Extract Wholesale
Extract Wholesale
If Exxon-Mobil drills its own oil, why do they charge as though they were buying it from a cartel?
If I buy wholesale, I get a discount because there are fewer profit-takers between the manufacturer and myself. If Exxon is extracting and refining its own oil - and selling it in its own stations, but some other company is buying it from the Saudis or from Venezuela, why wouldn't the Exxon gas be cheaper?
If this turns out to be an incredibly stupid question, I'll most likely remove it. At the moment, though, it looks to me like the profit-taking for the monolithic petroleum companies like Exxon-Mobil is the main reason why they don't offer a competitive price to the consumer.
If it were pure supply-and-demand, though, there would be competition. Exxon would sell gas marginally cheaper so that more customers would fill up at their stations. The Damon analogy doesn't hold up very well. He's a truly scarce commodity (there's only one of him). There's actually no scarcity of oil right now. Also, the US economy doesn't run on Damons, it runs on oil.
First, there's the basic concepts here: http://www.npr.org/templates/story/story.php?storyId=5365439
There are at least 2 factors.
1. There is currently enough oil supply in the US, but Exxon drills for a fraction of its own oil because
a) the oil in the US is very low quality and expensive as crazy to refine. The Middle East oil is very nice light sweet crude oil. I might be wrong on this, but I think this is the case.
b) refining adds much to the cost, especially after the hit in capacity after Katrina.
You can see this effect from
crude oil prices: http://tonto.eia.doe.gov/oog/info/twip/twip_crude.html
gas prices: http://tonto.eia.doe.gov/oog/info/twip/twip_gasoline.html
This is our daily usage: http://tonto.eia.doe.gov/oog/info/twip/twip_crude.html#inputs
US companies can pump nowhere near that. I don't have the numbers handy, but I'm sure you can Google it pretty easily.
Exports account for 60+% of our oil and it's rising: http://www.eia.doe.gov/emeu/mer/pdf/pages/sec1_15.pdf
In additon, other countries are starting to industrialize and demand more oil: http://www.eia.doe.gov/emeu/ipsr/t24.xls
Exxon will sell at market price, and they don't really determine the market price themselves as you read in the article at the very top. It's more the futures market and those oil futures traders. They see the higher demand. They see the unstable future supply and the futures prices go up.
I really wouldn't call that 10% profit margin cartel-like: http://finance.yahoo.com/q/is?s=XOM&annual
I have no idea what OPEC's margins are but I'm sure they're much much better than Exxon's. You could say that Exxon is price-gouging that last 10% and should give it back, but lots of companies run higher than 10% margins and it's not called price gouging.
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