Posted on 08/17/2005 2:09:32 PM PDT by WmShirerAdmirer
No. 1 oil producer beats forecasts, helped by bullish crude prices, but supply concerns weigh.
NEW YORK (Reuters) - Exxon Mobil Corp., the world's largest publicly traded oil company, posted a 32 percent rise in quarterly profit Thursday, fueled by a relentless surge in crude oil prices and strong refining profits.
But a more than 4 percent drop in oil and gas production in the second quarter tempered much of the enthusiasm, adding to Wall Street concerns that large oil companies are finding it increasingly difficult to boost output.
Nevertheless, like its peers, Exxon (down $0.34 to $59.26, Research) has continued to bask in the glow of an extended bullish run in oil and gas prices, spurred by soaring demand in Asia and increasingly stretched global supplies of crude. Oil prices topped $62 a barrel earlier this month to touch yet another record high.
Persistently strong refining and marketing margins also helped boost the company's bottom line.
"Oil and gas production volumes (and earnings) were disappointing in the quarter, but this was offset by a now-familiar bonanza in the refining and marketing division - particularly in the U.S.," Credit Suisse First Boston analysts said in a research note.
Net income was $7.64 billion, or $1.20 a share, in the second quarter, compared with $5.79 billion, or 88 cents a share, in the year-earlier quarter.
Excluding a $200 million charge for a lawsuit provision, the company earned $1.23 per share. Analysts, on average, expected Exxon to earn $1.22 per share, according to Reuters Estimates.
The Irving, Texas company, which has maintained a large stock buyback program as its cash pile soars alongside oil prices, said it would further increase its share repurchase level to $5 billion in the third quarter.
(Excerpt) Read more at money.cnn.com ...
Wouldn't the converse also be true then? That they could withhold the sale of those reserves and DRIVE the price higher? Isn't that exactly what DeBeers does with diamonds, create an artificial market by constraining supply? And since this model has been so successful for Exxon, isn't it likely the other gougers ... er, I mean ... producers ... would follow suit?
By the way, look at the profit reports from the other leading oil barons: Marathon, BP, Royal Dutch Shell ... They are all reporting double-digit profits. Profits, not revenues.
I understand all that. However, what I don't understand, are these oil people invested in anything else? The reason I ask is because people are going to cut back on everything else they buy. I know I have certainly cut back on nearly everything. No choice.
The result you just created: Higher energy prices in the long term.
Damn, you must be smiling like a cheshire cat everytime you pump that $2+ gas into your tank! Ever sit down and do the math to see if you are actually making any money?
OK, (I am no expert here) but if this is the case, why didn't these prices skyrocket like this a few years back? I read your post, and what I get is we are running out of fuel or running out of places to find it. Is this the bottom line here?
Yes, they could, but in the meantime they would be giving up massive cash flows under the hopes that they can then sell the oil higher. That's a risky bet. The problem with that is that investors can make such bets on their own in the futures market, and thus don't need Exxon to do it on their behalf. Investors cannnot, however, drill for oil, refine it, and sell it at gas stations on their own. Thus, they buy shares in Exxon to do it for them. Also, if Exxon did this, they unnaturally high prices would encourage new competitors to enter the market, harming Exxon in the long run.Isn't that exactly what DeBeers does with diamonds, create an artificial market by constraining supply?
Yes, but DeBeers is a monopoly. Exxon is not. Outside of OPEC, oil is perhaps the most efficient market in the world.And since this model has been so successful for Exxon, isn't it likely the other gougers ... er, I mean ... producers ... would follow suit?
No, because Exxon has not in fact done this. All of the oil companies are producing as much as they possibly can. Until a few months ago, I worked for a very large oil company. Trust me, they are all producing as much as they possibly can at these prices.
By the way, look at the profit reports from the other leading oil barons: Marathon, BP, Royal Dutch Shell ... They are all reporting double-digit profits. Profits, not revenues.
As they should be. They all sunk a lot of money into reserves over the last 10 years. They bought those reserves from people who assumed that prices would be in the mid-30's. (They also spent lots of money to find their own reserves). Since prices are higher than expected, they get to sell oil in the high 60's that their original plans assumed would be in the 30's. Thus, they are making massive profits on their reserves right now. I don't see what the problem is with that.
Not necessarily. There is more to the "energy industry" than just oil. It's possible that the capital markets would stop investing in the oil industry, but invest in other energy technologies instead.
Mmmm, maybe Exxon can now buy Saudi Arabia.
They can find all the oil they want, where are they going to refine it? Refineries are maxed out on production, remember? God forbid we piss off the greenies and build some new refineries.
LOL.
I understand what you're saying for sure. However, I have the feeling that shopping at Walmart is part of what has caused this. China is demanding more oil to make their cheap junk.
I'm not sure what you mean exactly, but prices spike in anticipation of shortages. That is why a slight increase in demand in the present results in a larger % increase in prices. For whatever reason, a few years ago these prices were not anticipated.
I read your post, and what I get is we are running out of fuel or running out of places to find it. Is this the bottom line here?
1. Demand is up.
2. Supply is having trouble keeping up with demand. You can attribute this to "running out of oil" or perhaps to the restrictions of finding new supply. The bottom line, here, however, is that there is a perception that we are "running" out of oil, or at least, easily recoverable oil. Therefore, prices go way up as everyone races to secure their supplies, and also specualtors increase demand for future production on the theory that they can re-sell it at a higher price.
Okay, so what is worldwide demand up by? I somehow doubt it's up by 70%.
You are reading my mind.
No, that is wrong. It is the obscene profits in the oil industry that drive the capital markets to sense that profits would be available if alternative energy sources could be developed. For anecdotal evidience of this, notice that nobody talks or cares about alternative energy sources when prices are low, only when they are high.
But it's moot, they sell a product and right now that product is in demand and they sell it at what the market will bear much like Honda. Note Honda didn't drop their price to "employee discount" when Chevy did. There's a reason; they don't have to in order to sell their product.
Just like they didn't get bailed out when the price of oil when to $10 a barrel. They were screwed since they were sitting on a ton of inventory it had cost them $20 a barrel to produce. No chance ethical consumers should have voluntarily paid more.
But here's something to think about. If it truly is a demand issue, especially due to emerging economies, typically those emerging economies are the hardest hit because they're usually 1) manufacturing types that depend a great deal on energy, 2) don't have pricing elasticity and 3) are under-capatalized.
Think the US in the 70's, very much more manufacturing than we are now and while it's unpleasant for the moment I can assure you that it's much more serious in India and China and things will sort themselves out. That doesn't mean there won't be pain in the meantime of course.
Chaney was right; the world would be better off with a stable oil price (more than the market price when he gave his number) but it ain't gonna happen and the biggest danger is the goobermint doing stupid things when the market gets irrational (my take on it at the moment).
The net result is that demand is pushed forward (i.e. toward the present date). If the normal demand is D, we now have D+F%, where F is the ''pushed'' demand expressed as a percentage of total demand. When excess capacity is tight, as now, price rises become self-reinforcing behaviour; I might not get what I need at satisfactory prices in future, so I'll buy now. And the price rises. Then the next chap says the same thing, etc. etc.
Oh, it'll stop after a time, certainly. We might even have seen a short-term top in the mkt today (what technical analysts sometimes call a ''key reversal'').
Well, yes, that is a part of the problem, no question about it. Theoretically, however, if there was plenty of oil being produced, say enough that with enough refinery capacity oil gas would be $1.00/gallon. Yet, because of refinery capacity being maxed out, gas is $3.00/gallon, you would quickly see the mexicans building refineries, and others around the world shipping gasoline in.
I am not denying the role that refineries play, but ultimatley it is the price of oil that is the major contributor, and not the refineries.
http://www.suntimes.com/output/news/cst-nws-gas17.html
Oh, and thanks for your insights.
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