1 post tagged “windfall”

The term windfall is defined as: Sudden, unexpected profit caused by events not controlled by the beneficial person or company. In the case of the oil companies, these profits are neither unexpected nor out of the control of the oil companies.

Usually in a business when the cost of your raw materials go up you have to raise prices in order to keep from losing money. For example, when the price of feed corn goes up, farmers need to get more money for each pig or cow they raise in order to pay for their costs. If they cover their costs, their profits remain the same. In this scenario the farmers would have to raise prices above and beyond their costs in order to increase their profits.

In the case of gasoline prices somehow the oil companies have managed to make record profits while the price of oil went through the roof. How can that be? Well, let’s think about it. Oil companies must have raised the price of gasoline high enough so that they are making a lot more money per gallon of gas than they used to. Oil companies have made some changes to increase their profits, like closing down refineries (the same refineries that make the gasoline they sell). Fewer refineries mean less expenses but it also means less capacity to produce gasoline. Thus oil companies lowered their costs while limiting gasoline supplies which in turn increased the price of gas.

Windfall my ass! We was had.