Energy Costs

HEADRAT · 4 Dec 2006 at 13:58

Hi,

So we are all suffering from high petrol, gas, electricity prices as we were told the prices need to rise due to the raw materials going up.

BUT

these companies seem to be making record profits, surely if they are raising prices to ensure that they are covered for the increase in raw materials then their profits should really only stay the same (or maybe just a little higher due to new customers, efficiencies etc.?

Are we just being royally ripped off?

HEADRAT

oweneades · 4 Dec 2006 at 14:01

HEADRAT said:
Are we just being royally ripped off?

I think you have answered your own question tbh.

The fact that the energy companies are making such large profits is surely a sign that we are being ripped off.

Posty · 4 Dec 2006 at 14:03

no one gets ripped off, they are a big business selling something that is in huge demand of course they are going to make big money

HEADRAT · 4 Dec 2006 at 14:06

But UK domestic demand can't have increased that much, they aren't selling that much more are they?

HEADRAT

Rosbif · 4 Dec 2006 at 14:07

I think its because some of them buy their stuff in advance and some do not. So when the market price NOW is higher than the price they bought the oil or gas at, they have a capital gain. But they cant simply then sell it at below the current market price, otherwise you get arbitrage, which is when a middleman will, e.g, buy from A for $5 and sell to B for $10. Hope that makes sense.

dirtydog · 4 Dec 2006 at 14:10

As far as petrol prices goes, and oil company profits, they make next to no profit from pump sales - most of the price we pay is tax. Take that off and our petrol is the cheapest in the developed world IIRC. And the oil companies don't set the price of a barrel, the markets do.

dod · 4 Dec 2006 at 14:13

Not quite as straightforward as it seems either. In electricity you've got the generation Co's making huge profits at the moment. The supply businesses (the people who bill you) making next to nothing, and the Distribution businesses (the bits which get the power from the Power station to you) making regulated profits. In some ways it's a bit like petrol where there's little made at the pump but huge amounts made in production through the high market barrel price.

Wholesale prices have been dropping for the last 6 months or so. BUsinesses have been seeing the results of that but it will take a while to filter down to domestic customers.

Samtheman1k · 4 Dec 2006 at 14:18

dirtydog said:
As far as petrol prices goes, and oil company profits, they make next to no profit from pump sales - most of the price we pay is tax. Take that off and our petrol is the cheapest in the developed world IIRC. And the oil companies don't set the price of a barrel, the markets do.

Several issues with that:

1) Companies like BP go out and dig the oil up themselves, then sell it 'themselves' at a profit
2) This oil is then sold to the forecourts for £££££. So the forecourts don't make much money, but the oil company behind the scenes does. IIRC most of BPs forecourts are franchises so they have to pay whatever BP sells it for, which is dictated by market value, regardless of how much it cost them to dig it up. So yes, they are ripping us off in terms of % of profit, but so is the government and c'est la vie!