Explain Oil Company Profits to Me

[The Gold Standard]

"The value of oil isn't based on any of these currencies. It's based in gold. One barrel of WTI is valued at 0.0602 ounces of gold."

- Ben Swann

So does that mean that he's incorrect?

That is either a partial quote or a misstatement. If you want to buy oil in the world you have to pay for it in U.S. dollars or we will shower drone missiles down upon your people. Period.

If oil were sold in gold, that is what the price would be, which is cheaper than it was 50 years ago. That is what he was saying.

[ShaneEnochs]

http://www.fox19.com/story/17051124/...igh-gas-prices

2:20

You can listen to it yourself.

[Seraphim]

Central banks use gold swap leases to finance oil, absolutely...the transactions themselves, on the surface...are USD. That's changing, though.

"The value of oil isn't based on any of these currencies. It's based in gold. One barrel of WTI is valued at 0.0602 ounces of gold."

- Ben Swann

So does that mean that he's incorrect?

[CaptUSA]

he's talking about the "value" of oil. This is priced in comparison to other commodities. Basically, the "value" of oil has remained pretty steady or has actually gone down because of lower demand. It's creeping up lately, but rather slowly.

But when you put the "value" of oil in terms of dollars, the price keeps going up because the "value" of the dollar keeps going down. Remember that money is just a measurement of wealth - it is not wealth. And since the measurement is ever expanding, you need more inches to measure the same foot.

[Roy L]

qft. You'd think this profitability would be reflected in the price per share of Exxonmobil.....

It is, duh.

[papitosabe]

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.

[Dutch]

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.

[Alberst]

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

[TonySutton]

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?

[2young2vote]

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?