There Is No Gouging

RUSH: Let’s go back to the 1980s, folks. A little question for you: In the 1980s, you know the difference between a Texas oilman and a pigeon? In the 1980s the difference between a Texas oilman and a pigeon was that a pigeon could still put a deposit down on a Mercedes. The Texas oilman could not. I must correct myself. I must take something back. I said that there was “gouging” by the oil companies now and then on gasoline. I said you have to assume that there’s going to be that. There is gouging in practically every commodity and product that we buy, but I’m going to take it back. I don’t think there is gouging by the oil companies when it comes to gasoline. I have the latest statistics here from the American Petroleum Institute, right here in my formerly nicotine-stained fingers. Latest figures, August of 2005: “Nationwide Average Tax on Gasoline, 45.9 Cents Per Gallon — Combination of federal and state taxes,” let’s just round it to 46 cents a gallon. “The average profit per gallon of gasoline by the oil companies is a dime. The oil companies are making ten cents, per gallon of gasoline sold, profit. State and federal governments get 46 cents a gallon.”
When you’re talking about gouging and when talking about lowering the price and punishing the oil companies, as is always the case of a highly regulated industry, I suggest that you never forget your conservative roots and focus on the real problem, and that’s government. And when your friendly government politicians start talking to you about, “Why, we need a new tax on oil! Look at all those profits out there. Why, obscene profits!” They’re just thinking you’re mad and they want to get on your good side. They want you to think that they hear you, that they are feeling your pain. So you get mad at the oil companies and they come along, “That’s right! Oil companies are gouging you and we’re going to raise taxes on the oil companies.” Forty-six cents a gallon average nationwide, state and federal taxes. You notice how very rarely do they ever discuss solving high gasoline prices by reducing their take, federal and state governments? Like in never! Here’s Wayne in Mount Shasta, California. Hi, Wayne. I’m glad you called.
CALLER: Hello, Rush, dittos. Thanks for taking my call.
RUSH: You bet, sir.
CALLER: And I agree with you most of the time, but this time maybe I’m just ignorant of the situation. It seems to me that demand could be defined as need, and if the oil companies, if it’s costing them the same for a barrel of oil, the same to refine a barrel of oil, ship it to their suppliers and all that, to their retailers, and a vacation comes up, their costs are still the same but gas prices always go up during holidays and vacations because the demand or need goes up. So it seems that it is an idea of not — it boils down, instead of calling it greed, let’s call it profit. How much profit can we make off of this situation.

RUSH: Actually that’s not what happens. What happens is that every spring the gas price goes up and then the media worries, “Oh, no, how will this impact the summer vacation and driving season?” And suspiciously the prices always start to fall every May. You can make book on it. They start to fall every May, going into the summer, and gasoline prices compared to earlier in the year–
CALLER: (phone ringing in background)
RUSH: You need to answer that? I’ll wait.
CALLER: No, go ahead. I’ll get somebody else to answer it.
RUSH: All right. They always end up going down leading into these big driving seasons. It’s a miracle. I make this prediction every year. I’m always right, but there’s always a fit of panic. Now, there’s a reason why you think that the prices go up during vacation — and, by the way, when you start talking about need versus demand, you’re getting into a very hairy area here. We need water, too, and we actually need water more than we need gasoline. You can live without gasoline; you can’t live without water. Have you checked the gallon price you’re paying for water, lately?
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RUSH: This is CBS MarketWatch. “With rising oil prices and record oil company profits serving as a backdrop, the Senate moved one step closer on Thursday to allow companies to drill for oil and gas in ANWR.” All right. Now, Snerdley, you’ve been on my case all day thinking all of a sudden I’ve lost it; I’m totally reliable all 17 years of my career. This past three weeks I have been brilliant on all the political stuff, but now all of a sudden today, I’ve lost it. People are wondering what’s wrong with me because I don’t see the truth about big oil gouging. Now, here we have oil prices come down; we’ve got gasoline prices coming down; we know that we are too dependent on foreign oil, and yet here is the media — I just ripped the paper, this makes me so damn mad; here is the media — “with rising oil prices and record oil company profits serving as a backdrop…” That is BS. It is not a backdrop; it is our dependence on foreign oil that is a backdrop for why we need to drill in ANWR. It is the fact that we’re becoming less and less dependent on ourselves. We have a problem, and the two hurricanes illustrated the problem. It turned out not to be as bad as it was forecast to be or could have been, but you never know the next time. There’s no reason why we should not have our own domestic supply of oil, and here’s the media trying to kill it by using this silly notion that “these big oil companies just can’t get enough, they’re so thirsty and greedy, why, prices are already going up. Gas prices already going up, and they still want more!” It’s just a pack of 100% BS. I had three pieces of paper here. You people watching me on the Dittocam see this. I’m going to have to reprint these notes that I made to myself in just a second because I ripped them to shreds I was so mad. Who’s next on this program? Eric in Albany, you’re next. Welcome to the program.
CALLER: Hi, Rush. Thanks for taking my call. I’m a long-time listener and converted former Democrat.
RUSH: Thank you, sir. Nice to have you on the program. Don’t blow it.

CALLER: I’m going to try not to. I’m calling because I don’t blame the US oil companies at all. I think the conspiracy lies with OPEC and the Arab countries that do drilling overseas. They are the ones who set the price. They are the ones who can lower it when they want to and also lower or raise output. So I believe it’s a hundred percent on their shoulders, not the US oil companies.
RUSH: OPEC is clearly a factor because we are so dependent on foreign oil, not to mention all the regulations on the oil companies in this country, where they can drill, where they can’t drill, where they can ship, where they can’t, how many formulations of gasoline they have to refine. Snerdley, says, “Well, look at these profits! Why, profit’s up 50%! I can’t believe it! Profits up 50%.”
I said, “You’re falling prey. I can’t believe it.”
If it’s a political story, Snerdley doesn’t get fooled by it. If it’s an oil story, he’s like every one of you: he can get smoked. Here’s how this works. Big profits, right? Reports saying that some oil company’s profits are up 50%; some are up a hundred percent. It doesn’t mean that the big oil companies are getting 50 cents on the dollar. It doesn’t mean their profit is 50 cents on the dollar. It means that if they were earning 7.7 cents a dollar, and they’ve got a 50% or 60% increase in profit, now they’re earning, say, 11 cents a dollar. People hear this. “Well, the profits, 50%!” It’s not 50% of every dollar. This is silly. Price of gasoline has gone from, say, two bucks a gallon to 3.20 a gallon, then 7.7 cents per gallon means that it’s earning 40 to 50% because the price has gone up without any change in the per-dollar profit of seven cents on the dollar. If the price goes up, the profit is going to go up simply whether they have increased their profit margin or not. The profit margins are going up, but not like these news accounts are making it appear that they are. But I know why this works, folks. Before I understood this I was in the same boat. I’ll never forget. I started driving in the mid-sixties when gasoline was 25 cents, 20 cents a gallon. There were gas wars, and then here came the first shortage, the first contrived shortage, and the price shot up to 50 cents, and I’m telling you, it was a huge. That is a dramatic percentage increase on the budget that anybody has to spend driving around, particularly a kid, like I was. And then I left home at 20, and I’m not making much money, I’m starting out and I go to Pittsburgh and then Nixon does it again. Here come more price controls and Jimmy Carter comes along and the price is up to a buck before I know it, and I’m thinking I don’t have the money. I’m eating Alpo. I don’t even have the money to buy a can opener to open the Alpo and that’s what I’m eating, and I’m sitting there, “These damned oil companies!” and I listen to all these conspiracy theories.
“Oh, yeah, those tankers, Rush, they’re sitting right over the horizon. We can’t see them,” before satellites, of course. “They’re out there. They’re waiting. They’re just waiting! There’s no shortage. This has all been trumped up. Big Oil is making it happen.” We went through all of this, and I know how easy it is to get caught up in all this, but if you really want to get mad at who’s really profiteering on a gallon of gasoline I gotta tell you the average price of the Big Oil companies, the big five, is a dime, even now. That’s the profit, a dime. As of August 2005, that’s when the prices were through the roof, average profit’s a dime on a gallon, federal and state taxes combined, 46 cents. John in Palatine, Illinois, welcome. Nice to have you on the program, sir.

CALLER: Good afternoon, Rush. You know, I’ve been listening to this discussion, you know, everywhere it’s been happening, and, you know, it seems to me that there’s a fundamental lack of understanding of how the commodity markets play a role in the whole price-setting aspect of this. I mean, number one, you know, the suppliers and the producers who take it out of the ground around the world, they have some impact, because, as we saw ten years ago, when they oversupply the market, prices drop, and that hurt a lot of I would think more of the independent oil producers, especially in this country. I know a guy I went to college with, used to go out and get leases signed among people in southern Illinois and southern Indiana and I just drove through there a couple weekends ago and most of the wells that I could see from the road were not pumping, and you would have thought that with the price having gone up, that they would have tried to get those things going again. But, you know, the commodity markets, I didn’t go and check them, but those things kind of led the storm. They started going up in advance of the hurricane, and they peaked out at the time when we were most uncertain —
RUSH: I know. You’re right. There’s so many factors in this. I even tried to mention that at the time. When he says commodities market, he means the futures market, and the way I illustrated it — it has to be the past three or four months — if you look at the US budget report figures that come out quarterly, you find that the price of a barrel of oil at the time that the public news said the price was approaching 60 bucks a barrel was actually costing us 39 or 40 bucks. If a barrel of oil in today’s market was bought, that’s what it was, 39 or $40, yet the futures market which deals obviously with the future, was bidding the price up down the road to 50 or 55, approaching $60 a barrel. These are people gambling on it just like everybody else in the stock market does, but it was that price that was being reported. Of course it has a psychological effect on everybody, but those people are gambling, too, if they’re betting that the future price is going to be 60 and it’s not, you know, they take a hit. If it’s 60 or higher then they’re okay, but all of that has an affect, too — and that’s its relationship to the actual business the oil companies are in is somewhat murky, too, but they’re not supposed to have anything to do with it, but you never know. As dastardly as Big Oil is, they probably are in the futures market, for all we know, in a lot of people’s minds.
Now, why doesn’t somebody in Congress — and this is the simple thing to me; why doesn’t somebody in Congress — or in the media or the oil industry calculate all the taxes and regulatory costs at every step of exploration, production, and transportation for a gallon of gas? Do that. Find out what it costs to be in this business. Find out what it costs, what kind of obstacles you have to face just to stay in this business. I mean, it’s one of the most… If you ask me the federal government practically runs Big Oil now as it is with all the regulations, requirements, demands and restrictions that are placed on it, but one thing we can’t deny: oil is the fuel of the engine of freedom. Oil is the fuel — and, of course, freedom reigns, democracy reigns, open markets reign, and fuel is one of these things, it is a practical need. It’s not a life-sustaining need like water or food is, but it is a practical need. It’s not something that people can just say, “I’m going to do with less.” The only way you can do that is go, you know, buy a small little car. But most people are not going to really affect the amount of driving they don’t. They might say they will, but it’s hard to do it because there’s not a whole lot of joy riding going on out there. Only when you get a new car, you know, joyride around a little while but after that you go where you have to go, you do what you have to do, and the sooner you can finish it, the better. So there’s not really a whole lot people think they can do to avoid all this, and so it’s sort of like the Democrats.
The Democrats owned the country for 40 years. It was theirs by birthright and by entitlement. Then they lost it, and their has to be some conspiracy to explain that in their mind because nothing happened. They didn’t change. They’re still the same people they’ve always been, great liberal socialists, but somehow the people are not voting for them. But, no, the people are voting for them, just the Republicans are stealing those elections, and they’re tampering with the Democrats who vote, and they’re coming up with all these oddball ballots like butterfly ballots in Palm Beach and tampering with the voting machines in Ohio, so people still are voting, the Democrats. People still want the Democrats to run the country, but those dastardly Republicans have found a way to steal every election that counts, and so they live this fantasy. When there are things out of your control, you think out of your control, that you cannot explain, and they’re really hitting you hard, has to be some conspiracy here. I’ll just say this: I think if economics were more competently taught at young ages, junior high and high school and did not remain this esoteric subject that only oddball looking elitist pinheads on television can explain and understand, then there would be a lot more understanding of this and a lot less controversy about it. But economics is portrayed as this science that only super-IQ, super-smart, dull dryballs who sit around with green eye shades and do nothing but crunch numbers their whole lives can explain to you. Folks, if I can be made to understand this, I am telling you, anybody can, because when it comes to math and numbers, I’m like a girl: “Math class is hard.” The only difference I never played with Barbie.
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