Exxon-Mobil

In reply to GameboyRMH :

Lets look at that 11% number another way.

Assume a typical working adult, making the US average full-time salary.  We'll call our hero "Shelley".

Shelley makes about $54,000 a year.  11% net profit margin on that is $5,940 a year.

After living expenses and taxes, that $5,940 is what Shelley has left over for savings, travel, entertainment, gifts, hobbies, and any similar optional expenditures.

$5,940 does not seem like an unreasonable amount of extra money for Shelley to make, does it?

Shelley's profit margin for this year is exactly the same as Shell's profit margin.

In reply to Duke :

I think we agree on most or possibly all of facts, but we'll just have to agree to disagree about the acceptability of an oil company growing profits 70% in the middle of a war where oil prices are the aggressor's bread and butter.

Another common theme here is people arguing that a period of low profit creates or at least justifies a period of unusually high profit following it, but that makes no sense. The only situation that could create such an effect would be a period of pent-up or restrained demand. As for justifying it, it should be obvious that no person or business is entitled to higher profits after a dry spell, if a restaurant tried that for example they'd probably just go out of business, and every member of Gen. Y and Gen. Z isn't going to get a few hundred grand tacked onto their paychecks for being born into a long-running economic trainwreck for the working classes. The low-competition environment of the oil market just lets companies get away with rapidly making up for past shortfalls through price gouging.

Are there not more cars than ever on the road this week than last week, and the week before that, and so on?  Seems like sales going up because more people than ever are demanding your product is a given.

Duke said:

In reply to GameboyRMH :

Lets look at that 11% number another way.

Assume a typical working adult, making the US average full-time salary.  We'll call our hero "Shelley".

Shelley makes about $54,000 a year.  11% net profit margin on that is $5,940 a year.

After living expenses and taxes, that $5,940 is what Shelley has left over for savings, travel, entertainment, gifts, hobbies, and any similar optional expenditures.

$5,940 does not seem like an unreasonable amount of extra money for Shelley to make, does it?

Shelley's profit margin for this year is exactly the same as Shell's profit margin.

Ignoring the actual amounts of money involved actually makes this exercise in scaling completely useless. There's a huge difference between a worker having $5.4k in discretionary income from 11% profit margin and a megacorp making a record profit in the tens of billions from 11% profit margin. Those record decabillions can and will pay for lavishly opulent luxuries Shelley could never dream of. They're completely incomparable situations. If Shelley the worker was making the exact same amount of profit per year but her profit margin was 90%, I'd still be kind of worried about Shelley's lack of discretionary income.

Also if Shelley made 70% more while selling gas (never happens with individuals IRL, but just hypothetically) in 2022/2023, it would be fair to say that Shelley's profits increased due to the Russia/Ukraine war, and that she could've made it less profitable for Russia by maintaining her previous profit level and reducing prices instead,

In fact this highlights why the profit margin percentage is not the end-all be-all, absolute amounts matter too.

racerfink said:

Are there not more cars than ever on the road this week than last week, and the week before that, and so on?  Seems like sales going up because more people than ever are demanding your product is a given.

Not necessarily, newer cars are more fuel efficient (or don't take fuels at all) compared to older ones, plus fuel demand is pretty elastic even over the course of the year (see memorial weekend price bump), so it doesn't just rise constantly over time:

In reply to GameboyRMH :

I think what we have to agree to disagree on is that you seem to think rich people are bad, and I don't.

If circumstances cause a high demand and/or low supply of whatever Shelley does for a living, I sure as hell hope they make 70% more profit that year.

And I completely disagree that the numbers don't scale.

GameboyRMH said:

racerfink said:

Are there not more cars than ever on the road this week than last week, and the week before that, and so on?  Seems like sales going up because more people than ever are demanding your product is a given.

Not necessarily, newer cars are more fuel efficient (or don't take fuels at all) compared to older ones, plus fuel demand is pretty elastic even over the course of the year (see memorial weekend price bump), so it doesn't just rise constantly over time:

While long term demand may be somewhat steady (supporting your statement), this graph doesn't tell us what demand looks in a shorter window (i.e. the end of the graph until now) as more people are continuing to travel in increasing numbers and more companies are moving away from WFH forcing people back into the office.

In reply to GameboyRMH :

Ignoring the actual amounts of money involved actually makes this exercise in scaling completely useless. There's a huge difference between a worker having $5.4k in discretionary income from 11% profit margin and a megacorp making a record profit in the tens of billions from 11% profit margin. Those record decabillions can and will pay for lavishly opulent luxuries Shelley could never dream of. They're completely incomparable situations. If Shelley the worker was making the exact same amount of profit per year but her profit margin was 90%, I'd still be kind of worried about Shelley's lack of discretionary income.

Also if Shelley made 70% more while selling gas (never happens with individuals IRL, but just hypothetically) in 2022/2023, it would be fair to say that Shelley's profits increased due to the Russia/Ukraine war, and that she could've made it less profitable for Russia by maintaining her previous profit level and reducing prices instead,

In fact this highlights why the profit margin percentage is not the end-all be-all, absolute amounts matter too.
 

Once again, you are missing a huge chunk of the story. You picked a snapshot and passed judgement without any context. You are missing everything that came before, and what happens after. "Lavishly opulent luxuries?" Where do you think company profits go? 
 

I'll try to word this in a manner that avoids politics. We- both in the US and in Europe- put ourselves in this situation with our energy policy. If you are looking for the greed- look into the decisions that led to Europe being dependent on Russia for their energy. They traded their security for cheap energy (cheap at the time at least.) There were a LOT of warnings about those decisions, yet few expected the consequences to come to quickly. 
 

Also, a tip on your sources. When the source you link to has a "Fear/Greed" meter above their article, they may be a bit biased. 

In reply to Duke :

When talking economic impact, net margin is only half of the equation in regards to essential commodities directly tied to inflation, that are involuntarily subsidized by the consumer, and might even be more appropriately regulated as public utilities... The other half of that is inflation. 

If net profit dollars rise in direct correlation with inflation due to supply/demand changes, but net margin remains at normally targeted levels, then the companies maintain plausible deniability about the willful intent behind the magnitude of their price increases contributing to inflation and its economic impacts. If it's the net margin that rises substantially above their normally targeted levels in direct correlation with inflation, then the companies lose that plausible deniability.

Driven5 said:

In reply to Duke :

When talking economic impact, net margin is only half of the equation in regards to essential commodities directly tied to inflation, that are involuntarily subsidized by the consumer, and might be more appropriately regulated as public utilities... The other half of that is inflation. 

If net profit dollars rise in direct correlation with inflation due to supply/demand changes, but net margin remains at normally targeted levels, then the companies maintain plausible deniability about the intent and magnitude of their price increases contributing to inflation and its economic impacts. If it's the net margin that rises substantially above their normally targeted levels in direct correlation with inflation, then the companies lose that plausible deniability.

I, personally, do not believe that 11% (Shell) to 13% (Exxon Mobil) net profit margins is an unreasonable "normally targeted level".

In reply to tuna55 :

Yep. Profit aka retained earnings aka savings is what allows businesses to invest and more importantly keep people employed during market downturns. A decent profit margin is more important to a healthy economy for the "little guy" than some seem to understand. 

In reply to GameboyRMH :

Duke said:

In reply to GameboyRMH :

I think what we have to agree to disagree on is that you seem to think rich people are bad, and I don't.

While that may be something we disagree on (I think that incomes beyond a certain level are inherently damaging to an economy because they're paid through a misallocation of other workers' productivity) I think it's only a small part of the issue here. If Exxon or Shell were companies with modest and highly equal incomes and they put those increased profits into worker bonuses instead of dividends and stock buybacks, the issue of war profiteering and supporting the aggressor's profitability would still be there.

I may be beating a dead horse to the point where it may turn into a fossil fuel. But  what expertise do you possess that qualifies you to decide what the proper income or profit an individual or company should make? While I'm sure the poor Exxon and Shell workers appreciate that you are looking out for them, I don't think they need it. They do very well. You can look up their average salary ranges for various positions, more than a few sites publish that info. Many get bonuses. They appear to be well paid- many likely running into your arbitrary "beyond a certain point" incomes. That would be ironic if you are advocating for raises and bonuses for those that already "make too much." 

Boost_Crazy said:

In reply to GameboyRMH :

 

I may be beating a dead horse to the point where it may turn into a fossil fuel. But  what expertise do you possess that qualifies you to decide what the proper income or profit an individual or company should make? While I'm sure the poor Exxon and Shell workers appreciate that you are looking out for them, I don't think they need it. They do very well. You can look up their average salary ranges for various positions, more than a few sites publish that info. Many get bonuses. They appear to be well paid- many likely running into your arbitrary "beyond a certain point" incomes. That would be ironic if you are advocating for raises and bonuses for those that already "make too much." 

Oh I know the big oil workers make lots of money and I'm not suggesting that pay increases are generally needed there, pay at those companies generally ranges from "generous" to "ludicrous."

In reply to Duke :

What you, I, or anybody else individually believes to be a reasonable margin for any given good or service is irrelevant here. If the company themselves believe a margin to be reasonable, then they would not alao normally target a lesser margin during periods of geopolitical calm and economic prosperity.

.

In reply to tester (Forum Supporter) :

Some people also don't seem to understand that the only way that profit/retained earnings/savings function as an economic buffer like that, is when the build-up occurs during economic and geopolitical good times, and actually gets leveraged out during periods of economic and/or geopolitical strife.

Building up profit/retained earnings/savings during a period of economic and/or geopolitical strife provides less-than-zero benefit to economic health, let alone the little guy who is involuntarily subsidizing it all... All of which completely neglects that corporate profits do not actually get retained as functional savings in the first place. 

I don't think Margin is even entirely relevant to discussing oil companies.  Yes, they have a margin, but they do not set the margin (like, for example Walmart does).  The margin they have (between production costs and market value) will determine what and how much they produce (more "margin" means more expensive production can be justified).  To simplify a bit (from what I understand):

- They have essentially fixed production costs

- Prices are (globally) set by the market

Thus, if prices go up, by definition their margin increases, thus profits increase, completely unaffected by their actions (ignoring market manipulations by OPEC etc).  Even if they wanted to sell at a reduced price, that would essentially be impossible, the market would just bid it up to the market level.

And, if prices go down, the margin shrinks, or disappears and means only cheaper production becomes viable (e.g. low prices means tar sands no longer make economic sense).  Of course, lower production generally drives up prices.

If you want to see huge margins in oil production... take a look at Saudi Arabia.  They are in the same market but can produce oil at around $12 a barrel as apposed to Shell / Exxon in the US at around $40 / barrel.  (They are of course a major player in OPEC, so you can certainly blame them for market manipulation)

In reply to Driven5 :

In reply to Duke :

What you, I, or anybody else individually believes to be a reasonable margin for any given good or service is irrelevant here. If the company themselves believe a margin to be reasonable, then they would not alao normally target a lesser margin during periods of geopolitical calm and economic prosperity.

.

In reply to tester (Forum Supporter) :

Some people also don't seem to understand that the only way that profit/retained earnings/savings function as an economic buffer like that, is when the build-up occurs during economic and geopolitical good times, and actually gets leveraged out during periods of economic and/or geopolitical strife.

Building up profit/retained earnings/savings during a period of economic and/or geopolitical strife provides less-than-zero benefit to economic health, let alone the little guy who is involuntarily subsidizing it all... All of which completely neglects that corporate profits do not actually get retained as functional savings in the first place. 

You seem to be only looking at one side of the curve. Commodities are tough, because the value of the product can vary wildly with the market, largely disconnected from the cost to produce it. When commodity prices rise, profits rise, because the value rose disproportionately to the cost to produce it. But the opposite is true on the other side of the curve. The cost to produce it does not drop even if the value of the commodity plummets. It wasn't that long ago that the value of a barrel of oil briefly went negative. Supply so far outstripped demand that it couldn't be sold and had to be stored. That is why profits need to be looked at long term. The companies aren't causing the economic or geopolitical strife. They are just along for the ride, during the good times and bad times. 

GameboyRMH said:

If there's profit to be made from an atrocity, of course Shell is in:

https://www.cnn.com/2023/02/02/investing/shell-earnings-profits-intl-hnk/index.html

 

Taken another way it could be that Shell's decision making in past decades to invest more in LPNG as a share of its produced hydrocarbons has afforded Europe a path to replacing Russian gas with that from other sources.  These decisions were considered highly risky, for a major oil company to pivoting from core oil production to cleaner (and at the time) less profitable gas.   Purchasing BG Group for $70B in 2015, invested $12b to develop the Prelude floating LPNG facility in (about) 2013 and developing LPNG trains with Qatar gas around the same time.  

I don't think they anticipated the Russian invasion when they made those decisions but IMO it was a good thing for Europe (and others) that they did.

In reply to aircooled :

In reply to Boost_Crazy :

I'll agree that ordinarily there has typically been a largely reasonable correlation between annual net margin and average annual crude price, such that cost to produce vs crude price could plausibly be argued as the main driver of the net margin:

When crude jumped to the $90-$100 range in 2011-2014, Exxon made 7.75%-10% net margin.

When crude dropped to half or less of those highs in 2016, Exxon similarly made half or less of those net margins at under 4%.

.

However, the numbers seem to paint a different portrait of what has been occurring in recent years:

2022 had a 35%-75% higher net margin than 2011-2014, despite the same average crude prices, indicating far lower costs to produce in 2022.

2020 had a 400% lower net margin than 2016, despite only a 9% lower crude price, indicating far higher costs to produce in 2020.

If we're sticking with the assumption that cost to produce vs crude price is the main driver of net margin, did the cost to produce really go from one absolute extreme to the other in a 2 year span, despite the relative consistency over the previous decade? That doesn't seem particularly plausible. It would seem to me that part of the risk/reward equation may have been significantly altered in recent years.

In reply to Driven5 :

But everything sold in 2022 was not necessarily produced in 2022. Remember how upside down 2020 was? When oil was pretty much worthless at the time? There was a lot of oil put into storage. When oil prices were low in 2020, demand was also low. They couldn't sell as much. So while margin percentage suffered, it was over a smaller chunk of revenue. They didn't have to sell a lot of the low priced oil, because they couldn't. When the prices rose, demand also rose. So they sold more of the high priced oil. 

In reply to Driven5 :

I don't know, but what else would it be?  Maybe what Boost is saying. It's certainly not them saying "hey, we want to make money, let's charge more", they simply can't do that. There are certainly other cost within a company that might be adjusted (or passed forward?, lots of accounting tricks).  They may cut back on exploration / research and save money, but that could certainly cost them in the future.  The simple fact remains:

If you don't, and can't, set the price of your product, how can any profits be called excessive?

(more specifically, how can you blame them for it?)

The "solution" to "excessive profit" in the oil industry of course is higher production, which should naturally occur with rising prices, which will drop prices.  Spoilers such as OPEC manipulation and governmental production restrictions can mess with this process of course.

The recent oil market would be very difficult to call "typical", so I would not draw too many conclusions from it.  Many times you will not get full perspective on things until they are averaged over time.  As noted, the commodities markets are especially weird by how they are sold, so it's hard relate them to typical businesses (e.g Walmart).

The average price of a gallon in MD is $3.47.

$.42 of that is State Tax. ExxonMobil did a hell of a lot more to earn their 31 cents than MD did to earn more than them. Where's the outrage?

In reply to aircooled :

Because anyone who makes over [insert arbitrary salary here] working for a [insert arbitrary industry here] corporation above [insert arbitrary size here] that makes over [insert arbitrary dollar amount here] profit is obviously an evil greedy bastard.

Duh.

I just think its hilarious to see Biden demand more oil one day then want more electric cars the next.

Boost_Crazy and aircooled:

I want to thank you for two things. First for actually engaging in a reasonable, rational, and respectful discussion. Second for your comments that have helped me to find a better understanding of the situation, through the statements you've made as well as the additional research they led me to do.

That being said, I'm now more convinced than ever that BOTH 'sides' of the arguments here are equal-and-opposite in their wrongness, or at least the wrongness in how they're presenting the situation. No, the oil companies can't and don't directly set the pricing per se, which means that they also can't and don't directly set their margins like other industries can and do. But no, they are also not just along for the ride, as they still have other identified methods which they can and do use to indirectly manipulate both pricing and their margins. They're effectively playing the same game as every other industry, just a higher-stakes version that they have worked hard to keep their actual pricing and profitability "trade secrets" largely outside of the typical public discourse.

Unfortunately, I don't really know how to clearly explain it further at this time. However, what I'm seeing now also includes plausible explanations both ways regarding whether their direct contribution to the magnitude of the actual margin increases for 2022 were intentional or unintentional... Or even more likely, some combination there of.