depend on the price of the product. If higher prices drive down the amount of gasoline that is sold, they end up making less money. But since the oil companies are receiving a percentage, they can still make more money, unless demand dropped drastically.

The two factors that are supposed to reign in the greed of corporations are the law of supply and demand, and competition. Right now, however, these aren’t working and I will explain why.

Supply and demand doesn’t apply to necessities. Most Americans feel that all their driving is necessary and, since there is no real alternative to gasoline, they will continue to buy roughly the same amount of fuel, no matter what the price. So, the demand doesn’t go down with the rise in price the way it would on an unnecessary product or one that had competing alternatives. Of course, the oil companies still take advantage of the supply part of the equation to justify price increases if circumstances decrease their supply. And they also raise prices when seasonal demand increases occur.

The second factor that normally holds down product prices is competition, but that doesn’t seem to work in this case. The number of competing oil companies is at an all time low, but there still should be some price manipulation in an effort to woo customers away from other companies. Again, this doesn’t seem to be happening. Whether it is outright collusion or just an unspoken agreement, all the oil companies lower and, more importantly, raise their prices at the same time. You can see that for yourselves right here in Jackson. All the local gas stations change their prices within hours of each other. These are not local decisions. They are making these changes because of the movement in their cost for the product.

So, the next time you hear someone defending the record oil company profits by crying that their profit percentage is still the same, just remember that those massive increases are coming out of your pocket, and those companies could still be making plenty of money without holding you up at the gas pump.