From: imbibe@mindspring.com   
      
   If Oil Companies Control Prices, Why Do They Ever Lose Money?   
   by Robert Rapier, Apr 24, 2022,   
      
   ExxonMobil executives are sitting around a smoke-filled boardroom, saying   
   “Well, we have the public right where we want them. It’s time to jack up   
   the price of gasoline and gouge them while we can. Put a bulletin out to all   
   of our stations and let    
   them know. Oh, and call Chevron and Shell and make sure they are on board.”   
      
   I know people believe this, because I have had them repeat every element of   
   this story to me at one time or another. So they rage at the oil companies.   
   They demand that they be held accountable. Politicians call them up to   
   Washington and chastise them    
   for the harm they are doing to consumers.   
      
   However, no part of that fictional story is realistic. The only thing that is   
   true is that high oil prices translate to high profits for oil companies. But   
   think about this. Why do oil companies ever lose money if they are in control   
   of prices? Do you    
   ever see Apple lose money selling iPhones? You see, Apple is an example of a   
   company that actually has full control over its pricing. But that’s not how   
   oil prices work.   
      
   Consider that in the past 10 years, major oil and gas companies suffered   
   tremendous losses in 2014, 2015, and 2020. In fact, in 2020 the five   
   integrated supermajors (i.e., “Big Oil”) – ExxonMobil, BP, Shell,   
   Chevron, and Total – lost $76 billion.    
   Oil prices plunged into negative territory in 2020. Were the oil companies   
   feeling especially generous then?   
      
   Apple, on the other, hasn’t lost money once in the past decade. Are their   
   executives being called to Congress to explain why an iPhone costs $800 when   
   they are reaping huge profits? No, of course not.   
      
   If I may extend the Apple analogy a bit further, it’s just about as silly to   
   ask why a share of Apple costs $162 or why Apple is a $2.7 trillion company as   
   it is to wonder why oil companies are charging over $100 for a barrel of oil.   
   Apple doesn’t    
   control what people are willing to pay for a share of their stock. Likewise,   
   oil prices are set on an open market by buyers and sellers.   
      
   ExxonMobil doesn’t set oil prices. They are set in the market by how much   
   people are willing to pay, just like with Apple stock. U.S. oil companies are   
   price takers, not price makers. Yes, speculators have an influence, just as   
   they do with Apple stock.   
      
   Even OPEC and Russia don’t control oil prices, although they do have   
   tremendous influence relative to ExxonMobil. If ExxonMobil decided to produce   
   less oil to drive the price up, it just hurts ExxonMobil because OPEC and   
   Russia can easily make that up.    
   But if OPEC and Russia decide to produce less oil, there isn’t much the rest   
   of the world can do to make that up.   
      
   It is true that oil companies benefit from OPEC’s and Russia’s actions to   
   restrict production. But they are also at the mercy of those actions when they   
   decide to flood the market with oil (i.e., 2014 and early 2020).   
      
   One of the biggest knocks on “the frackers” — that is to say the   
   companies that use hydraulic fracturing to produce a lot of their oil and gas   
   — is that they don’t make money. Sure, they have a good year now and then,   
   but then they suffer    
   tremendous losses.   
      
   Yet, in the good years they are called to Congress, blamed for high prices,   
   and threatened with windfall profit taxes. In reality, cause and effect are   
   backwards. High prices drove the profits, not vice versa. Likewise, when the   
   oil companies are being    
   blamed for inflation, cause and effect are backwards. Just as high prices   
   drove profits, they also drove inflation. High profits are an effect, not a   
   cause.   
      
   The final thing I would point out is that oil companies own few of the gas   
   stations in the U.S. You may see the ExxonMobil name on a gas station, but   
   they don’t own any gas stations in the U.S. According to the National   
   Association of Convenience    
   Stores (NACS), over 60% of the retail stations in the U.S. are owned by an   
   individual or family that owns one store. They make their own decisions on   
   pricing, based on a number of factors.   
      
   Once you understand that this reflects reality in the oil and gas industry,   
   then the seemingly arbitrary nature of oil and gas prices — and the   
   inconsistency of the profitability of oil companies — makes complete sense.   
      
   https://www.forbes.com/sites/rrapier/2022/04/24/if-oil-companies   
   control-prices-why-do-they-ever-lose-money/?sh=748246e0cf9d   
      
   --- SoupGate-Win32 v1.05   
    * Origin: you cannot sedate... all the things you hate (1:229/2)