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The Squeeze is On!

Oil Company profits soar while retailers, motorists squirm

Rob Alfers, Publisher, Auto Atlantic Magazine

When I first started working in the oil industry in 1957, the price of Crude Oil was US $3.00 per barrel. It remained so until about 1970. Crude oil prices were and still are priced in US dollars and the power to control the price of crude lay with the major international oil companies (often referred to as the Seven Sisters) and the United States.

If one were to factor in an adjustment for inflation since 1970, it would convert the $3.00 price to about $25.00 in today’s dollars. That’s a far cry from the current price of crude oil hovering around US$120 per barrel and some economists predicting crude oil prices of US$150 per barrel by 2010 and US$225 by 2012. In 1971 however, the control of crude oil prices shifted to the Organization of Petroleum Exporting Countries (OPEC) when they realized that they could dramatically influence the price of crude oil by limiting production.

In addition to the new found power that OPEC now possessed, other factors have influenced the dramatic rise in the price of crude oil such as the Middle East War and the Arab oil embargo, the Iranian revolution, the Iraq-Iran war, the booming oil-hungry economies of the Asian Pacific region, the weak U.S. dollar, refinery interruptions caused by adverse weather in the US and last but not least, our penchant for driving large, fuel hungry vehicles.

There may well be many other reasons, including the perception by many consumers (real or otherwise) that oil companies are ripping off the public while enjoying obscene profits. This consumer anger is understandable when we see the huge profits being posted by the oil companies. And oil companies are not the only ones enjoying this new found wealth. Provincial and the federal governments have done little to provide consumers with relief from exorbitant petroleum prices by slashing their taxes.

It is not only the motoring public that is reeling under the pressure of the dramatic price increase of petroleum products. Independent retail gasoline dealers must somehow learn to survive with profit margins that are becoming less able to allow them to operate successfully within the extremely difficult financial environment they now find themselves.

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