Wednesday, August 6, 2008

How Oil Companies Make Record Profits And Get What They Want With Lack Of... Well... Oil!

Warning: May Contain Comments Which Are Unproven and Purely Theoretical.

Oil Companies, Oil Suppliers, Oil Prices... they are all on the minds of almost everyone. Oil is used in every facet of society. The hamburger you just ate, or the T.V. you just bought were connected to oil in some way. Most commodities, foods, and services rely on transportation somewhere within the chain of events in between the creation of something and the consumer receiving it. So, since oil is so important the recent price increases have gotten us common folk (people who aren't heads of Oil Companies) in a frantic panic trying to cope with spending extra money on everything.

In recent news Exxon-Mobil's fourth-quarter profits were a record for the company (and an overall record of profits for any company... ever!). MSNBC states:

Exxon Mobil Corp. posted record profits for any U.S. company on Monday — $10.71 billion for the fourth quarter and $36.13 billion for the year — as the world’s biggest publicly traded oil company benefited from high oil and natural-gas prices and solid demand for refined products.

When I saw these numbers, I was plainly shocked. Personally I thought that due to the lack of oil in the WORLD gas prices had increased to astronomical prices, but according to Exxon-Mobil's Quarter profits that seems to be wrong. If oil reserves are low, and price is high, that makes sense to me because of 'supply and demand.' What doesn't make sense to me is that: if oil is low, to buy the crude oil is expensive, so gasoline prices in turn are expensive, but this should even out so that the company refining the oil should make similar profits to what they made before crude oil was expensive. I think that is very logical thinking.

So why is it that Exxon-Mobil has made the largest profit of any company ever? Well in a New York Times article, Kenneth Cohen, an Exxon Vice President stated:

oil companies needed the profits to search for more oil and gas. He also challenged Congress to open up waters in the Gulf of Mexico and off the Atlantic
and Pacific coasts to drilling, as well as other federal lands where drilling is prohibited.
Well, well Mr. Cohen. Exxon needs the profits to search for more oil, even though they already hold oilfields in the Angola, the United Arab Emirates (which I have already blogged about having an abundant oil supply), Kazakhstan (which, in 2006, had 13 billion barrels of reserve oil), Libya, and Venezuela. These areas are not little fields that are running dry, they are some of the biggest oil producing areas in the world. What is Exxon's goal here?

Let us turn to the second part of Mr. Cohen's statement: opening up the Pacific and Atlantic coasts to drilling. I believe there lies our goal. Exxon-Mobil and other large oil companies have concessions to drill oil all over the world. They are producers and refiners of the world's oil/gasoline supply. So how do you get what you want in the 'Oil' world? You tell everyone there is a shortage, jack up the prices, and then tell governments you need to drill in new areas. That way you gain more profits, because you have your original oilfields, and new ones. Governments are worried about shortages, because oil runs everything, so they give in to demands. Thus, the profits that Exxon has recently published will be a sign of things to come if the oil companies get their own way.

There is one thing I just don't believe in business and that is when one group controls demand and supply, to me that just isn't playing by the rules.


The Commentator said...

Take quarterly results with a grain of salt.

DC said...

Very true my friend.

Just thought I'd throw out a little hypothesis I was harboring. I still think that the problem is not with the amount of oil left in the world, it is with the refining companies.

Prices of crude oil have dropped in recent weeks, but the price of gasoline has not reduced to reflect that fact.

Seems fishy to me.