Oil industry profits
Throughout the oil crisis of the winter of 1973-1974, a large section of public opinion blamed the oil industry for the crisis. The critics held that the crisis had been engineered by the industry in order to obtain higher prices for their products and increased income for their shareholders. Spokesmen and supporters of the oil industry pointed out that the industry's earnings, though large in absolute terms, were not large in relation to the capital invested and therefore did not represent an abnormally high rate of return. Increases in 1973 earnings over 1972 looked impressive only because the 1972 earnings were unusually low. They added that, since the oil industry must compete in the market for large amounts of capital needed for its expansion, a sufficiently high rate of return on investment was necessary if the nation's demand for oil was to be met in the future. This study is limited to measurement of past performance. In public discussions of the financial performance of the oil industry, the term windfall gains has often been used with a vague but socially pejorative connotation to refer to several distinct measures of profitability. The economic concept of windfall gains involves the notion of unexpected and unusual profits (similar losses may occur also). In order to measure the unexpected or unusual performance, expected and usual must be defined first. To define such norms of performance, some explicit assumptions about the economic system are necessary. In the first section these assumptions, as well as the economic concepts of normal and abnormal profits and the difficulties of making these concepts work are discussed. Sections 2 and 3 discuss accounting and market-based measures of profitability, problems of measurement, and estimates and their interpretation. The conclusions of the study are presented in Section 4.
- OSTI ID:
- 5009062
- Country of Publication:
- United States
- Language:
- English
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294002* -- Energy Planning & Policy-- Petroleum
ACCOUNTING
CAPITAL
CHARGES
ECONOMIC GROWTH
ENERGY SHORTAGES
INCOME
INDUSTRY
INVESTMENT
MANAGEMENT
PERFORMANCE
PETROLEUM INDUSTRY
PROFITS
PUBLIC OPINION