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How do Oil Companies make profits?
- Thread starter Vick
- Start date
Summy
New Member
- Messages
- 11
Long story short:
From an Oil Exec's perspective: It is a well ran buisness that makes you money. The companies who make these ridcolous amounts of money produce oil and refine gasoline, and sell them both. They say that they make so much money because an increase of demand for oil worldwide sent the price so high. Higher demand, higher price, more they can sell it off more. It basically becomes a bidding war, if one country offers you 60$ per barrel, and then another offers you 70, the competition eventually drives up the price, known as inflation.
With the Iraq war, Bush and his buddies got basing rights all over the middle east. His buddies like Exxon and others, post crazy amounts of money like 8.4 billion in one quater, and 36 billion overall. See, if there is a "oil shortage", the companies producing oil become more successful. The price drives up as I explained. You hear politicans always taken about offshore drilling, and reduced dependency on oil, this is all to lower the "shortage" of oil, and make it less necessary, reducing the price. Offshore drilling, produces more oil, should lower prices.
From a consumer: It is price gouging.
There is no fixed rate of oil production, therefore, if Exxon wants to sell their barrells for 100/ barrell, nobody can stop them. The problem with that is, country's will play that, especially if you leader will be making money when he invests in you (ie Bush). So, America can drive up the price per barrell, more profit for Exxon, when he leaves, more profit for him and his buddies.
So basically, higher gas prices are a representation of the demand of oil. If we reduce dependency on oil, via the green movement, or fossil feuls, or offshore drilling, then you get lower gas prices. The oil becomes less in demand, and therefore cheaper.
Thats the BARE basics, you also get into shit like corruption like fake wars, China, America investing in problem area's in Africa, etc.. that drive up international demand. See when Iraqi drilling buisnesses were kicked out after the war, american companies got one of the largest oil deposits in the world. MONEY. Drove up international gas prices, because of inflation as I explained.
Thats like the bare basics brother, obviously there are so many other factors.
From an Oil Exec's perspective: It is a well ran buisness that makes you money. The companies who make these ridcolous amounts of money produce oil and refine gasoline, and sell them both. They say that they make so much money because an increase of demand for oil worldwide sent the price so high. Higher demand, higher price, more they can sell it off more. It basically becomes a bidding war, if one country offers you 60$ per barrel, and then another offers you 70, the competition eventually drives up the price, known as inflation.
With the Iraq war, Bush and his buddies got basing rights all over the middle east. His buddies like Exxon and others, post crazy amounts of money like 8.4 billion in one quater, and 36 billion overall. See, if there is a "oil shortage", the companies producing oil become more successful. The price drives up as I explained. You hear politicans always taken about offshore drilling, and reduced dependency on oil, this is all to lower the "shortage" of oil, and make it less necessary, reducing the price. Offshore drilling, produces more oil, should lower prices.
From a consumer: It is price gouging.
There is no fixed rate of oil production, therefore, if Exxon wants to sell their barrells for 100/ barrell, nobody can stop them. The problem with that is, country's will play that, especially if you leader will be making money when he invests in you (ie Bush). So, America can drive up the price per barrell, more profit for Exxon, when he leaves, more profit for him and his buddies.
So basically, higher gas prices are a representation of the demand of oil. If we reduce dependency on oil, via the green movement, or fossil feuls, or offshore drilling, then you get lower gas prices. The oil becomes less in demand, and therefore cheaper.
Thats the BARE basics, you also get into shit like corruption like fake wars, China, America investing in problem area's in Africa, etc.. that drive up international demand. See when Iraqi drilling buisnesses were kicked out after the war, american companies got one of the largest oil deposits in the world. MONEY. Drove up international gas prices, because of inflation as I explained.
Thats like the bare basics brother, obviously there are so many other factors.
I'm looking for an example with numbers. Suppose Shell gets its crude oil from Venezuela. Right now the price of crude is like $140/barrel... They refine the stuff and then truck it to gas stations all over the united states.. The gas stations probably have a deal with Shell and they buy it at a certain price. Now if Shell starts charging the gas station owners more, the gas stations obviously pass that cost onto the consumers hence the higher gas prices. How does the extra money we pay at the pump end up in the hands of the Oil execs... I'm missing something here...
Summy
New Member
- Messages
- 11
Okay I think I understand what you mean. Im gonna go into some detail, so bare with me. The blue is the history, you need to understand, and the black directly answers your questions.
To understand the profitting, understand this. In the Oil buisness, you have a part known as the "upstream". Where companies and countries explore and drill for oil despoists into the earth. These big companies, pay BIG money to sciencists, and a lot of money on technology to know where, how much, and how to drill for oil. Then you have "downstream" work, of refining the crude oil into something usable, such as gas or disel, and getting those products sold and delievered. Those jobs generate information on refinery capacity and throughput, for example, and the cost of marketing and distribution.
Exxon and Cheveron, the two biggest companies in the States, do both up and downstream work.
Prices at the pump reflect these expenses. The cost of crude oil is most of the price of gas, of around 75%. Refining is about 8%, and 16 goes to distributing and marketing. Each oil company analyzes its costs and potential income, trying to profit at each and every step of the profit, except for taxes which are fixed rates obviously.
-------------------------
Contrary to popular belief, something like 95% of gas stations in the states are independently owned. Their prices and procedures ARENT dictated by a major oil company, even if the station licesnses that company's name. When crude oil soars, gas prices, because crude is the main ingredient struggle to keep up. So the crack between the two spread. So the refiners get the crude. Turn it into oil. The refiners actually started to loose money. Assuming these arent both upstream and downstream companies..... The oil company, the driller sets the basic price of crude to the refiner. The refiner gets it, and turns it into gas. For a while, the amount it costed to convert, would be more than the profit. Almost came to 37$ per barrell.
You know why the oil price has been raised, its inflation. Oil's rise has been driven by investors snapping up crude futures as a hedge against a falling dollar and inflation.
So here is your answer:
That difficulty travels right down to the retailers of gas, who base their prices they charge consumers on what they expect they'll have to pay for their next shipment. So, the price of the shipment is essentially, dictated by the oil company who sells the crude to the refiner. The refiner sells the gas to the stations as lets say a idiotic abritrary price of 1000$ per shipment. So, the retailers have to charge consumers a slight profit, maintaining within the guidelines of the market (if one gas station is selling 4/gallon and another 4.15/gallon-your going with the cheaper). So, the gas stations charge per their next shipment. So when you pump the gas, the price you see, is what the gas stations expect to pay for the shipment they havent recieved. So if they expect the last shipment of 1000$ to stay stable, they wont charge you more. However, if they expect the next shipment to cost 1100$, then, the current gas price increases.
The individuals of the gas stations, actually make pennies off each gallon. Some gas stations have taken months off, because they feel like the shipment price as oppose what they can charge is not worth it.
The majority of profit is made in the store, or the shop. Unless, you have companies who also dabble in distribution.
So you ask how does it end up in the oil execs. Well, like I explained before, the price is inflated. Lets say, before profit, Exxon says, to drill, and everything involved, the cost of one crude barrel is 50$. They sell it to the refiners (assuming they arent the same company like I stated above) for 100$ per barrel (this numbers are accurate, just pure speculation). The refiners, turn it into gas, and use the conversion of per barrel of crude, and turn into the amount per shippment, lets say 1000$. So, the company at the top, the oil execs set the basic price for the first barrell of oil, will eventually be what the gas station owner has to think about when buying his next shippment. If instead of selling the crude for 100/ barrell and decide to sell it for 50, the refiners will charge less to convert it into gas, and therefore, the gas stations will charge less to you. Gas stations are also restricted by law, and by the market to not charge excessive amounts.
SO INCLUSION hahaha:
Exxon drills for crude. The inflation starts. Country A bids country B for the crude, and the price is set as 100/barrell (even though it may have only cost 10$ to produce that crude). If the company is not a reinfer as well, it is sold to a refiner at 100 per barrell. The refiner produces that into gas. The refiner looks at the cost of buying that barrell of crude, vs. prodcuing oil, and sells it to the gas station. The gas station owner, pays 1000$ for a shippment. The gas station owner sets the price lets say of 4/gallon, the market vlaue of per gallon. Lets say the price of crude will jump from 100 per barrell to 140 next month. Instead of charging 4 per gallon, the market, and the owner must adjust their price for the next shipment, start charging 4.15/gallon.
Since the richer companies are refineres as well, you cut out the middle man, the profitting grows, as the price blows up with inflation, and then how much the refinerers charge the gas station owners.
Hhahahah, I hope you get that.
To understand the profitting, understand this. In the Oil buisness, you have a part known as the "upstream". Where companies and countries explore and drill for oil despoists into the earth. These big companies, pay BIG money to sciencists, and a lot of money on technology to know where, how much, and how to drill for oil. Then you have "downstream" work, of refining the crude oil into something usable, such as gas or disel, and getting those products sold and delievered. Those jobs generate information on refinery capacity and throughput, for example, and the cost of marketing and distribution.
Exxon and Cheveron, the two biggest companies in the States, do both up and downstream work.
Prices at the pump reflect these expenses. The cost of crude oil is most of the price of gas, of around 75%. Refining is about 8%, and 16 goes to distributing and marketing. Each oil company analyzes its costs and potential income, trying to profit at each and every step of the profit, except for taxes which are fixed rates obviously.
-------------------------
Contrary to popular belief, something like 95% of gas stations in the states are independently owned. Their prices and procedures ARENT dictated by a major oil company, even if the station licesnses that company's name. When crude oil soars, gas prices, because crude is the main ingredient struggle to keep up. So the crack between the two spread. So the refiners get the crude. Turn it into oil. The refiners actually started to loose money. Assuming these arent both upstream and downstream companies..... The oil company, the driller sets the basic price of crude to the refiner. The refiner gets it, and turns it into gas. For a while, the amount it costed to convert, would be more than the profit. Almost came to 37$ per barrell.
You know why the oil price has been raised, its inflation. Oil's rise has been driven by investors snapping up crude futures as a hedge against a falling dollar and inflation.
So here is your answer:
That difficulty travels right down to the retailers of gas, who base their prices they charge consumers on what they expect they'll have to pay for their next shipment. So, the price of the shipment is essentially, dictated by the oil company who sells the crude to the refiner. The refiner sells the gas to the stations as lets say a idiotic abritrary price of 1000$ per shipment. So, the retailers have to charge consumers a slight profit, maintaining within the guidelines of the market (if one gas station is selling 4/gallon and another 4.15/gallon-your going with the cheaper). So, the gas stations charge per their next shipment. So when you pump the gas, the price you see, is what the gas stations expect to pay for the shipment they havent recieved. So if they expect the last shipment of 1000$ to stay stable, they wont charge you more. However, if they expect the next shipment to cost 1100$, then, the current gas price increases.
The individuals of the gas stations, actually make pennies off each gallon. Some gas stations have taken months off, because they feel like the shipment price as oppose what they can charge is not worth it.
The majority of profit is made in the store, or the shop. Unless, you have companies who also dabble in distribution.
So you ask how does it end up in the oil execs. Well, like I explained before, the price is inflated. Lets say, before profit, Exxon says, to drill, and everything involved, the cost of one crude barrel is 50$. They sell it to the refiners (assuming they arent the same company like I stated above) for 100$ per barrel (this numbers are accurate, just pure speculation). The refiners, turn it into gas, and use the conversion of per barrel of crude, and turn into the amount per shippment, lets say 1000$. So, the company at the top, the oil execs set the basic price for the first barrell of oil, will eventually be what the gas station owner has to think about when buying his next shippment. If instead of selling the crude for 100/ barrell and decide to sell it for 50, the refiners will charge less to convert it into gas, and therefore, the gas stations will charge less to you. Gas stations are also restricted by law, and by the market to not charge excessive amounts.
SO INCLUSION hahaha:
Exxon drills for crude. The inflation starts. Country A bids country B for the crude, and the price is set as 100/barrell (even though it may have only cost 10$ to produce that crude). If the company is not a reinfer as well, it is sold to a refiner at 100 per barrell. The refiner produces that into gas. The refiner looks at the cost of buying that barrell of crude, vs. prodcuing oil, and sells it to the gas station. The gas station owner, pays 1000$ for a shippment. The gas station owner sets the price lets say of 4/gallon, the market vlaue of per gallon. Lets say the price of crude will jump from 100 per barrell to 140 next month. Instead of charging 4 per gallon, the market, and the owner must adjust their price for the next shipment, start charging 4.15/gallon.
Since the richer companies are refineres as well, you cut out the middle man, the profitting grows, as the price blows up with inflation, and then how much the refinerers charge the gas station owners.
Hhahahah, I hope you get that.