Are Record Oil Company Profits all that Bad?

Those Evil Oil Companies are at it again.

But are they so evil? First off, oil companies in the US are traded on the stock exchange and are therefore owned by their shareholders. So does this mean that the shareholders are evil?

The Oil Companies and their Owners
If you own oil stock like me, then you have enjoyed a decent appreciation in the value of the stock as well as a dividend payment every three months. My oil stocks are probably the most profitable investments that I have ever made. Does this make me evil? Hardly. I might be evil, but not because I own oil stock. Now about those profits:

Watching the news, you would think that these oil companies are just raking in extra profits with no benefit to anyone, and that is just not true.

First, when a corporation makes a profit, it pays income taxes. The bigger the profit, the more they should pay in income taxes.

Then the oil companies pay part of this profit as a dividend to their shareholders. The shareholders then pay taxes on those dividends. The state essentially taxes these profits twice. Sounds like the real criminal is the taxman;

• Taxing the gas when it is sold
• Taxing the profit
• Taxing the dividend

Then if you decide that you have been greedy enough and decide to sell the stock, there are capital gains tax to be paid. So this windfall for the oil companies is probably as big a windfall for the Government.

What happens when the price of oil goes up?
As oil gets mores expensive, people begin to conserve it. At a minimum they try to be less wasteful with it as waste negatively affects the wallet.

Sales of vehicles that waste gasoline go down. It is much harder to not waste gas when you already own an SUV and it is your only car, but the high price of gas will effect those who are considering buying a new vehicle. SUV sales are already down dramatically this year.

As the price of oil goes up, the gap between the cost of oil and alternative energy decreases. The US has a huge supply of coal. But coal is dirty and using it in a clean way is expensive. Now that the price of oil has risen, the additional cost of using coal is less of an issue against using it. The same goes for nuclear energy.

In addition, there are a host of alternative energy sources;

• Wind
• Wave
• Solar

The high cost of oil increases the interest and viability of these alternative energy sources. This of course should have a positive effect on the environment, provided that total consumption goes down, which is not very likely.