Explain Oil Company Profits to Me

[ILUVRP]

I see 2 issues going on here.

Oil traders on Wall Street and other world markets set the price of oil. Since this is the case it is not surprising that oil companies would have record profits. A lot of companies set their prices based on a goal of XX% margin. Lets say their goal on margin is 30%. If the price of oil goes up their costs go up but then they sell their product at a 30% markup.

Since the oil producers have a fairly consistent rate of oil production and since oil refineries in the US are already working at/near capacity, we do not see a true supply and demand equation here because the supply is limited. This is why gas prices always go up in the summer because the supply is constant but the demand goes up.

Its not the oil companies fault that traders drive the price up. We have seen market manipulation with silver and gold, you don't think it is happening with oil too?

i agree 100% , when you have a hammer everything else is a nail.

thats why i keep saying raise margin rates on crude to 75% and make all contracts for delivery , if you buy 1 or 1000 contracts you must take delivery.
then we will see what the true value of crude oil is.

even goldmansucks says about 25% of the crude price is because of speculators. no commodity that is controlled by a cartel should be traded on our exchanges.

[Paul Or Nothing II]

I doubt Ben is right, one of the main reasons we went after Hussein and khadafi is them wanting to use the euro and gold to trade oil. Can't remember which one wanted what. Iran tried that with just India, and the US threatened sanctions. Not sure what ended happening with that.

I think it's about a year ago when I read reports that Iran also was planning/threathening to no longer accept USD for oil. They wanted Euros if I'm correct. Go figure.

Yes, Saddam wanted to trade in Euro & Gadaffi wanted a gold-backed currency, & now Iran had been in talks with China, Russia, India, Japan, etc to trade oil either in gold or in their respective currencies, it remains to be seen how it goes because due to the sactions, it would be harder to transfer currencies & they can't then say "oh, we didn't trade with them!" () but gold is like "hard cash", it's anonymous
There was recent talks about India offering to pay some in Indian Rupee & the rest in steel, agricultural products, etc

I think it would great if they started trading in gold, way for the markets to reimpose the market-based gold-standard

Lack of competition means that they can increase their profit margin whenever there is any excuse to raise prices.

Yeah, that's why they're already selling oil at $1000/barrel? Oh, wasn't it 10000/barrel? Or was it a million/barrel?.....

I see 2 issues going on here.

Oil traders on Wall Street and other world markets set the price of oil. Since this is the case it is not surprising that oil companies would have record profits. A lot of companies set their prices based on a goal of XX% margin. Lets say their goal on margin is 30%. If the price of oil goes up their costs go up but then they sell their product at a 30% markup.

Since the oil producers have a fairly consistent rate of oil production and since oil refineries in the US are already working at/near capacity, we do not see a true supply and demand equation here because the supply is limited. This is why gas prices always go up in the summer because the supply is constant but the demand goes up.

Its not the oil companies fault that traders drive the price up. We have seen market manipulation with silver and gold, you don't think it is happening with oil too?

It's ALWAYS a "true supply & demand equation" because if they price themselves too high unnecessarily then fewer people buy it, which means lower profits as well as higher prices incentivize more production, which alleviates future prices

Here's some basics about the school of economic thought Ron Paul follows & that allowed him to predict the Housing Bubble, years in advance - Austrian Eocnomics - http://www.hacer.org/pdf/Hazlitt00vpdf
The whole book is pretty short & concise & written in simple English but if you want you can jump to chapters "How The Price System Works" & "Stabilizing Commodities"


Moreover, here's what Paul thinks about oil prices

http://www.marketwatch.com/investing...XOM/financials Tell them that its a myth that oil companies make huge profits due to them being greedy corporations. Read the 2011 revenues on the chart: $433 billion. Now read the Cost of Goods Sold: $324 billion. That means the amount of money that people gave them for their product was $433 billion, and the amount of money they spent just on PRODUCING the product was $324 billion.

433/324 = 1.33. That means they spent a dollar producing each unit, and sold each unit for a $1.33. A 33% markup is very fair. And when you take into account their operating expenses and income taxes, they ended up only keeping about 9.5% of all of the money they brought into the company. Then, after they pay the shareholders, they have even less money. That would be like me or you saving less than 9.5% of the money we earn, does that seem unreasonable?

+1

People are always willing to jump on the "evil greedy corporations" bandwagon, very few actually want to put some effort into finding truth but then that's the problem with most people & that's why world is so miserable for the most part, because people are too lazy to research & put an effort into things......

[Brian4Liberty]

thats why i keep saying raise margin rates on crude to 75% and make all contracts for delivery , if you buy 1 or 1000 contracts you must take delivery.
then we will see what the true value of crude oil is.

even goldmansucks says about 25% of the crude price is because of speculators. no commodity that is controlled by a cartel should be traded on our exchanges.

Agree.

[enoch150]

Exxon-Mobile earned $41.06 Billion in net income on $433.53 Billion in sales for a 9.47% net profit margin. It's a cut and dry calculation.

Intel earned $12.94 Billion in net income on $54 Billion in sales for a 23.96% net profit margin. Why no outcry over greedy Intel?

McDonald's earned $5.5 Billion in net income on $27.01 in sales for a 20.36% net profit margin. Why no outcry over greedy McDonald's?

I'm amazed some people can balance a check book.

[Aurave]

Its not the oil companies fault that traders drive the price up. We have seen market manipulation with silver and gold, you don't think it is happening with oil too?

Precious metals and their futures markets are susceptible to "market manipulation" because they have no convenience yield...this attribute is of course related to why they work well as money. There are really no other commodities that can be manipulated through their futures by "speculators" or "traders".

[ILUVRP]

Exxon-Mobile earned $41.06 Billion in net income on $433.53 Billion in sales for a 9.47% net profit margin. It's a cut and dry calculation.

Intel earned $12.94 Billion in net income on $54 Billion in sales for a 23.96% net profit margin. Why no outcry over greedy Intel?

McDonald's earned $5.5 Billion in net income on $27.01 in sales for a 20.36% net profit margin. Why no outcry over greedy McDonald's?

I'm amazed some people can balance a check book.

thats all well and good , i guess if crude goes to $200/ba and gasoline goes to $8/gal , exxon would would have sales of $866 billion and earnings of $82billion ( more than likley more profit as the production price will not raise very much. no one is bitching about the earnings of exxon .

no one has to buy ipads/ipods/tv /big macs , people do need 2 things ----energy and medical --, both of which are going to the moon in price because people need them .

i still do not hear any outcry from free traders about a cartel controlled product trading on our exchanges.

[Paul Or Nothing II]

Exxon-Mobile earned $41.06 Billion in net income on $433.53 Billion in sales for a 9.47% net profit margin. It's a cut and dry calculation.

Intel earned $12.94 Billion in net income on $54 Billion in sales for a 23.96% net profit margin. Why no outcry over greedy Intel?

McDonald's earned $5.5 Billion in net income on $27.01 in sales for a 20.36% net profit margin. Why no outcry over greedy McDonald's?

I'm amazed some people can balance a check book.

Because they're not "evil greedy oil cartels" you see, they can raise prices however much they want, can't you see oil at $10,000/barrel already!..........but then considering the amount of commies, regulationists & price-controlists that are here on this forum, I wouldn't be surprised if they start whining about Intel, McDonald's, etc as well

It's really downright pathetic that people who "supposedly" support Ron Paul, who "supposedly" support "free markets" don't understand the basic principles of the markets like the fact that increasing prices causes marginal demand to fall & therefore, sellers can't "set" whatever price they want, that's precisely why government price-controls always fail too because prices are ALWAYS a product of supply & demand therefore prices can't just be dictated; plus, at the same time, higher prices cause producers to produce more & increase supply & alleviate the price

This is precisely the reason why people who understand the market-process aren't so scared by the M-word........monopoly.......but it's ludicrous how so many self-proclaimed "supporters" of Ron Paul & the market, have no clue about such basic economic concepts & are so willing to justify government force at every instance because of their lack of understanding of economics!

Precious metals and their futures markets are susceptible to "market manipulation" because they have no convenience yield...this attribute is of course related to why they work well as money. There are really no other commodities that can be manipulated through their futures by "speculators" or "traders".

I doubt many of the commies, regulationists & price-controlists here even understand how futures & speculation work & probably are too lazy to put in any effort on learning things, they only listen & absorb the corporatist media lies about "evil cartels", "slimy speculators", & how we need more "regulation" & price-controls & what not, they never take the time to actually learn about the market themselves........and that is the general nature of the majority of the sheeple everywhere, no wonder then that the world is so anti-liberty!

[ILUVRP]

i have no problem with speculators in a free market , things will avg out with them in a free market , i farmed for years , believe me if the specs drive the price of grains thru the roof farmers will plant fence post to fence post , they will plant corn/soybeans in their front and back yards. that's called free trade , the price of grains will go down.

but when the saudies say they will never produce over 10 million ba of crude a day and we trade that market, where is the free trade ?????

i wonder at times about the so called free traders , i guess it depends if they have a dog in the fight , meaning if the price of crude goes to $200-300/ba then at the same time the 30 ounce's of silver they own will go up, then they will make a few bucks.

[kezt777]

All I know personally (as in personal experience) about the money these 'greedy' oil companies put into their drilling projects is what my boyfriend does for a job. I see his paperwork and see the bills sent to the oil companies.... he drives a methanol or water truck. He goes out to a drilling rig (takes photos to send me to show how huge they are for people and equipment aka $$$$$$$$$$), has one small job to do in comparison to the amount of jobs and companies that the rig will employ to help them set up and keep running, works maybe 6-8 hours on the site itself, and sends them a bill for $25,000. Or $10,000. Or $50,000 for a few days work. He has taken photos of a rig with 17 different 'oil field services' companies working on the site for an oil or nat gas rig. So that means 17 or more different companies' worth of employees to pay the wages of, rental of their equipment, purchase of their product, etc. All of those people go home and get paid and buy products at the grocery store or wherever, pay their rent/mortgage/etc with the money they made on the rig dig, and so on and so on. I live in a city where you cannot go for 5 minutes without seeing some sort of company vehicle for some sort of oil/gas related company. Even if their profits really were hundreds of billions of dollars a year, I would not care because my family is fed due to their employment. When I sit and think about it, almost every person I know here is fed directly by one of these companies.

they spend an enormous amount of money for each dig, exploration, and cleanup. they employ an endless amount of people directly and indirectly (ex, my bf stays in hotels and eats at restaurants paid for by his company whenever he works out of town, so the hotels and restaurants are getting money directly from the company when he pays his bill with the company card), they purchase equipment and supplies from any range of producers you can think of, plus all of the other people they employ on site that are not 'oil workers' (EMTs or paramedics, safety monitor peeps, janitorial, office secretaries, site construction workers setting up the rows of trailers the top dogs work out of, etc etc etc). My friend's husband has worked up in Fort MacMurray (alberta oil sands) for about 5 years now and for the first time in their lives they are finally able to reap the benefits of their hard work. they have been on trips, bought new vehicles and a camping trailer - things they were not able to do in their first 25 years of marriage. So their pay is buying products produced by businesses unrelated to the oil industry and we all just keep spinning along.

It makes me so angry to hear people in my city ranting about oil companies. they are seriously deranged and I will tell them so! I am tired of being quiet and even tho I am normally shy and chicken to say anything, this topic enrages me and gives me the courage to tell them what complete idiots they are. If they don't see how the oil and gas companies here are EVERYONE'S bread and butter in this town, I dont know how they manage to function each day, because of their stupidity. I dont care about these Big Oil profits (even the mis-represented totals) because I live and feed my family directly because of them. Just like I dont care what my own boss does with her profits as long as I get my pay cheque and it's a fair amount. She can go buy diamonds and gold and lay on top of it in her house for all I care, my family is being fed and by extension, other families are too because I can buy their goods. Why so many people cannot see that, I have no idea.

[Cowlesy]

I will say this. For any of our young men who are trying to figure out if they want to go to college, or if they just want to head straight into the work force, the companies that are doing exploration and production in the Marcellus Shale formation in Pennsylvania, NY, West Virginia and the guys working in the Bacchus Shale formation in North Dakota, Eastern Montana, are paying top dollar and need workers.

A friend of mine from high school got into it as a rig worker, moved up and is now living comfortably away from it after 10 years, brewing beer with one of the top craft breweries. "Living the dream" as he sees it.

Also, if you become skilled in the operations of drilling, you will be in extremely high demand. While a lot of the high paying jobs go to geologists and hydrologists, you can't generate the production necessary to sustain a company without great operations people. And if you become a great manager, investors will want you to help them find oil/gas elsewhere on the globe.