You have not shown that they do not control the price. They set the rules by which the game is played. those that make the rules control the outcome even if the game is played fair from the start to the finish. they set the rules on supply. the rest is window dressing.
Talking in a circle will not solve the problem or lower your gasoline bill. the reason there is not enough refiners is the same as the reason there is not enough oil. companies do not want to increase supply. It is not in their best interest to increase supply. the companies blame regulations/environmental whacko’s for the problem but the truth is they have no incentive to increase production capacity. the increase in demand is being met by builing on to refiners already built.

When you can control supply you in effect control price. Price is simply a function of demand and supply. You can increase price by decraseing supply or increasing demand while keeping the other stable.

the end result is the same. If you want to decrease gasoline prices you must force oil companies to do what is not in their interest to do. the only way you do that is be taxing those habits that you do not want. (i.e make it more expensive for them not to drill/ breaking them up so they have less control over the marketplace/increase compitition etc). Increase tax breaks for drilling, building refiners etc. If everyone increased production prices would fall. the glut of the earlier 90’s showed that. Sure you would have bottlenecks but those bottlenecks would be filled by a market system. The oil companies would get less per barrel and would have to make up the profit on volume sales.

He is in business to provide a return on investment, not to produce as much oil as possible. As an investor, I am in it for the return on capital as well

and there you have conflict with the avg voter. the avg voter is in it to lower his/her cost at the pump. since the avg voter is many times the majority of the Exxon shareholder in the long run the exxon shareholder will lose. By setting themselves in direct opposition to the AMerican voter Exxon is walking a tightrope that they can not win. unrestricted greed will destroy all vaule for the shyareholder as the dems takeover the oil companies or tax them to death. Noone will pay $5.00 a gallon for long while XOM continues to rake in $3 billion a month. It is not in the best interest of the voters thus it is not in the best interest of politicians.

Too bad too because XOM had a good thing going.

And while margins are “tight” Exxon still gets about $10billion in profits per qrt and refuses to put most of the the windfall back to work finding and drilling for more oil. Instead they use the money for div and share buybacks increasing shareholder vaule while facing a steady decline in production which further limits supply which pushes gas prices up which gives them more profit for every barrel pumped. Why look for more supply when you can control the price of the product?

unseen on April 2, 2008 at 11:37 AM

Well, I have already shown that they do not control the price of the product, since there is no monopoly. Beyond that, there is no sense in increasing the supply to any significant extent, since refinery space is limited by government intervention and NIMBY attitudes. If everyone increased production, you would have onshore and offshore tankers full of crude, waiting for their turn to offload into the cramped refining network – what good would that do?

Yet even with prices at the pump near all-time highs, Exxon isn’t planning on producing any more oil four years from now than it did last year.
unseen on April 2, 2008 at 2:02 PM

Tillerson is right. You don’t invest in a target, unless you anticipate a decent return. He is in business to provide a return on investment, not to produce as much oil as possible. As an investor, I am in it for the return on capital as well. Given that NOCs own the rights to 60% of the known reserves in the world, there is no reason to try and outflank them. The rise in oil prices is due to war premium and speculation, as I noted earlier – the increased consumption by India and China is not the main culprit – therefore Exxon does not need to massively increase output.

The Calculus of “Acceptable Investment Return”
Ponder that for a minute. Texas-based Exxon is the largest publicly traded company in the energy business. In fact, it’s the most profitable company in the history of capitalism, earning a record $40.6 billion on sales of $404 billion last year. Yet even with prices at the pump near all-time highs, Exxon isn’t planning on producing any more oil four years from now than it did last year. That means the company’s oil output won’t even keep pace with its own projections of worldwide oil demand growth of 1.2% a year.

Imagine a chief executive of another growth company making a similar announcement to Wall Street as Exxon Chairman Rex Tillerson. What if Steve Jobs said Apple (AAPL) wasn’t going to sell any more iPhones than it did in 2007? What if Howard Schultz said Starbucks’ (SBUX) latte production would stagnate, at least until the next U.S. president embarked on his or her reelection campaign? Shares of both companies would plummet.

After the management presentations, Tillerson took questions from the audience. The first hand that shot up was that of Deutsche Bank (DB) oil analyst Paul Sankey, who wanted to know why the company wasn’t showing any volume growth. “We don’t start with a volume target and then work backwards,” Tillerson explained. Instead, he said, his team examines the available investment opportunities, figures out what prices they’ll likely get for that output down the road, and places their bets accordingly. “It really goes back to what is an acceptable investment return for us,” Tillerson said. In other words, producing incremental barrels just to ease prices for consumers is not part of the company’s calculations. Last year, ExxonMobil led the industry with a return on capital of 32%.
…
Could Exxon spend more and generate more growth? Probably. Even with its increased capital spending, the company still spent 70% more on dividends and stock buybacks last year ($36 billion) than it did reinvesting in its business. Tillerson noted that share buybacks over the past have boosted the average stockholder’s share of the company’s oil production by 20% over the past five years.

In other words. even though the company’s volumes haven’t grown, fewer shares outstanding mean more barrels per share for each remaining shareholder. Lysle Brinker, who follows Exxon for the research firm John S. Herold, figures that given the company’s current capital outlays, Tillerson can keep replacing the oil and natural gas he sells. That way the company won’t shrink, even if it doesn’t grow.

Big oil companies can continually miss their targets or even target no growth and still shine on Wall Street due to the peculiar nature of commodity businesses. Less supply of a commodity means higher prices. Higher oil prices mean more profits for the oil companies. Exxon shares have risen 21% in the past year—and even closed a bit higher on Mar. 5, the day of its analysts meeting.

http://www.businessweek.com/bwdaily/dnflash/content/mar2008/db20080319_269345_page_2.htm

notice that Exxon did not mention environmental wacho’s for the reason they are not increasing supply? It is not good business to increase supply, reduce price and lose profits. the oil companies like high prices and will do whatever it takes to keep the price high. The market is fixed before the opening bell there is no reason to collude or fix prices. the fix was in before the SEC and all other government agencies get involved. OPEC does the same thing.

DrSteve on April 2, 2008 at 11:58 AM

the precise term is CARTEL. as in OPEC. Opec fixes the supply. the majors use OPEC to fix prices within a narrow band, they then use the government that they paid for to limit competition of price wars.

LOL…yeah hey I got this bridge onsale.

And no you are wrong with Exxon et all selling their gasoline/oil at the lowest possible price. they sell their gas/oil at the “market price” not at their lowest price. the difference between their price and the “market price” is their profit. If you believe the smoke and mirrors that they have set up for the “market price.”

unseen on April 2, 2008 at 11:37 AM
First, their profit is not the difference between their price and the market price, it is the difference between the cost of goods sold and the sales price they can receive (in competition with all other similar firms). Next, if you have proof the majors are fixing prices, you should present it to the FTC, who could fine them to a greater extent than the current attempt to revoke their tax credits. To refine and deliver over 75 different grades of fuel to thousands of delivery points on a daily basis is no mean feat, I am surprized at the level of mistrust of firms who literally keep this country going….

Oil is not a free market and the prices are not dictated by the law of supply and demand. Anyone that believes it is does not understand economics.

First, even a monopolist still faces a demand curve, and can only profitably operate on one portion of it, so let’s not go wild here.

Second, as was pointed out, oligopoly is fundamentally different from monopoly. It’s a difference of type, not degree. Example — no such thing as a “Cournot monopoly.” The game theory alone shows they’re totally different.

The industrial organization of the oil industry varies widely from the wellhead to the gas station. Let’s all make sure we’re being precise in our terminology.

corona on April 2, 2008 at 11:29 AM

Just because they do not care does not mean it does not effect them.

No I meant Russia. Just used Gazprom as I example of RUSSIAN controled natural resources/oil. yes you are correct with the oligopoly definition instead of the monopoly term however they act the same to control prices and most people understand the term monopoly better than oligopoly. And no you are wrong with Exxon et all selling their gasoline/oil at the lowest possible price. they sell their gas/oil at the “market price” not at their lowest price. the difference between their price and the “market price” is their profit. If you believe the smoke and mirrors that they have set up for the “market price.” those laws that limit the gas wars were not passed in a vacuum. The oil companies paid good money for those laws. when you have an extra $10billion every three months you can afford to buy off the lawmakers. so we have a fixed market controlled by a very few players with legal protection bought and paid for. Yes the hedge funds do push prices up but then again you have to look where those hedge funds are getting their money to invest in the oil market in the first place.

And while margins are “tight” Exxon still gets about $10billion in profits per qrt and refuses to put most of the the windfall back to work finding and drilling for more oil. Instead they use the money for div and share buybacks increasing shareholder vaule while facing a steady decline in production which further limits supply which pushes gas prices up which gives them more profit for every barrel pumped. Why look for more supply when you can control the price of the product? the recent finds in the gulf, in south america, in Asia, in Norway all point to the fact that large finds are still out there to find.

Now I am not opposed to oil companies making money, I am not in favor of price controls. I am simply in favor of the people understanding why they are paying what they are paying. the game is fixed. the government is a willing party to the fix and everyone is happy. the problem is that greed is starting to infect the oil industry. a little greed is good, unrestrained greed will cause problems like those found in real estate, the dot.com bubble. there is no one minding the store and the kids are robbing the American people blind.

In a normal market one without monoploies Exxon would sell the gas at the cheapest they can to gain share and put their competiton out of business. this is not happening. there are no price wars within the oil industry, within the gas stations. this is due to several reasons including laws that say it is illegal to sell gas below a certain price set by the “market” so you have to ask yourself who controls the “market” Opec which is a cartel and artifically controls supply, the 5 major oil companies left in the US which are also monoplies and go along with OPEC, or the other Nation controlled oil companies like Gaspom in Russia. Oil is not a free market and the prices are not dictated by the law of supply and demand. Anyone that believes it is does not understand economics.

unseen on April 2, 2008 at 12:19 AM

If you understand economics, why do you say that the 5 major oil companies in the US are a monopoly? By its very nature, a monopoly is ONE company – perhaps you meant to say oligopoly. Next, Exxon et al DO sell their gasoline at the lowest possible price – do you not recall the months after Katrina, when the price at the pump fell daily? The laws that speak of ‘market price’ are set by Federal and State governments, so you can’t complain about the lack of ferocity in gas wars when our own government limits them. Lastly, Gazprom is a primarily a natural gas company, not an oil company, perhaps you meant Rosneft?

Oil companies are using the environmentalists/china/india as straw men so that they can continue to justify the present increase in price. Oh I know that in coming years there will be supply issues but we are not there yet. Add into the fact that anytime oil starts to drop and we get saber rattling from Iran and chevas and you get the real reason oil and gas is high.

unseen on April 1, 2008 at 8:42 PM

Another reason is that hedge funds have pulled their money from real estate and placed it on commodities (oil, steel, etc). This additional speculative demand is pushing up the prices. Exxon only produces half of the oil they sell as gasoline – the other half is purchased. Margins are tight even among the majors right now.

It is just a coincidence that the states with the highest subprime failure rates also have large illegal immigration problems. Pay no mind to the man behind the curtain…

Recession. Economic slow down. Whatever. EM @ HA has the highlights of the hyperbole.

And fuel prices will fall when world demand falls. Not very likely….

To get out the word about food stamps, the USDA launched a $3 million advertising campaign this winter. Old-fashioned jingles are blaring across Triangle radio stations, coaxing people to apply

.

……. not that any bureaucrat needs to make sure he has a bloated budget for next year, or anything.

How many illegals are getting food stamps?

The selloff of gold is a good sign. as is the retreat of oil prices. Both appeare to be in a bubble. Ag seems more a matter of supply and demand. the VIX coming in also is a good sign. I am more hopeful today than I was over the weekend of the 15th. It is nice to see others understand the problems we face. I just wish they taught this stuff in school so more people can understand the threat we face to our entire way of life.

Cap’n you are probably a tad premature on calling this crisis over. I do not condemn anyone for thinking such because what the Fed has done to this point is provide massive amounts of liquidity in the right place to stop the credit crisis from turning into a panic. We really were on the edge of oblivion over the weekend of March 15th.

I would hesitate to say this is the end because preventing a panic really depends on whether the people stop panicking. Kinda silly to put it this way but it is fundamental to understanding what is happening. The people who run our financial system have been steadily losing confidence in the system since at least last August. They were the ones who were panicking and they are the ones who would have caused the financial system to collapse. Look at old statistics on unemployment or GDP growth all you want. That would mean nothing if on Monday, March 17th the people who make markets in US treasuries, stocks, bonds, etc. had backed away from the markets. No market makers means no markets. Good luck finding a buyer when the bid/ask spread increase ten fold.

I was trading US treasuries during the LTCM crisis and for about three days there were no bids or offers on the Cantor, Fitzgerald treasury markets. When something like that happens you begin to realize how fragile our economic system can be.

This rally might be the end of the crisis but it is way too early to say. Personally I would get short when the Dow trades under 11,750 because the next move down, if it comes, is going to be an even bigger financial institution than BSC. Back to what is happening. We are experiencing a loss of confidence but it is made more serious by the fact that we have had two big bubbles in less than 10 years and the housing bubble will likely drag on for a couple of more years. All of that doesn’t mean that confidence has been restored but there is still way too much that could go wrong will housing prices continue to fall for at least another 9 months.

P.S. Watch home inventories to come down to 6 months which will signal an end to the housing crisis. Also, the dollar is stronger but the trend in against the Euro still points more downside. And higher short term interest rates would be a good sign.

the credit crisis is simply a period of fear. banks do not know what problems other banks have, thus they would not lend to them, hedge funds could not borrow. etc. the FEd and other central banks steped in and said “we will make good if they can not” and they have. Most of that $500billion is in 28days loans. that means that it has to be paid back. think of a pay day advance check place. The fed is doing the same thing but at a lower interest rate. It is not new money.

as far as the over priced housing it will come down it alread has in many places. the problem is to keep it from falling to far to fast.

All the inlfation is due primarly to two things food inflation and oil inflation both are do to things the FEd has no control over. Like demand from China and ethonol. So the FED trying to fight inflation is useless. to actually have a chance of stopping inflation the FEd would have to put this country in a major recession which is what they were trying to do with the rate increases until the subprime crisis hit. To stop inflation we must grow more food and stop the speculation in the oil market’s.

olddeadmeat on April 1, 2008 at 10:58 PM

Yet if they did nothing the price would be 10times, 100 times greater. All deposits in the USa are 100% secured by the federal government thru the FDIC. How much money do you think the government is on the hook for if there are runs on banks and they go insolvent. That price tag could easily be in the trillions.

Yes alot of bad actors, yes it is unfair, yes it is a shame, but at the end of the day, the government is saving all those thrify people but not letting the bad actions of a few push the entire economy into a 1930’s style depression.

landshark on April 1, 2008 at 10:50 PM

To prove collusion in a court of law requires a very tight case. However why if a shell refinery goes up then all gasoline goes up? I could see when Kitrina shut down most of the refinerers etc but the impact of one refiner on the total gasoline in the country is very small. Does it impact supply? some but not enough to justify the major moves is gasoline. If the Exxon station raises its price and the shell station across the street raises theirs for the simple reason that exxon raised theirs is that not collusion?

And why does not gasoline go down when oil retreats as rapidily as it goes up when oil goes up? Because then can get away with it.

I know the difference between oil and gasoline. the crack spread has even gone negative a couple times in the past weeks. which means it has actually cost refiners to make gasoline thus the raise in gasoline prices during a time when oil is falling. however, the fact remains that Exxon pumps their own oil. Theypump it refine it and sell it. they can make a profit on it at anything over (last time I checked) $20.00/bll. so if they can make a profit at $20.oo/bl why are they selling gas at $3.25/gal. Because they can. In a normal market one without monoploies Exxon would sell the gas at the cheapest they can to gain share and put their competiton out of business. this is not happening. there are no price wars within the oil industry, within the gas stations. this is due to several reasons including laws that say it is illegal to sell gas below a certain price set by the “market” so you have to ask yourself who controls the “market” Opec which is a cartel and artifically controls supply, the 5 major oil companies left in the US which are also monoplies and go along with OPEC, or the other Nation controlled oil companies like Gaspom in Russia. Oil is not a free market and the prices are not dictated by the law of supply and demand. Anyone that believes it is does not understand economics.

Yeah imagine that all those bank mergers caused unintented consequences. hmm now you have maybe what 4-7 banks in the USA that are linchpins to the entire economy. Do you think OBL hit the world trade centers for fits and giggles? he knew what he was going after. It is a sad day when our enemies knows our weakness but our own people have no idea of them…