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“Hydrocarbon Myths Dispelled”

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Ron Miller's picture
Principal, Reliant Energy Solutions LLC

Ron Miller is an energy industry expert creating value by analyzing assets, markets, and power usage to identify, monetize, and implement profitable energy and emission reduction projects. He is...

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  • Jul 6, 2022
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We are experiencing the full range of energy comments in the U.S. these days, some true and others completely void of any facts to support their assertion. In this article, we will look at common hydrocarbon myths being circulated to explain why oil prices are up, “Big Oil” is fixing prices at elevated levels, and why almost everyone is to blame, except our government.

“Big Oil” is shutting down refineries to constrain supply for excessive profits:

One quote on LinkedIn that I saw in June was, “…a huge number of refineries brought offline so Big oil could line their pockets”. When asked to provide me his facts to substantiate his claim…crickets. So is this really true that refinery runs as a percentage of capacity are really down, thus derating a refinery’s production in order to create a supply constraint? When in doubt, do a 20-second Google search of the Department of Energy’s Energy Information Administration (EIA) is shown in Table 1.

Table 1 demonstrates the refinery run utilization percentage for different weeks since early January 2021.

Table 1 – U.S. Refinery Run Utilization Percentages

Graph 1 shows the history of U.S. refinery runs since 1990, and it has been above 80% for most of those years, and since the COVID-19 pandemic in early 2020, the trend line has been growing. Since Jan 2021, rates have improved to a peak of 94.2% in week 1 of June 2022. Does this seem like shutting down refineries to you, America? With all-time high gasoline and diesel prices in the U.S., refineries have ramped up production to take advantage of those prices rather than cutting production. Isn’t that what a rational business is supposed to do: with high prices, increase production, and satisfy demand?

Graph 1 – U.S. Refinery Run Utilization Factor, 1990 to Present

Source: Weekly U.S. Percent Utilization of Refinery Operable Capacity (Percent) (eia.gov)

So when you hear this myth mentioned, ask the hard questions…and the hard proof of their false accusations. The DOE EIA clearly disputes these falsehoods.

Putin’s inflation of oil prices:

With the current high inflation in America (8.6% for May 2022, the highest inflation rate in 41 years), everyday Americans are recognizing a painful reality at the gas pump. Source: https://www.usinflationcalculator.com/inflation/current-inflation-rates/

This myth postulates that all the run up in crude oil and gasoline prices have been solely due to Putin’s invasion of Ukraine on 24 Feb 2022. Let’s refer to the EIA data to test this myth subjected to the light of day vs. Beltway Group Think.

To put this in perspective, the crude price in January 2021 per the EIA was $56.64/bbl.; the price in February 2022 was $95.72. That's a 69% increase in crude price well before the Russian invasion of Ukraine.

Of the 93.33% crude price jump from the January 2021 crude price of $56.64/bbl. to the crude price of  $109.50/bbl., 73.93% of the price jump occurred before the war started on 24 February 2022, and 26.07% of the price jump occurred after the start of the war.

Graph 2 illustrates the large and rapid increase in gasoline prices in America in the recent 16 months that are representative of policies detrimental to a vibrant and efficient oil and gas industry.

Graph 2 – U.S. Weekly Price of All Grades of Gasoline, Dollars Per Gallon

Source: https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMM_EPM0U_PTE_NUS_DPG&f=W

“Big Oil” has caused this price run-up:

The recent comments by Secretary of Energy Jennifer Granholm, Senator Sheldon Whitehouse, and Representative Ro Khanna on a new Windfall Profits Tax (WPT) are an inhibitor to U.S. production of much-needed hydrocarbons. Their intention of this WPT is obviously geared to punish “Big Oil”, but who really is “Big Oil”?

Contrary to popular belief by some politicians, America's oil companies aren't owned by a small group of insiders as shown in Chart 1. Only 2.9 percent of industry shares are owned by corporate management. The rest is owned by tens of millions of Americans, many of them middle class.

A strong oil and natural gas industry is a vital part of the retirement security for millions of Americans. State pension fund investments in oil and natural gas companies are providing strong returns for teachers, firefighters, police officers, and other public pension retirees, according to a Sonecon study.

https://whoownsbigoil.com/#/?section=whoowns-the-oil-companies-2

Chart 1 – Ownership of U.S. Oil and Natural Gas Companies

Source: Who Owns America’s Oil and Natural Gas Companies, SONECON, October 2014

By punishing “Big Oil” with the WPT bill, it would really punish millions of Americans who depend upon the dividends from these companies, while discouraging oil and gas production.

“Big Oil” is controlling prices:

We hear the term, “Big Oil” a lot in the media and per the discussion above, the facts of who “Big Oil” is and what is represented is very skewed…and for a reason. We also hear that “Big Oil” is controlling prices and they are just printing money so much that President Biden is quoted as saying, “…ExxonMobil made more money last year than God…” For one thing, I didn’t know precisely that God was a capitalist making astronomical megabucks, but that’s a different subject.

So if “Big Oil” as we know it in the U.S., including ExxonMobil, an obvious favorite of President Biden, and Chevron, control oil prices, they must control a lot of oil to be able to just “print money”, right? Once again, let’s look at the facts before we reach our conclusion.

Looking at the top 10 oil producing companies in the world, as shown in Table 2, we see that our U.S. “Big Oil” companies are in 6th and 8th place, respectively. Not really a commanding position to dictate the price of oil for the entire world, right?

Table 2 – Oil Companies Worldwide Ranked By Daily Crude Oil Production (thousands of barrel of oil per day)

Source: https://www.statista.com/statistics/280705/leading-oil-companies-worldwide-based-on-daily-oil-production-2012/

So America’s “Big Oil” of ExxonMobil and Chevron control a whopping 12.37% of only the top 10 largest crude oil producers in the world. When ExxonMobil and Chevron’s oil production of 3,271,000 barrels per day is compared to the worldwide production of ~100 million barrels per day, their control is 3.27%. Enough to control the market and dictate worldwide crude prices? Not hardly.

Oil companies control the price of oil and are gouging customers:

If oil companies truly controlled the price of oil, wouldn’t they have avoided the low prices shown in Graph 3, especially the lowest prices in 1998 and 2020? Wouldn’t this graph look like a steadily ascending line of increasing oil prices to validate the “oil companies control world oil price” theory? The EIA facts tell a much different story.

Graph 3 – U.S. Crude Oil Price History

Source: https://www.macrotrends.net/1369/crude-oil-price-history-chart

If ExxonMobil (according to President Biden) makes “…more money than God…”, why couldn’t they do so in 2020? Perhaps they really don’t control oil prices after all, and feel the market pressures when prices are high, and when prices are low.
We need a windfall profits tax for the oil companies:

Is it the “American Dream” to punish success and making money in this free enterprise, capitalistic society called America, even when companies pay their federal taxes as enforced by the IRS? So why a windfall profits tax (WPT)?

Several analyses of the 1980 WPT have found it reduced domestic production and increased reliance on imports. A Congressional Research Service paper found that the tax reduced domestic oil production by between 1.2 and 8.0 percent, and increased reliance on foreign oil by between 3 percent and 13 percent between 1980 and 1988 (when the tax was eventually repealed).

Jimmy Carter’s WPT in 1980 established an excise tax of 70 percent on the value of oil sales exceeding $12.81 (in 1980 dollars). Is this the way to stimulate more domestic production? It obviously didn’t work in 1988, and it won’t work in 2022 or beyond.

As oil prices have skyrocketed, Sen. Sheldon Whitehouse (D-RI) and Rep. Ro Khanna (D-CA) have introduced a bill targeted at oil company profits. This WTP would result in higher reliance on imports while punishing domestic production. This is the last thing we’d want to do in the current energy crisis. 

With a WPT, there is less incentive for oil producers to make major capital expenditures for more oil production from which they reap a smaller return. Like all Americans, oil producers and individual investors must weigh the risk/reward relationship of an investment.

Oil and gas producers are intentionally sitting on 9,000 federal leases and choosing to not produce:
Most of the leases on federal lands are currently producing oil and gas. There are about 37,500 total oil and gas leases in effect, with about 75 percent of them producing, and the other 25 percent going through a complex regulatory process or being held up in litigation. 

Oil and gas producers could immediately ramp up production to meet increased demand, which would lower energy prices:
The oil and gas industry is heavily-regulated by local, state, and federal agencies at each phase of the energy production process. It takes months, if not years, of planning, permitting, and preparation to find producible reserves and then drill and complete a well before any oil or natural gas can reach the market. It also takes time to increase or build infrastructure capacity to move the new oil and gas production to markets.

The Biden administration has done all it can to lower energy prices for the American people:
By not holding legally required lease sales, shutting down energy pipelines, not approving permit applications, and implementing regulatory roadblocks to production, the administration has taken several actions that stymie production, and hence negatively impact the price of oil for consumers.

Oil companies do not have the ability to set the price of oil or natural gas, only to make long-term assessments of investment based on, among other things, capital availability and the current regulatory environment.

The federal government should build its own refinery:

The Department of Energy should solve the high gasoline/diesel price problem in America by building its own refinery. It could then easily get the required permits, finance the refinery, construct the refinery, buy crude on the open market, operate it, and sell its product into the market to easily-make excessive profits to fund the government’s annual deficit. I’m not really serious about this myth, because with the government’s historic efficiency and business acumen, it would not be wise nor profitable for us, as U.S. taxpayers. Buying crude in the open market, operating a complex refinery with extremely high temperatures and pressures to process crude oil into gasoline, diesel, and jet fuel is not easy to do, nor to do so profitably.

“Big Oil” profits are obscene:

Researching ExxonMobil, Amazon, Apple, Facebook, and Microsoft’s net income in 2021 provides the following results:

Apple                     94.68 billion $

Microsoft               61.27

Facebook               39.37

Amazon                 33.36

ExxonMobil          23.04

Of these five corporations, ExxonMobil made the least net income in 2021, yet they are being singled out for a Windfall Profits Tax because they made too much money, as if that was a cardinal sin in America. Compared to the other four companies who made decidedly more net income in 2021 than ExxonMobil, we hear no call from the Administration to tax their Windfall Profits. How fair and American is that?

Some fun facts about our five corporations and the small amount of money they made:

  • The current stock market valuation of America’s five technology titans, Apple, Microsoft, Google, Amazon and Facebook is $9.3 trillion which is more than the value of the next 27 most valuable U.S. companies put together, including corporate giants like Tesla, Walmart and JPMorgan Chase, according to data from S&P Global Market Intelligence. Source: https://www.nytimes.com/2021/07/29/technology/big-tech-profits.html
  • Apple’s profit just from the past three months ($21.7 billion) was nearly double the combined annual profits of the five largest U.S. airlines in pre-pandemic 2019.
  • Facebook expects to dole out more cash outfitting its computer hubs and offices in 2021 than ExxonMobil spends around the world to dig oil and gas out of the ground in a year.

Taking a look at ExxonMobil’s net income history from 2009-2021 in Table 3 with results in $ millions.

Table 3 – ExxonMobil’s Net Income 2009-2021 (million US$)

Source: https://www.macrotrends.net/stocks/charts/XOM/exxon/net-income

Doing the same analysis for Apple, Microsoft, Amazon, and Facebook, yields the following results:

Graph 4 – Apple’s Net Income 2005-2021 (billion US$)

Source: https://www.statista.com/statistics/267728/apples-net-income-since-2005/

Graph 5 – Meta (Facebook)’s Net Income 2007-2021 (million US$)

Source: https://www.statista.com/statistics/277229/facebooks-annual-revenue-and-net-income/

Graph 6 – Microsoft’s Net Income 2002-2021 (billion US$)

Source: https://www.statista.com/statistics/267808/net-income-of-microsoft-since-2002/

Table 4 – Amazon’s Net Income 2017-2021 (million US$)

Source: https://www.wsj.com/market-data/quotes/AMZN/financials/annual/income-statement

Summary:
In summary:

  • Calibrate all that you hear in the media,
  • Ask questions,
  • Do your own independent research,
  • Ask an energy expert with experience, and
  • Consider the source and their potential prejudice in making any false statements before believing them

Finally, in the real world outside the Beltway:

  • “Big Oil” is not reducing refinery capacity to constrain supply as the June 2022 94.2% capacity utilization rate attests
  • Americans endured 74% of the oil price inflation before Putin’s war in February 2022
  • The majority of “Big Oil” stock is owned by everyday Americans through their 401k and pension plans
  • “Big Oil” has done a lousy job over history (post John D. Rockefeller) in controlling the price of oil to its advantage
  • The windfall profits tax proposal would discourage new oil production and refinery expansion, raising prices for us all
  • Oil and gas producers are waiting on permits that have been delayed by federal and/or state regulators
  • Oil and gas production cannot be raised in the blink of legislative fiat
  • There is a lot the Biden administration could do to mitigate current and future energy price spikes, if it changed its energy ideology
  • “Big Oil” profits are not obscene, it’s called timeless law of supply and demand, and market economics

Copyright © July 2022 Ronald L. Miller All Rights Reserved

Discussions
Matt Chester's picture
Matt Chester on Jul 6, 2022

It's quite interesting how many of these misconceptions have taken hold recently. Appreciate you cutting through them!

ERIC BRODRICK's picture
ERIC BRODRICK on Jul 6, 2022

Very informative article. It would be good to see a similar revue done on renewables. The "misconceptions" and pure fantasy being spread about wind, solar, and hydrogen at the moment make it very hard to work out the reality and actual viability of these systems...

Julian Silk's picture
Julian Silk on Jul 7, 2022

One fight from me is enough.  I have no problem with most of these, only that the windfall profits tax might be used to provide low-income consumers money to pay the higher prices.  That the recovery from lockdowns and return to work had a lot to do with the runup in prices is reasonable.

Julian Silk's picture
Julian Silk on Jul 7, 2022

Let me just add one explanatory note, and let me stress this is not in opposition to Mr. Miller's "Hydrocarbon Myths Dispelled" piece. Being in the Washington, DC, area, and knowing people who are acquainted with President Biden and the people in government gives me some insight into what is going on. It is not a matter of the Democrats being vindictive; that is projection. It is something different, and today's articles in The Washington Post illuminate it well.

First, the people in the administration are human, and they know their reception among many business executives would be very hostile. Taylor Telford writes that "Top business executives have become even more Republican, study finds", at
https://news.yahoo.com/top-business-executives-gotten-even-184404065.html

Second, one of the ways in which oil and gasoline prices would be lowered is if Saudi Arabia increases production. The Saudi regime will look out for its own interests in raising production, but there is a limit to how far they can be pushed. What we get instead in the Post are pieces from Hatice Cengiz, the fiancee of the murdered Jamal Khasoggi, arguing "Mr. president, don't break your vow to shun Saudi Arabia", at
https://thewashingtonpost.pressreader.com/article/281913071817672
and David Ignatius writing, "A daring story Biden should tell MBS", at
https://thewashingtonpost.pressreader.com/article/281990381229000

The Saudis aren't puppets, and they are also human beings, and pressing them is not obviously the way to get them to make sacrifices beyond what their self-interest demands to lower oil prices.

Third, there is a more subtle indication of the views of the administration in another story, at
https://thewashingtonpost.pressreader.com/article/281500754957256
This describes the conflict over possible Amtrak expansion in the Gulf Coast U.S. states. One paragraph from the story is illuminating:

"In a May letter to the STB [Surface Transportation Board], John E. Putnam, acting general counsel at the Transportation Department, said efforts such as restoring Gulf Coast rail passenger service are critical to the administration's transportation goals of 'combatting climate change, ensuring equity in personal mobility and driving economic growth and vitality' ". You can argue that economic growth and vitality are synonyms for lower fuel prices, but it is noticeable, once you think about it, that they are not mentioned explicitly, as something really beyond control.

It's not that the possibility of lower fuel prices is being ignored. But we are dealing with people, and different people focus on different things.

Ron Miller's picture
Ron Miller on Jul 7, 2022

Julian, excellent observations. The first question for passenger rail service is the ridership projection to realistically take cars off of the road. Second question is energy source for rail which is most likely diesel, still stoking demand (albeit at lower levels if ridership is very high). These types of capacity planning questions should be addressed prior to any project approval, or the capital expenditure could prove to under-whelming, and a potential financial disaster..

martin Stetzer's picture
martin Stetzer on Jul 8, 2022

Excellent perspective Ron!  All the key points in one place!  One other cause of Gasoline prices is the fact that US economic and environmental regulations have disallowed a new refinery to be built for decades...People soon forget the years of negative margins in the industry and there are no buyers for the Lyondell refinery in Houston because of cost of environmental upgrades that would be needed..

Ron Miller's picture
Ron Miller on Jul 11, 2022

Martin, yes on refineries, I have been to the last ones built, Mobil Joliet, IL, and Marathon Garyville, LA.

Roger Arnold's picture
Roger Arnold on Jul 9, 2022

I applaud the grounded fact checking approach taken in this article. We need more of that sort of analysis of issues. I have a quibble however.

I don't think it's valid to use the fact that began to shoot up well before Russia invaded Ukraine to disprove the "myth" that the oil price inflation we've seen is "Putin's fault". The price of oil is determined by market trades, and traders are professional gamblers. They're constantly reading tea leaves and placing bets based on how they expect other traders to react to what they see. US intelligence agencies were trumpeting that "Russia is preparing to invade Ukraine" two months or more before it happened. And the Biden administration let the world know, in no uncertain terms, that the conditions Russia required in order to agree not to invade Ukraine were "totally unacceptable", and that if Russia did invade Ukraine, it would meet "sanctions from hell" that would tear its economy apart.

Expectations of an oil crisis to come due to a shutoff of supplies from Russia were quite sufficient to send oil prices skyrocketing well before the actual invasion.

Ron Miller's picture
Ron Miller on Jul 11, 2022

Roger, good thoughts. Concerns, future supply issues, worries are all folded into the perception of oil supply and prices on a daily basis as you mentioned. 

Joe Deely's picture
Joe Deely on Jul 9, 2022

Ron,

Trying to get past your first myth

 “Big Oil” is shutting down refineries to constrain supply for excessive profits:

You attempt to disprove this by citing refinery utilization rates. Huh?  What do they have to do with whether or not refineries are being shutdown? In fact, if refineries are being shut down then this make the denominator in calculating utilization rates smaller. Smaller denominator and same numerator means utilization rates rise. Why are you not showing the EIA refinery capacity charts??

A quick search shows that indeed refinery capacity has declined over the last couple of years.

U.S. oil refining capacity down in 2021 for second year - EIA

Capacity for U.S. oil refiners fell in 2021 for the second year in a row, the most recent government data showed on Tuesday, as plant shutdowns kept whittling away on their ability to produce gasoline and diesel.

Pump prices are near $5 a gallon nationwide as soaring demand for motor fuels collides with the loss of about 1 million barrels of processing capacity in the last three years due largely to closings to plants that were unprofitable when fuel demand cratered at the height of the COVID-19 pandemic.

The U.S. Energy Information Administration figures showed a capacity decline of 125,790 barrels per day (bpd) last year on top of the 800,000 bpd drop in 2020.

Now , I am not saying that this is part of some Big Oil plan...but capacity is indeed down.

It's not good when the first point in your argument is wrong. 

 

 

Ron Miller's picture
Ron Miller on Jul 11, 2022

Capacity for refining is down, as several have been converted to bio-fuel and are not processing crude oil; others due to fire (Philadelphia) and the owners did not see the economics to invest in rebuilding the refinery. Companies make decisions every day whether to invest in new and/or expanded refineries based on the future market, margins, etc. When the industry is told point blank that the direction in the U.S. is to de-emphasize oil and gas, the financial community is warned against such investments, it becomes harder to convince shareholders the putting billions into refineries is the best use of their capital.

Joe Deely's picture
Joe Deely on Jul 15, 2022

So the first point in your argument is incorrect...when you claim the following is a myth.

“Big Oil” is shutting down refineries to constrain supply for excessive profits:

Refineries are indeed being shut down and capacity is dropping.  Going forward more refineries and therefore more capacity will close. 

When the industry is told point blank that the direction in the U.S. is to de-emphasize oil and gas, the financial community is warned against such investments, it becomes harder to convince shareholders the putting billions into refineries is the best use of their capital.

Why the whining?  

What about the actual market?  Despite a very slow to react US auto industry, EVs are starting to take off in the US. This is happening much faster in China and other countries around the world.  With growth in EVs oil demand will drop.  Pretty simple. Oil companies will adjust by closing marginal refineries - or as you say if there is a fire - it probably doesn't make sense to rebuild.

Oil companies are cutting their exploration budgets - they know future demand will drop.  By keeping supply tight they can keep prices higher. However, this will only push the transition to EVs more - death spiral. Tough business to be in.

Exxon management understands this:

Every new passenger car sold in the world will be electric by 2040, says Exxon Mobil CEO Darren Woods

The oil giant is predicting that by 2040, every new passenger car sold in the world will be electric, CEO Darren Woods told CNBC’s David Faber in an interview. In 2021, just 9% of all passenger car sales were electric vehicles, including plug-in hybrids, according to market research company Canalys. That number is up 109% from 2020 says Canalys.

In light of its modeling, Woods said Exxon Mobil is evaluating how the decline in gasoline sales could impact its business. Exxon Mobil is one of the largest publicly traded international gas companies and a leader in the industry. Its website boasts that it is the largest “refiner and marketer of petroleum products,” as well as a chemicals company.

Demand drops - so supply adjusts - Econ 101.

 

Mark Silverstone's picture
Mark Silverstone on Jul 10, 2022

This is not a myth. I wonder why you didn¨t mention it in the interest of a balanced discussion?

So, about those gas prices. As economists at the St. Louis Fed recently pointed out, there’s a longstanding phenomenon in the fuel market known as asymmetric pass-through or, more colorfully, rockets and feathers. When oil prices shoot up, prices at the pump shoot up right along with them (the rocket). And when oil prices plunge, prices at the pump eventually fall, but much more gradually (the feather)."

"So a few days ago, President Biden tweeted an appeal to “the companies running gas stations” to “bring down the price at the pump to reflect the cost you’re paying for the product.” Indeed, wholesale gasoline prices have fallen about 80 cents a gallon since early June, while the decline in retail prices has been less sharp."

"In such a situation, badgering gas stations to get their prices down may actually make some sense. We can argue about its effectiveness, but it’s not stupid, given what we know about the relevant market dynamics."

"What at least a few readers may notice is that the market power explanation of rockets and feathers — an explanation with an impeccable academic pedigree, developed by economists who had no obvious political ax to grind — is pretty much the same argument politicians like Elizabeth Warren have made about how monopoly power may have contributed to recent overall inflation. That is, some politicians argue that corporations have taken advantage of a generally inflationary environment to jack up their markups, in the belief that they will face less public backlash than they would in normal times. And this exploitation of market power has pushed inflation even higher."

Please ask the oil companies why that is.

Mark Silverstone's picture
Mark Silverstone on Jul 10, 2022

I take issue with your premise that Big Oil is just responding to market forces and really doesn´t make that much money compared to "Big Tech".  Why? In a word, it is "tax", a subject that you seem to avoid. 

You did note that ExxonMobil´s earnings in 2021 were $20.3 Billion.  What you did not mention is that ExxonMobil´s US earnings in 2021 were $9.3 Billion (pre-tax US earnings minus state and local taxes owed) and they paid $262 Million in Federal Taxes.  That´s a whopping 2.8% tax rate!  Sorry, that really is obscene, despite your protestations of a "myth." ("“Big Oil” profits are obscene).  Even Microsoft coughed up 9.7% of their earnings. 

It is interesting that ExxonMobil´s tax bill to non-US countries for 2021 was a much higher percentage of the $20 Billion than 2.8%.  How could that be?

The answer is that the US tax system is well and truly broken.  I won´t get into an argument about who broke it.  I will say that AT&T takes the cake with $29.6 Billion in earnings and negative $1.2 Billion in taxes.

I think we might agree on one thing: Lobbyists, lawyers and accountants cost a lot of money.  But they more than make up for it to the benefit of ExxonMobil.  I wish I could understand why a company that has a profit of "X" cannot pay a reasonable percent of it in taxes. Period. After all, investors wait with baited breath to hear their earnings reports and invest accordingly. Everyone, except the IRS, apparently.

OK. I´ll be reasonable. Maybe they can deduct interest on a home mortgage like you and I do. Most Americans do.

But please. Do not justify Big Oil´s profits and paying very little tax as "timeless law of supply and demand". Permit me to call it corrupt.

Oh, by the way, regarding "The majority of “Big Oil” stock is owned by everyday Americans through their 401k and pension plans", ExxonMobil is using $10 billion of what they didn´t pay in taxes to reduce the number of everyday Americans who own stock. That sounds like a plan!

 

Ron Miller's picture
Ron Miller on Jul 11, 2022

Mark, if ExxonMobil is not paying their legal tax, that is a problem with the IRS, their competency, and  not doing their only job. My "supply/demand" comment is only made to indicate that ExxonMobil, Saudi Aramco, and everyone else in the hydrocarbon industry is subject to that law; no guaranteed profits (look at $20 billion loss in 2020), and market forces are indeed in action. 

If ExxonMobil stockholders (mutual funds etc.) don't like the price ExxonMobil is offering for a stock buyback, no one is pointing a gun to them to sell. They do it if they think that is the best financial decision afforded to them regarding the stock at that point in time. Other companies do stock buybacks as well, not just oil and gas companies.

Michael Keller's picture
Michael Keller on Jul 11, 2022

The radical left (A.KA. Democratic Party and green energy mafia) has already proclaimed they intend to get rid of fossil energy. Fact. That policy means means there is no sound financial reason to invest in future long-range capital projects to increase production capabilities. Nor is there no particularly sound economic reason to properly maintain existing capability over the longer haul.

The higher cost of fossil energy is EXACTLY what the radical left and Democratic Party intend and are causing.

Julian Silk's picture
Julian Silk on Jul 14, 2022

Basic corporate-finance theory tells us that, when a company announces a stock buyback, it is announcing to the world that it thinks the stock is cheap.[8] That announcement, and the firm’s open-market purchasing activity, often causes the company’s stock price to jump, so the SEC has adopted special rules to govern buybacks.

Those rules, first adopted in 1982, provide companies with a safe harbor[9] from securities-fraud liability if the pricing and timing of buyback-related repurchases meet certain conditions.[10] After experience proved that buybacks could be used to take advantage of less-informed investors,[11] the SEC updated its rules in 2003, though researchers noted that several gaps remained.[12]

In the meantime, the use of stock-based pay at American public companies has exploded.[13] Although these pay programs present many challenges, the one that I’ve spent much of my career thinking about is how to make sure that corporate management has skin in the game—that is, how to keep top executives from cashing out stock they receive as compensation.[14]

from a speech by Robert J. Jackson, Jr. , SEC Commissioner, at

https://www.sec.gov/news/speech/speech-jackson-061118

You don't have to like the stock buybacks.  But, given the likelihood that interest rates will continue to rise, and stock prices will continue to fall in response, you will see more.  Unless there is a structural change in the corporate laws, to give the executives some financial incentive  to put the money into corporate operations as opposed to rewarding themselves, Ron Miller is basically right - this is a system-wide flaw.  It is spotlit now because of the anger at high fuel prices, but if there is a recession and public attention shifts, the corporate executives will do the same thing.  The firms can't shift costs easily with changes in economic conditions, so there could easily be corporate losses in a recession, and it is not like one can expect any non-OPEC government to have special sympathy for the oil companies.

targetfend robics's picture
targetfend robics on Jul 28, 2022

I disagree with your assertion that Big Oil only reacts to market factors and actually earns less money than "Big Tech." Why? It is, in a word, "tax," a topic you seem to avoid.  

drift boss

Ron Miller's picture
Ron Miller on Aug 1, 2022

targetfend robics What examples do you have of oil companies not reacting to market signals (high prices, try to produce more, and low prices, reduce future investment)? Seems like they react to the market as a rational business should. From my graphs, oil did earn less than Big Tech. What other graphs/proof can you offer to engage the conversation? Thanks, Ron

Ron Miller's picture
Thank Ron for the Post!
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