[Moderator]

.....energy companies are enjoying windfall profits. ExxonMobil is expected today to report second-quarter earnings of $8 billion, second highest in its history, according to Thomson Financial. Wednesday, ConocoPhillips reported a 51% spike in second-quarter profit to $3.1 billion; Kerr-McGee's earnings more than tripled to $371 million; Amerada Hess' profits rose 3.8% to $299 million.

Can someone explain to me how it is oil companies make money hand over fist when prices are high...

I mean, if these guys' profits go up with the cost of gas..then doesn't that suggest that there is some savings in there that is not being passed onto consumers? Wouldn't a free market economy exploit that..theoretically?

I have never understood this....if indeed oil costs more, then these oil companies should be feeling it as well...but just the opposite is happening...does anyone know where the record profits are coming from?

[TETENAL]

Free market takes care of it if the companies are competing over price. Do you see gas stations with different prices?

[AKcrab]

I want to know where the fractions of pennies go, and why they allow that to happen. (You know, how gas costs $2.099) Nobody else gets to use fractions of coins. Can I bring back a drop of gas and ask for my $0.008?

Could just be a U.S. thing, I'm not sure.

[Atomic Rooster]

Ask China.

Don't forget in a market economy supply dictates price.

With the bullsh!t going on in the oil rich middle east and high demand from countries such as China and India, oil companies can manipulate the price all they want. Whatever the market will bare.

Oil for the U.S is mainly for transportation while for China it's mainly being used for manufacturing. The U.S. has moved away from a manufacturing economy. So drive your car less. Walk and ride your bicycle more and use public transportation.

Public transportation is the sh!ts you say. Gotta change your ways cuz cheap oil is gone forever. Push governments to build a European style system.

[el chupacabra]

Originally Posted by Moderator

Can someone explain to me how it is oil companies make money hand over fist when prices are high...

I mean, if these guys' profits go up with the cost of gas..then doesn't that suggest that there is some savings in there that is not being passed onto consumers? Wouldn't a free market economy exploit that..theoretically?

I have never understood this....if indeed oil costs more, then these oil companies should be feeling it as well...but just the opposite is happening...does anyone know where the record profits are coming from?

You see this is because you assume it is only a matter of crude prices going up and then passing the price onto the americans. However most the cost of gasoline seems to be an internal US problem caused by internal demand. More people driving and creating a demand in the states so Exxon can charge way more than they paid for it. The myth is that oil is extremely expensive accross the whole world, but really it depends on the region, I traveled to several countries this year whos gas was .50 cents a gallon. Everyone looks at this price per barrel thing at record highs of 65 dollar a barrel but thats not the whole story. Theres some other complicated factors involving Exxon's business deals in OPEC which I don't understand so Im not going to try to explain much...but I think somehow the price isn't really going up per barrel that much for them since they sort of set the price per barrel.

Edit: seriously if we had less SUVs in this country as well as not making economy cars bigger throughout the 90s our gas would be much cheaper too.

[iLikebeer]

I've been wondering about this too. I know that all OPEC countries sell their oil at the same price, but what about all the oil we get from Alaska, Texas, the Gulf of Mexico, and off the California coast? Is it sold at the market price? Does that money go to companies or to the gov't? If there's so much money in oil, how come nobody independently starts a new company and sells it above cost but less than OPEC? Why has nobody financed new refineries? It can't just be that no one wants one near where they live.

Most of the airlines are in financial trouble now because of fuel prices. If jet-a wasn't so expensive, they'd all be in the black. Their fuel costs are now more than labor costs. What would stop all the airlines from coming together and buying oil rights and refining it themselves to lower the cost?

Taking all of this (and the million other things I have no clue about) into consideration, it seems as though our politicians have failed us miserably on this front in some way.

[analogika]

Originally Posted by iLikebeer

I've been wondering about this too. I know that all OPEC countries sell their oil at the same price, but what about all the oil we get from Alaska, Texas, the Gulf of Mexico, and off the California coast? Is it sold at the market price? Does that money go to companies or to the gov't? If there's so much money in oil, how come nobody independently starts a new company and sells it above cost but less than OPEC? Why has nobody financed new refineries? It can't just be that no one wants one near where they live.

Most of the airlines are in financial trouble now because of fuel prices. If jet-a wasn't so expensive, they'd all be in the black. Their fuel costs are now more than labor costs. What would stop all the airlines from coming together and buying oil rights and refining it themselves to lower the cost?

Refineries cost BILLIONS. The US hasn't invested in new refineries (or updating their increasingly obsolete ones) in twenty years because it's still MUCH cheaper to buy already-refined fuel in Rotterdam and ship it across the Atlantic than to bring their own refining capacity up to snuff.

This purchase of refined petrol, btw, happens regularly every single US holiday season, and it drives our (European) gas prices through the roof, as well.

[Athens]

Originally Posted by AKcrab

I want to know where the fractions of pennies go, and why they allow that to happen. (You know, how gas costs $2.099) Nobody else gets to use fractions of coins. Can I bring back a drop of gas and ask for my $0.008?

Could just be a U.S. thing, I'm not sure.

Shell had gas for $1.104 the other day. They are all priced fixed. The only time I remmeber it wasent when Arco tried to enter Vancouvers Market, they drove prices down to as low as 40 cents a L for a summer.

[Athens]

Originally Posted by Atomic Rooster

Ask China.

Don't forget in a market economy supply dictates price.

With the bullsh!t going on in the oil rich middle east and high demand from countries such as China and India, oil companies can manipulate the price all they want. Whatever the market will bare.

Oil for the U.S is mainly for transportation while for China it's mainly being used for manufacturing. The U.S. has moved away from a manufacturing economy. So drive your car less. Walk and ride your bicycle more and use public transportation.

Public transportation is the sh!ts you say. Gotta change your ways cuz cheap oil is gone forever. Push governments to build a European style system.

Another thing u can do is drive your car slower. For the last couple days I've been driving slower, at the speed limits, accelerating slower not launching like I use to. I usually had to fill up every 2-3 days. Going on 3 days im still near a full tank right now. I might get away with 4 times a month now.

Second car care, make sure your car is running at its best it will save gas. Simple thing as tire pressure helps a lot. And don’t go by what the tire max pressure is, look on the side of your door for the recommended pressures for your car if your using standard tires for the car. It makes a big difference too.

If every one did this the demand would be much lower. For the winter time get energy efficient water heaters and make sure your insulation is good, save energy in the Winter by fixing up your house. So much could be done to curve the use with out even really changing how often and much we drive or heat our homes. We can change things if we just keep things in running order and how we drive.

[Athens]

Originally Posted by iLikebeer

I've been wondering about this too. I know that all OPEC countries sell their oil at the same price, but what about all the oil we get from Alaska, Texas, the Gulf of Mexico, and off the California coast? Is it sold at the market price? Does that money go to companies or to the gov't? If there's so much money in oil, how come nobody independently starts a new company and sells it above cost but less than OPEC? Why has nobody financed new refineries? It can't just be that no one wants one near where they live.

Most of the airlines are in financial trouble now because of fuel prices. If jet-a wasn't so expensive, they'd all be in the black. Their fuel costs are now more than labor costs. What would stop all the airlines from coming together and buying oil rights and refining it themselves to lower the cost?

Taking all of this (and the million other things I have no clue about) into consideration, it seems as though our politicians have failed us miserably on this front in some way.

Same reason gold in Canada is the same value as gold in Australia, its a commodity and prices are fixed for all oil like all commodities on the markets.

[Millennium]

Originally Posted by AKcrab

I want to know where the fractions of pennies go, and why they allow that to happen.

Technically, they're not fractions of pennies (or fractions of anything else). There's a little-known unit of US currency called the mill, and one cent consists of ten of these. Just as the symbol for a dollar is $ and the cymbol for a cent is ¢, the mil also has its own symbol: ₥. I suspect that dimes also have their own symbol, but if they do it's so obscure that even Unicode doesn't support it. It's probably a lowercase d with a line through it. You know, if a mill symbol is derived from M, a cent symbol is derived from C, and a dime symbol is derived from D, why is a dollar's symbol derived from S?

But I digress. The way this works is that technically, for every gallon of gas, they owe you one mill (assuming that each gallon of gas has 9 mills in the price, which is almost always true). They can't pay it back easily, though, because nobody works in mills anymore; there's no coin for it. The end result is that it usually goes into their pockets. Technically, I suppose you could ask for the change back, though they could only pay it in one-cent increments, meaning you'd have to round down to the nearest ten gallons. Few computer systems support mills either; banking and stock-trading systems probably do, but I'd be surprised if most point-of-sale systems did (including -conveniently- the ones you find at gas stations) so I don't know if you could get around this easily by using electronic payment systems like credit cards.

Anyway, whatever mills aren't paid back go into the gas company's pockets. For 1000 gallons, that's only $1 of extra profit. At current rates of consumption in the US -thought to be some 28.3 million barrels per day, or 1.3 billion gallons- that comes out to about $1,313,120 extra profits for the oil companies every day, and that's just for the US. Of course, not all US gas oil consumption is in the form of gasoline, but it's a fairly safe bet that the oil companies trade using mills in other areas too.

Why does nobody else do this? The answer is fairly simple: because it takes 1000 units of whatever you're selling -gallons of oil, in the case of the oil companies- just to make a dollar extra, you have to sell things on a freskishly huge scale in order for this scheme to be worth the trouble. To make a million dollars, you have to sell a billion units. Selling a billion of anything is difficult for most industries to do in a decade, much less a day, and so most industires don't bother.

[BRussell]

Kevin Drum of the Washington Monthly has been writing a lot about Peak Oil, and today links to this article suggesting that we're there already. If true, supply may never fall below demand again, and prices will only continue to rise.

[Millennium]

Originally Posted by BRussell

Kevin Drum of the Washington Monthly has been writing a lot about Peak Oil, and today links to this article suggesting that we're there already. If true, supply may never fall below demand again, and prices will only continue to rise.

It doesn't help that both supply and price are, to a large extent, artificially controlled by organizations such as OPEC, whose stated purpose is to 'defend the price of oil'. Were these measures not in place, what might it do to supply or demand?

[Moderator]

But it sounds like the high pump prices aren't driven by OPEC. If they were the oil companies would be feeling the pinch as well.

[Millennium]

Originally Posted by Moderator

But it sounds like the high pump prices aren't driven by OPEC. If they were the oil companies would be feeling the pinch as well.

Wouldn't that also be true if the oil supply was decreasing naturally?

[boots]

Part of it too is the supposed lack of refining capacity to keep up with demand (See spheric's comment above)...not just a crude supply issue. It hasn't been the focus of many reports, but the frequency with which it is mentioned in the news reports now (compared with about 6 months ago) leads me to believe that either this is the new excuse offered by oil companies for price gouging or we will start seeing lines at the gas stations like in the 70's.

At this point, I'm not sure which it is. Given the regional changes in gas standards, I can actually believe the line. But I distrust the big companies. I suppose both could be true.

[BRussell]

Another thought: It could be that oil prices are not genuinely so high, but only appear high if left uncorrected for inflation:

[boots]

It would be useful for this discussion to see a similarly adjusted graph of oil company profits. I certainly can't argue your point (it's obviously true) but i thought the thrust of the question went to "record" profits during a price spike.

[thunderous_funker]

You're mistakenly equating energy companies with gas sellers. Exxonmobile is selling crude oil at $68 a barrel at the same time that part of the company is buying it, refining, distributing it as gasoline or something else.

They also do natural gas, coal, solar, wind, whatever and those prices are on the rise as well.

[BRussell]

Hi thunderous_funker.

[thunderous_funker]

Originally Posted by BRussell

Hi thunderous_funker.

Whaddup, BRussel!

Still fighting the good fight I see.

[mojo2]

Originally Posted by Atomic Rooster

Ask China.

Don't forget in a market economy supply dictates price.

With the bullsh!t going on in the oil rich middle east and high demand from countries such as China and India, oil companies can manipulate the price all they want. Whatever the market will bare.

Oil for the U.S is mainly for transportation while for China it's mainly being used for manufacturing. The U.S. has moved away from a manufacturing economy. So drive your car less. Walk and ride your bicycle more and use public transportation.

Public transportation is the sh!ts you say. Gotta change your ways cuz cheap oil is gone forever. Push governments to build a European style system.

Incorrect assumptions.

http://www.spinninglobe.net/crash.htm

Damn those S.U.V. drivers! This is all their fault. I'm so angry I could set fire to a Hummer dealership!

Not so fast Mr. Self Righteous. You think you're off the hook because you ride a bicycle instead of drive an S.U.V.?

Guess what? It took oil to manufacture and transport that bicycle. The plastic that your veggie sandwich is wrapped in also came from oil. You're simply (considerably) less guilty than the S.U.V. driver.

As far as setting fire to a Hummer dealership, that's going to require oil (gasoline) to start the fire. The firefighters who come to put it out will get there in a truck powered by oil. You will end up in a prison that was built by machines that were powered by using oil. You will be taken there in a bus powered by oil.

We've all contributed to the problem. At this point, finger pointing will do us about as much good as a circular firing squad.

Well if I can't blame the S.U.V. drivers, who should I blame? Arab terrorists? Jewish bankers? Fascist corporate warmongers? Leftist environmental wackos? Bush? Clinton? Come on, I need a scapegoat!

If you're looking for a scapegoat, I don't think you will find it by looking to the usual suspects.

If you think the political left is at fault, and favor a more conservative solution, the result will be an exacerbation of what we've seen the past few years: more war, and less rights.

If you think the political right is at fault, and favor a more "leftist" solution, the result will likely be the similar to that seen during the Russian and Cuban revolutions: more war, and less rights.

Many of George W. Bush's energy policies are likely making the situation worse. At the same time, his administration has invested far more money into the development of renewable energy than Clinton ever did.

That sounds pretty bad, but if gas prices get too high, I'll just carpool or take public transportation more. What's the big deal?

Almost every current human endeavor from transportation, to manufacturing, to electricity to plastics, and especially food production is inextricably intertwined with oil and natural gas supplies.

Commercial food production is oil powered. Most pesticides are petroleum (oil) based, and all commercial fertilizers are ammonia based. Ammonia is produced from natural gas.

Oil based agriculture is primarily responsible for the world's population exploding from 1 billion at the middle of the 19th century to 6.3 billion at the turn of the 21st.

Oil allowed for farming implements such as tractors, food storage systems such as refrigerators, and food transport systems such as trucks.

As oil production went up, so did food production. As food production went up, so did the population. As the population went up, the demand for food went up, which increased the demand for oil.

Oil is also largely responsible for the advances in medicine that have been made in the last 150 years. Oil allowed for the mass production of pharmaceutical drugs, and the development of health care infrastructure such as hospitals, ambulances, roads, etc . . .

We are now at a point where the demand for food/oil continues to rise, while our ability to produce it in an affordable fashion is about to drop.

Within a few years of Peak Oil occurring, the price of food will skyrocket because of the cost of fertilizer will soar. The cost of storing (electricity) and transporting (gasoline) the food that is produced will also soar.

Oil is required for a lot more than just food, medicine, and transportation. It is also required for nearly every consumer item, water supply pumping, sewage disposal, garbage disposal, street/park maintenance, hospitals & health systems, police, fire services, and national defense.

Additionally, as you are probably already aware, wars are often fought over oil.

Thus, the aftermath of Peak Oil will extend far beyond how much you will pay for gas. Simply stated, you can expect: war, starvation, economic collapse, possibly even the extinction of Homo sapiens.

This is known as the post-oil "die-off". The term "die-off" captures perfectly the nightmare that is at our doorstep

In 2001, President Bush stated, "We can't conserve our way to energy independence, nor can we can conserve our way to having enough energy available. So we've got to do both"

[boots]

Originally Posted by thunderous_funker

You're mistakenly equating energy companies with gas sellers. Exxonmobile is selling crude oil at $68 a barrel at the same time that part of the company is buying it, refining, distributing it as gasoline or something else.

They also do natural gas, coal, solar, wind, whatever and those prices are on the rise as well.

Yeah, that's why I wanted to see the profits (inflation adjusted) along with the cost of oil. Honestly, the price of $68 (or whatever) that we hear is not a current price. The number is for futures. For example, the number you hear right now is for delivery in September.

With that in mind, it seems like you should see a trend wherein profits ALWAYS rise when the FUTURES prices rise. It would be very interesting to see the trends when the futures markets are on a downward turn.

[spacefreak]

Another consideration is the marking up of oil. Companies will often multiply cost by a markup percentage to determine the resale price.

$1000 (cost) x 1.7 (markup %) = $1700 (resale price) = $700 (net)
$2000 (cost) x 1.7 (markup %) = $3400 (resale price) = $1400 (net)

I may not be articulating this correctly, but my point is that the markup percentage can still be the same, but since the cost increases, so does the net difference. Hence, the oil companies can increase revenues without increasing their markup percentage, because the cost is the increasing variable.

[analogika]

Originally Posted by Millennium

Technically, they're not fractions of pennies (or fractions of anything else). There's a little-known unit of US currency called the mill, and one cent consists of ten of these. Just as the symbol for a dollar is $ and the cymbol for a cent is ¢, the mil also has its own symbol: ₥. I suspect that dimes also have their own symbol, but if they do it's so obscure that even Unicode doesn't support it. It's probably a lowercase d with a line through it. You know, if a mill symbol is derived from M, a cent symbol is derived from C, and a dime symbol is derived from D, why is a dollar's symbol derived from S?

http://www.pballew.net/dollar.html

[AKcrab]

Originally Posted by Millennium

Why does nobody else do this? The answer is fairly simple: because it takes 1000 units of whatever you're selling -gallons of oil, in the case of the oil companies- just to make a dollar extra, you have to sell things on a freskishly huge scale in order for this scheme to be worth the trouble. To make a million dollars, you have to sell a billion units. Selling a billion of anything is difficult for most industries to do in a decade, much less a day, and so most industires don't bother.

Wow, did you actually know about the mil, or did you do some research? In all my years I've not heard of this other currency. Pretty cool.

From your explanation, I expect to see pricing using mils in Walmart soon.

Thanks for the info, Mill.

[BRussell]

Originally Posted by thunderous_funker

Whaddup, BRussel!

Still fighting the good fight I see.

I'm not sure I'd call it good.

[Millennium]

Originally Posted by AKcrab

Wow, did you actually know about the mil, or did you do some research? In all my years I've not heard of this other currency. Pretty cool.

Sort of both. My third-grade teacher mentioned the mill once, not as part of a class or anything but just something she thought was neat; I thought it was kind of cool too so I remembered it. I didn't run across any other info about it for years, until I ran across the symbol while looking through the Unicode character tables. That was pretty much everything I knew about it.

The idea about the millions of dollars in profit comes from the old stories about the banking scheme where someone steals a penny each out of a million accounts. The victims chalk the missing penny up to rounding error, but the thief gets $10,000. It's very hard to do something like this on a scale where it's worth the trouble, but if you can just get it going on the proper scale then all the math works out, even if you're working in mills rather than cents.