Why Exxon Won't Produce MoreWhy?
Most sound economic theory states that the higher the price of a product, the more of that product that a supplier would want to offer for sale. If Exxon cannot product more oil or gas in the USA, it is only because our own government won't let it.
Bingo. It costs them a lot less to simply charge more for what they are producing, rather than tying up a bunch of money in new production that will just reduce their profits by increasing supplies. That's what happens when you have a captive market and an inelastic demand.
Exactly. The excerpt here doesn't contain the money quotes:
"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%."(...)
"Less supply of a commodity means higher prices. Higher oil prices mean more profits for the oil companies."
How do you produce more if your source of supply decreases?
If you have any mutual funds in your IRA, 401-k or 403-b, chances are you own some.