Exxon CEO says Price of Barrel is too Expensive

“The price of oil is based on supply and demand”

Really…he means it used to be.

Do we have stupied written acorss our foreheads?

In the oil industry there is only price gouging and speculation that set the price of crude.

We have a very hign inventory of fuel…and very high prices at the same time. they have junked the “Free law of Supply and Demand” that Keynesian economics took for granted as the basis for setting a price for a commodity or service.

Have you noted that 95% of the gas stations in your area change price at the same time and to the same amount right to the tenth of a cent? But this is not collusion, and a violation of the Sherman Antitrust Act?

Have you also noted that that none of the oil companies advertise? Why bother, they are happy with their market share and there obscene profits and, heaven forbid, they would not want to start a price war now would they. How do you define monopoly?

Edisme

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THis article appears to have been written by someone with little knowledge of business and an obvious dislike for oil companies. Oil companies have a far smaller profit margin than most other companies, and only have large profits due to large quantity of goods sold. There are costs involved in getting gasoline from oil. Drilling, transportation, distillation, more transportation, keeping up the facilities to do all that and more… Don’t you realize that it costs a lot to turn wheat and corn into cereal? Compare a bushel of wheat price to a box of cereal. Why do you expect oil to be different? Without looking it up, I call BS on the $10 claim; maybe in some areas where you can still put a well into the ground and find oil not going too deep. But when an off-shore rig costs over $100,000 a day to rent, I don’t believe they are pumping it up for $10 a barrel. That figure might have been true 20 years ago…maybe $10 is what the government rakes off the top at the start…

Uh… this site should require that its editors take at least one economics class before they write anything about economics. I’m actually embarrassed for you. I wouldn’t want this article in my portfolio if I were a journalist.

As an example of your economic illiteracy: In the penultimate sentence, who are “they”? How are prices determined? If gas is too expensive, why do people still buy it? Is it possible that the consumer’s insatiable thirst for oil is what allows the price to go so high? You say they should listen to the people, but what are the people saying with their wallets vs. what are they saying with their mouths? Doesn’t it seem like “the people” are saying to lower prices while simultaneously buying the same amount of gas regardless of the price? How does the limited nature of oil affect its price over time? Does unrest across the middle east increase or decrease the price of oil? How much does the government take from each gallon of gas sold? How does that tax compare to the profit that companies like Exxon-Mobil make from each gallon? Are the people who pay the $10 to extract the oil the same people that sell it to the consumer? How much of the difference between the extraction cost and the final sale cost is actually profit and how much of it goes towards refining and other industrial activities (transportation, for example)? Are there other countries in the world besides the U.S.? Are any of those countries frequently in the news for their remarkable growth rates? How might those growth rates affect the price of oil? In a dollar-denominated price relationship (dollars per barrel of oil or gallon of gas) how does the strength of the dollar affect the price? How do government regulations which prevent drilling in and around the U.S. affect oil prices?

Basically, that one sentence in this farce of an article is quite possibly the most inadvertently hilarious admission of ignorance I’ve read in an article about economics that is meant to be taken seriously.

I always thought that OPEC practiced collusion and agreed on how much oil to pull out of the ground. So, as a factor to drive up the price per barrel, they purposely under-produce the expected demand to drive the price up. They agree on production quotas.

Unfair and biased report. For example, no mention of federal and state taxes on oil products which are a large, if not the largest, component of the product price.

The idea that oil companies will no longer explore for oil if they don’t get tax breaks is ludicrous. Selling oil is what they do. So, if they want to continue making money they’ll have to explore for more oil. The price will take care of itself…. as will their profit.

“Oil companies have a far smaller profit margin than most other companies, and only have large profits due to large quantity of goods sold.”

So then it’s OK that they have record-breaking cash flows, assisted in part by government kickbacks in the billions of dollars? ( Hey, they make only a paltry 7% on their ownership of most of the gasoline on the planet.) If I had a trillion dollars, I could scrape by on even lower returns than that. In fact, I do that already.

So how much, exactly, does it cost to generate a barrel since $10 is “obviously” wrong?

10 dollars is the average LIFT cost per barrel of CRUDE oil…..now if only we could pump gasoline out of the ground, point 2 would have made sense. Did your 10 year old research this article for you?

John Newfield,

Maybe you should also be required to take one economics class before being allowed to post. Your argument seems to be that the price of oil is right because it is set by the market. I’d agree if by oil market you mean a drugee switching between heroin and speed every other week. About 10 years ago, the price of oil per barrell was the cheapest ….of all time, over a hundred years. About 3 years ago it was the most expensive of all time. $20 to $150 to $40 to $120 all in a few years and now over 20% lower. HOLY ****! How in the world can anyone say the oil market is efficient.

The fact of the matter is that the oil “market” is doing the exact opposite of what it is supposed to be doing. It is broken.

It also does not make any sense. Oil is NOT a renewable resource. Under what idiotic preumptions would any nation in their right mind (and a VERY long term) outlook spend such a HUGE proportion of their GDP on a non-renewable resource that will bankrupt them. We all need to go back to the drawing board, the entire energy market is built on dangerously unstable foundations.

This article is a joke, Looks like a high schools student put it together.

Guess you do not look at TV, Read the Papers, Mags, etc. they are filled with Oil Company Ads.
What planet do you live on, the “reserves” in the US would not last a month if we released them all tomorrow.
If you want to get into the act of drilling for oil or gas I suppose you could scrape up a few million and start tomorrow

Really? Where I’m at, the federal tax is 18 cpg, and the NC tax is 27 cpg. That totals about 12%. So someone else takes the other 88%.

OIl companies do more than drill for oil!

And $100 per bbl is the price of CRUDE oil. Your point is….?

Good specifics. Hard to argue with such a penetrating analysis.

“It’s sustainable energy stupid!” Not the availability of a finite and environmental damaging energy source.

notice he says the ‘price of a barrel’ is too expensive, which is what he pays. he didn’t mention that the ‘price of a gallon’ is too expensive, which is what we pay.

Supply and demand is only part of it, oil is a worldwide commodity and the value of the US dollar is a bigger factor afecting the volitile price per gallon seen in the last few years. The actual value of the fuel can be the same as it was 10 years ago but the price per gallon will be much higher today.

End subsidies and tax credits. Period. The big oil companies will gouge the consumer, what else is new? At least without subsidies they won’t be raping consumers and taxpayers at both ends. Once peak oil is depleted in the rest of the world, the big oil companies will come back begging to tap the domestic supplies. THEN they will be willing to pay nice FEES to the government for the right to explore in those regions, just like they do elsewhere.

Gasoline stations lower/raise prices on the purchase of a tanker of fuel which is market value. Due to high speculation/fear crude oil prices are probaby ~30% high.

The average uplift price of a barrel of crude is ~$15 dollars last time I looked at world numbers. Now remember that if you are in Saudi this is more like $6 since the reserves are high pressure and not very deep. If you are in the middle of the Gulf that price is probably more like $25-40 and if you are in the Tar Sands you are looking at $30-50.

Now if you are not in the states take the profit from lifting that barrel and multiply it by 60% this is what most major oil producing countries take for allowing their resources to be drilled. In the USA take about 20%-30% remember the mineral department just got in trouble for collusion with oil companies for allowing gifts to have this set lower.

Next take off about shipping costs to bring the oil to the refineries, The refineries only add about 50 cpg uplift, then account for local taxes and federal tax on fuel sold.

Remember that everyone is getting money at each step…not just the big bad oil company. Figure that for all the cash going back and forth oil companies in the states are making 7-10% annually.

I dont remember people bitching about prices 15 years ago went oil companies were DROWNING in debt issues and cash flow problems.

If you dont like prices DONT DRIVE….DONT BUY FOOD THAT IS NOT LOCAL…but wait you want your cake and to eat it too…

Oil companies do advertise come to California, Washington, Texas, Midwest…

I define monopoly as a single entity and we have 5 major oil producers in the states with tons of small people. Remember that one oil job creates 5 more jobs to help support that job….these are well paid and a source of GDP for the country.

Get your head out of you arse….

Thanks

Proud Oil Worker…

You’re assuming that they CARE about their customers. That’s a myth. So is the notion that off-shore drilling will bring the cost of OUR oil down. Uh, there is no “our oil”. The oil is sold to the countries that will pay the most for it, as would be true of anyone in business. Soooo IF we make more oil, the people who sell it will sell it to — China probably…. See, in the back of everyone’s mind is the notion that these barons are patriotic to the US. Fffffff! They don’t care about us! Wake up!!!!!!!

Are you seriously saying that the price of oil should be some kind of smooth curve? Don’t you understand what effect news has on the price of things? For example, if news came out tonight that said Saudia Arabia and Canada had sunken into the ocean, how would that affect oil prices? What if a subsequent report came out that only Canada had sunk? The volatility of oil is a reflection of the volatility of world events, and the perceptions (right or wrong) of how oil will be affected by them. If you think the price of oil is wrong, feel free to go to your broker and start shorting it. You aren’t the only one, you’re just outnumbered by people that think it should be higher.

Your point about it not being renewable is precisely the point that I made: the price goes up over time because we have less and less of it while demand rises more and more. Look at the growth of China, India, and South America. Meanwhile, the “Arab Spring” threatens production (to some degree). Most of the “easy oil” reserves that we sucked from 50 years ago are gone, and now it’s actually economically viable to create floating platforms at sea that drill down thousands of feet into the bottom of the ocean – what does that say to you about the insane thirst for oil we have?

Regardless, the point of what I’m saying is that it makes zero sense whatsoever to say that “they” should “listen to the people” and reduce the price of oil. They are real words in a grammatically correct sentence, but they make no sense.

This article pointed out a very important fact: Mr. Tillerson (who I have been very impressed with in every interview I’ve seen of him) states that he think oil should be fairly priced at $60-$70 a barrel and that the higher price is the result of speculation by governments and high-frequency trading, which means the commodity futures markets.

The 1st sentence of the story contradicts this statement, “ExxonMobil CEO, Rex Tillerson, said the price of a barrel of oil is purely based on supply and demand.”

I believe the Futures traders are the reason the price is so high. It’s insane that we let the tail wag the dog like this. Futures set the price of oil for everybody. Imagine Wal-mart grabbing the Wall St. Journal every morning to price the items in their store.That’s what happens to Exxon-Mobil. They don’t tell the world what they are charging for their oil, they sell according to what these traders are willing to pay.

Who are these traders? Who should they be? They should be players with skin in the game. An Airline for example. They may want to buy enough gas each month to fuel their planes and it makes their business more predictable if they can know what gas will cost in the future. So they lock in the market price or they wait and gamble.

However there are traders who have huge sums of cash (hedge funds) who don’t have skin in the game. If they buy oil futures and all their buddies buy futures, that drives the price up. Of course it’s a game of musical chairs, so when oil gets to a certain lofty high, they start to bail as the price retreats. Some make money and some lose.
In the meantime, Billions of dollars more than supply and demand would dictate if only real players were allowed to trade, are funneled to the oil producers. The killer is that so much of our oil is imported and so many billions go to the Middle East. So our dollars wind up over there: Dollars for over priced oil, and Dollars to China for cheap trinkets. We don’t produce enough of what they want to bring those dollars home, so we sell them IOU’s instead (Treasury Bonds). Thus we are trillions in debt.

I see no hope for this nation.

Wow, what a bunch of retards who wrote this article. When I read this, I wondered what place on Earth could be filled with people who have such ignorant concepts of economics. Perhaps, I thought, maybe it was written by some Europeans. On closer inspection, I saw that the article is on a obscure web site I had never seen before, and that it was started by some local yokels from BFE.

We in the US use 20 million barrels of oil a day. 1 barrel of oil is 42 gallons, about half of that is refined into gasoline. About half of the oil is imported.
Oil prices almost tripled to a record $147.27 a barrel in July 2008 from less than $50 a barrel in January 2007. It took less than five months for prices to peak after topping $100 a barrel in February 2008.
Demand did not triple, that would require a tripling of the population. The huge run up in prices was primarily due to speculators – the largest two being Goldman Sachs and Morgan Stanley. Have ever wondered what happened to all of those jerks that used to work at Enron? There has been a steady wave of deregulation in the commodity and futures markets since the year 2001.

If oil were overpriced, they could increase profits by decreasing profit margins. They are pretty good at that– futures are shitting all over the price of oil (futures determined by govts, not Exxon). Please also understand that most American companies are price takers in this market.

incremental cost is $10 for wells that are already drilled….if we’re talking about NEW supply, then may be it should be closer to $60-70/barrel, but it takes TIME to find oil and then to drill the wells. there is a cost component to time.

I have a simple solution……NATIONALIZE all the oil companies putting them under complete governmental control with one nationwide price and no profit. The common good of all Americans will be served. Oil will have the same controls as water does.

The $10 figure is true in Saudi Arabia, Kuwait, Iraq, Iran and Venesuela.

Actually, you are both right.

The price is completely set by the market, but for those of us who of actually have taken an economics class, gasoline is considered an inelastic good. That means that even if the price is raised, most consumers will still buy the good (in this case due to a lack of adequate substitutes). Other examples of inelastic goods include cigarettes or insulin. Of course, there is a point where the cost of the good outweighs the benefit, but that point comes at a higher price for inelastic goods.

Also,

When the term market is used, it refers to consumers and producers. And in a market where the consumers have little price making power, the producers are more able to dominate the market price. As seen with other price ceilings such as when given to apartments or some foods, the upper limit on a price causes a shortage of that good or service to be produced.

A shortage of gasoline is the last thing we need.

So, the best way to fix this problem is not to impose a price limit even though the gasoline is sold six to seven times the cost of production.

We need to change the fact that gasoline is an inelastic good by creating substitutes. This means funding research for non-gasoline based cars, public transport, and at the very least, more fuel efficient vehicles.

I couldn’t agree more with your last paragraph!
Looking back through history, countless examples exist where societies have invested all their “GDP” (wasn’t really called that for most of history), in non-capital goods that provide no actual economic growth.

However, it is also important to remember that oil is not just a consumer good. It is also used for countless industrial processes and products, so in a sense an argument could be made for its value as a capital good.

Prices in my area vary as much as 50 cents between stations within 10 miles of each other and 5 cents across the street from one another.

Proud Oil Worker is right, the oil industry is not a monopoly. It’s an oligopoly, which takes just a slight bit more effort to manipulate price. That dynamic exists from the producer level all the way down to the refining level so price manipulation at each stage is not terribly difficult. I don’t think anyone really believes that the small oil companies in the states are having any significant impact on increasing or decreasing the price of oil.

On a side note, blaming speculators for increasing oil prices is amusing to me. Am I supposed to believe that the oil producers themselves are not participating in that arena? It’s in their interest to drive the price of oil up and greed drives people to come up with some pretty clever ways of accomplishing such goals.

And anyway, everyone is focused on the short term issue here (I won’t speculate on why – OK, I will speculate. If we’re arguing about the price of oil, we’re not giving any attention to the real issue). We aren’t accomplishing anything. Playing this blame game is stupid. It’s like a pusher and a user blaming each other for doing what they do. The pusher is blaming the user for creating the market while the user is blaming the pusher for keeping them addicted.

It’s in our collective best interest to find an alternative solution. Oil is a dangerous business to be in (like selling illegal drugs) and being addicted to it is even worse. If you’re wondering how the oil industry is a dangerous business, take a look at our recent gulf oil spill. That disaster is more than just a business expense, Mr. Proud Oil Worker. It’s blood on our hands. All of our hands and we’re all responsible for it in some way; and herein lies the long term issue. Everywhere that oil extraction, delivery, refining and distribution is taking place, someone or something is suffering as a result.

~tomdaq

The price per barrel may, or may not, be too high; or oil may be too expensive, but anybody who could write a headline like, “Exxon CEO says Price of Barrel is too Expensive” can be safely ignored.

Oil prices are not controlled by supply and demand. Before OPEC, OIL was controlled by supply and demand. Today the Wall Street Casino bets up the cost of Oil and gasoline is set by raising the prices until people quit buying, they then lower it until people start buying again. This doesn’t work with CAPTIVE CUSTOMERES. OPEC formed a cartel, (Research the word CARTEL for yourself), a Cartel is a unit of companies organized to stop competition and the Oil Cartel has stopped competition. Many businesses in America have joined their own Cartels over the past years; this is why it seems to you and I that Competition doesn’t exist anymore. Our Government needs to investigate this CARTEL ACTIVITY and bring business back to the competition era. When big profits for the rich are set in stone we are CAPTIVE CUSTOMERS and the Companies are Featherbedding in every sense of the word. It is like a snake that has a grip on the Customer and he has nowhere to go. Captive customers are like the old time Country stores of years ago, where you worked for the Company, buy form the company and be buried by the company. This is worst than Socialism and Communism, it is like Industrial Stalag and we can blame it all on Cartels in every industry.

I couldn’t agree more. M O N O P O L Y ……………..

It’s actually an oligopoly when there are few producers but more than one but the effect is similar. A lot of people make money off the sale of oil but I’m still against several o the preferential tax rules oil producers benefit from. If that makes gas prices go up so be it. I rarely drive and eat mostly local food. Why should I subsidize people who drive hummers and eat imported food?

I applaud your statement. We are being held as captive consumers on many fronts. Oil, health care, insurance etc….Every one of those industries has grab untold fortunes from every day people depleting their incomes over and over while a small group of self described aristocrats run to the bank laughing at the rest of us. I for one would welcome a socialistic approach to energy, health care and insurance. These common necessities that everyone needs should not be allowed to be exploited by a few who have cornered and dominate the market. Did these greed mongers ever read a bible, did the mothers ever teach them that sharing and caring for others is more important than just being greedy for yourself.

applaud your statement. We are being held as captive consumers on many fronts. Oil, health care, insurance etc….Every one of those industries has grab untold fortunes from every day people depleting their incomes over and over while a small group of self described aristocrats run to the bank laughing at the rest of us. I for one would welcome a socialistic approach to energy, health care and insurance. These common necessities that everyone needs should not be allowed to be exploited by a few who have cornered and dominate the market. Did these greed mongers ever read a bible, did the mothers ever teach them that sharing and caring for others is more important than just being greedy for yourself.

I was under the assumption that all the oil pumped from wells located on American soil is sold on the international open market; to the highest bidder. If it is all sold on the open market; how will drilling more wells lower the cost of crude here in the USA? It currently won’t reduce our dependence on outside sources.

Aviation fuel prices have nearly doubled in the past two years. Pilots are flying a lot less these days. I work at a local airport where we have seen aviation gasoline sales cut in half. You would think that if automobile drivers did the same thing that prices would have to drop. Maybe they would, but we haven’t seen the price of aviation fuel drop when sales plummeted. The price isn’t based on supply and demand. It is simply based on greed.

I don’t mind them making a profit, but why must they rape us? And as far as a market price… Whats with all the paranoid speculation? Why can’t they just use facts? Here is a huge fact for you – Saudi Arabia has publicly stated that there is no oil shortage! PERIOD!!! Why then doesn’t “THE MARKET” listen to that? Shouldn’t the price go down and stay down, when the worlds leading oil producer says that there is no oil shortage and it doesn’t know why oil prices are so high? This has nothing to do with economics. I have seen this price manipulation all of my life with the oil companies. This is what “THE MARKET” does when it wants to raise gas prices. How come gas prices go up immediately when oil does, but it takes months to slowly come down after oil prices drop? Explain that!

This article is unintelligible.

I agree that most of the problem with high oil prices is the traders. I also believe that they are the same ones who collapsed the economy in 2008 with their greed in the banking business. They lost their shirts and now are trying to make back all that money and more by running up the price of oil. If you follow the markets you know that Saudi Arabia, Kuwait, and others have said that oil should only be around $75 per barrel. These traders are so consummed by their greed they do not recognize that the economy is on the verge of collapsing again only this time it will be worse, this nation nor any other nation will be able to bail out those crooks. Oil drives the price of nearly everything that we buy. Not only is higher fuel prices a problem but other costs will go up as well. The only thing that gives me any solace is knowing that those of us who have nothing have nothing to lose but they will lose everything and then we will all be equals again. Imagine them having to ask us for a morsel of food.

Did Facebook hire you to write this, or Exxon?

Daniel, I’m haven’t taken an economics class, but is it possible that oil prices are based on a ‘phoney market’? Isn’t the demand for oil static? For every robust, oil demanding country, there is a country that fails either economically or from a natural distaster (like in Japan). I just think that the oil execs say there is an increase in demand, and we take their word for it.

“On a side note, blaming speculators for increasing oil prices is amusing to me.”
It is more serious than that, sir. Oil is the lifeblood of our economy.We don’t trade our nation’s blood bank on the CBT, however if we did, we probably wouldn’t want speculators in that market, nor should the doctors be allowed to have a hand in shilling up the contract price. Avarice traders who have no business accepting delivery should be regulated out of the marketplace. In fact the price of Canadian Natural Gas went up on friday as the congressional talk around on this very issue became more forthcoming. Traders will find another story to hype, incite fear and inflate with greed.
On another note regarding the price of oil there is one factor that no economist has mentioned and that is the fact that we are consuming less gas due to smaller more efficient cars and the oil companies need to keep their profits up.

There might be an easier way to generate benefits for everyone than nationalizing oil companies — one that uses the market while understanding the price inelasticities mentioned in other posts. Tax gasoline a lot. If the price sensitivity only comes at the higher end of prices, why give that margin to the oil companies? Let’s all take that margin in taxes. The higher prices will encourage more prudent use, the tax revenues can be used to create alternative energy sources and fund transit. It’s working in Europe and they are doing a much better job of transportation and energy policy that the U.S.

A portion of the cost of each barrel of oil is obviously transportation. In reality America never exports oil because our demand exceeds our supply. By increasing our production, we are able to both decrease the cost of crude oil and decrease our exposure to global volatility.

For a great example check out the difference in price between WTI and Brent crude right now on ICE. WTI is actually better oil than Brent, but it is trading at under 100 a barrel. Brent is at fucking 113.83.

Since you are claiming to be so much smarter than the writer of this article, John, let me just answer one of your many questions, and the one which should have the most obvious answer to many, many people. Why do people still buy gas if it’s too expensive? Seriously, are you really posing this question? Do you have family, a job, children? Anything that would not fall too short of strapping your children on your back and walking them to school, dance, sports events etc. How about a job, if some can even get one right now with this economy packing so many punches right and left. How are people to go search for jobs, or get to one they already have? I mean, really, if we are to take your questions seriously here, you can’t possibly believe that in the world we live in today, that cars have not become a major necessity, not a luxury as you seem to all but insist. Taking a bus, cab or bike in today’s society and times, just does not work for most of the population and is not realistic in any way. Carpooling, maybe, but also not a realistic option for most. These oil companies know EXACTLY what they are doing, as well as the government. Have you ever stopped and thought about how back about 20 yrs ago, when gas prices would rise, it would always be just a cent or two overnight, and not 15 cents in ONE day? Today, I have seen gas stations in one day, raise their prices from 8 in the morning to 8 at night sometimes up to 18 cents! Also, ALWAYS, and I mean ALWAYS right around the time when a holiday kicks off, even smaller holidays when the oil companies know people will travel most, they are hiked up once again. No one will ever convince me that this is not the oil companies taking complete advantage of the consumer’s need, NOT WANT, of gasoline. Even during the superbowl, they hike them up. When questioned, they always have similar responses: Unrest in the Middle East (PLEASE, that’s been happening for years and years now, why the change now?!) Love the blame it on the weather responses also. Oh my, hurricane “might” hit, (last time I checked, they always hit at one time or another, again, nothing new there) Bottom line here, when price of crude drops, so should prices. It’s just that simple. These oil companies are and have been making way too much off the consumer’s dollar, which these days, with the rising costs of nearly everything from food to healthcare, people cannot afford, but have to. We are starting to choose between eating or making it to work to pay for those high gas prices. Something has to eventually give here. I’m sure I am not alone with this one. Why is our government letting these oil companies price gouge us this much when jobs are scarce as it is, or don’t pay enough to go around. So, let’s allow the oil companies to keep it up, let’s see how fast we keep going downhill in this country, it really is just a matter of time. Really.

All I can say is the oil companies are doing the same thing to us that Enron did. We are being “porked” over and over by greed. I make a 6 figure salary and I have been trying to do what I can to keep prices down. I keep my thermostat at 65 degrees daytime and 62 nightime, I drive a hybrid car, I work at home and only drive my car for planned multiple trips. I am not sure I can do anything else. The oil company’s will only bring the prices down when our economy is in ruin, they have sucked us dry, people stop driving and reduce heat, or the government puts in regulations.
These companies are no different then legal greedy economic terrorists.
My biggest complaint is the oil companies must think we are all stupid and don’t realize what they are doing to us and our country. Well I am not stupid and I will vote to go back to regulation of any company that tries to make Ungodly amounts of money on the backs of the poor and middle class.