Exxon Mobil and Shell Report Soaring Profits

Posted on May 16th, 2011 by
   

Here we go again, petroleum retail have been surging throughout our nation. A painful case of déjà vu reminiscent of the early 70′! History dictates prices will soon enough drop to tolerable levels. So why worry? And what became of our National goals of energy security, economic viability and environmental stewardship?

Today’s rollercoaster ride in petroleum prices presents a dilemma on several counts. When prices are high there is a mad rush to adopt alternative fuels, when prices are low complacency sets in and all is soon forgotten. Market stability promotes collective long-term planning.

The erratic market behavior of petroleum retail prices is clearly shown in the following chart. The chart is derived from 1193 fill-ups made in Fort Worth and Houston over a 30-year period. The lower curve shows the actual price paid for each gallon. The upper curve is the data adjusted for inflation.

 

Source:  web1@randomuseless.info; http://www.randomuseless.info/gasprice/gasprice.html

Purportedly, the current rise is in response to the Mideast rebellions, which threaten the flow of oil to the U.S. Superficially this seems to make sense. But below the surface, there seems to be something wrong with this reasoning.

According to the Energy Information Administration, of 62 oil-importing countries, only eight are major oil importers to the U.S., i.e., Canada (22.6%), Mexico (12.3%), Saudi Arabia (10.3%), Venezuela (8.5%), Nigeria (7.8%), Algeria (5.2%), Russia (5%) and Columbia (4.4%). Libya and Egypt constitute less than 0.8% of U.S.’s oil imports. It’s unclear how this unrest can impact the oil markets so hard and so fast. Even if Saudi Arabia completely shuts off its pipeline, is the U.S. too naive to consider fulfilling this 10% shortfall by increasing imports from the other seven major oil importers and the 54 lesser oil importing countries.

Other traditional excuses for increasing gasoline prices are also hard pressed to justify recent and possibly past price adjustments, such as:

  • OPEC supply shortages
  • Decreases in U.S. crude oil production
  • Strong consumer demand
  • Disruptions in the supply chain.

There are no reported cases of decreased domestic production; actually the opposite is at play. Since 2008, consumer demand for petroleum has shown a slight drop. And other than the BP oil spill there has been no significant insurgent attacks on oil pipelines in the Middle East and refinery explosions that can disrupt the supply chain.

A few weeks ago, Exxon Mobil reported quarterly earnings of $11 billion.  We are a capitalistic society, so the ultimate role of any corporation is to boost sales, improve profit margins and make money for shareholders. For this, Exxon Mobil must be applauded. But there is one unnerving point with this report.

In April 2011, against a backdrop of $4.00 petroleum prices across the country, Exxon reported:

  • “…net income of $10.65 billion in the first quarter was its highest since it made $14.83 billion in the third quarter of 2008…”
  • “…it had no control over high oil prices.”
  • “…it doesn’t even make that much money selling gasoline.”

“They feel they (Washington) have to demonize our industry,” said Ken Cohen, Exxon’s vice-president for public affairs. What’s more, the company argued, it doesn’t even make that much money selling gasoline.

Flashback to February 2008, and again with a backdrop of $4.00 petroleum prices across the country, Exxon reported:

  • “…net income of $14.83 billion and sets a national record for quarterly profit.”
  • “…earnings were buoyed by oil prices, which reached record highs in the quarter…”
  • “…the fourth quarter (is not expected) to be nearly as good as the third because of lower oil prices…”

Taking this one step further, in 2006, Exxon reported:

  • “…$36.1 billion in profits, highest in U.S. history.”
  • “On the strength of energy prices that hit all-time highs last year, Exxon

Mobil earned $36.1 billion…”

  • “…Exxon and other oil companies have benefited from unusually high market prices for crude oil, gasoline and natural gas – the result of tight supplies and high demand.”

For some reason, Exxon’s rationale of high oil prices contributing to the record profits in 2008 and 2006 does not apply for 2011. The current report includes a litany of financial mumbo jumbo to defuse the issue of record earnings and surging gas prices.

Now, in a knee jerk reaction to the backlash of soaring oil profits, oil prices took a steep plunge the first week in May, dropping nearly 13 percent. On Tuesday, the spot price for Texas crude was $110.60 a barrel. By Friday, it was selling for less than $98 a barrel.

When oil prices started to rise in February 2011, demand for gasoline was on the decline. Supply was essentially unaffected by the unrest in the Mideast. Geo-political conditions have not significantly changed from February to May. In fact, unrest in the Mideast, which was never a real reason anyway, may be intensifying rather than easing; especially on the heels of Osama bin Laden’s death.

If supply, demand and global conditions are not contributing factors, why then is the market so erratic. Rather it seems that petroleum prices have more to do with control: the prospect of heavy profits leveraged in times of “crisis” layered on top of a flawed U.S. energy policy. Like the Emperor’s New Clothes, the oil companies finally show their true colors and the government’s lack of wisdom and trust.

While it is clear that market trends benefit the oil companies and not the consumers, the U.S. must develop a cohesive energy policy that stays the course. Long-term initiatives must cover not only energy security but also environmental benefits and economic competitiveness. Use of domestic resources such as oil and coal will keep dollars in the U.S. but will not benefit the environment and our long-term needs for non-carbon based fuels.

Article by Barry Stevens. Barry Stevens PhD is the President of TBD America, Inc, a technology business developement group specializing in utltiltiy scale solar, wind and biomass projects.

 

 

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