Asking for explanation on gas prices vs oil company profits.

It is purely supply and demand. When the market is flooded, crude oil is cheap. Upstream companies like Oxy, Chevron, Shell, Exxon, and other producers will always benefit from higher crude oil prices when they can get their oil to market. That is why the market watchers are so focused on OPEC, they can basically flood the market at will.

I’m not that familiar with refineries but I’m pretty sure their margins are pretty consistent. I imagine there are times when gasoline supply might be in question. So the refineries setup to make more gas may have higher margins.

Edit: Their costs are kind of fixed if they are a producer. It costs 5 billion dollars or whatever to make some oil on a giant offshore platform. The variable part of what they make is operating expense and what they sell the crude for.

Are you talking anout refiners or operators? Some are both. For operators its incredibly simple.

The US refinery capacity has been reduced by 1.2 million barrels per day since covid. You can thank Biden and his policies that target oil and gas for this. There was a massive list of these policies posted two weeks ago on here.

Also, Biden said publically multiple times that he will end fossil fuels in America. He would rather ask opec to produce more oil than have us be energy independent.

Assuming margins

Refiners probably can protect margins

Mom and pop gas station maybe not

A good way to think about Oil & gas companies is to think about fully integrated ones (for example, the majors such as Exxon-Mobil, Chevron, Shell, BP, Total)

What does this mean? They:
1. Explore for, drill, produce oil & gas
2. Refine/manufacture crude into gasoline, jet fuel, distillates, vacuum gas oil, etc.
3. Trade/supply/distribute
4. Market their products (wholesale and retail fuel brands on street)

#1 - explore for/drill/produce part of business sells crude oil and gas. When their market price shoots up significantly (like is the case), their profit / cash flows do, as well. Those who have large LNG business are particularly seeing large profits / cash flows.

#2 - the crack spread between crude into refinery and wholesale margin has been high (demand outpacing supply)

#3 - Those that have large trading & supply business, whereby some, believe it or not, sell more products than they produce (up to 4:1, sell:produce) are finding profits where supply is tight (energy supply structural shifts in Europe/Russia).

#4 - this part of business is where costs have gone up (ie, #1 - 3 prices are up and this is what #4 buys (internally)...simiplistically speaking). This is where profits are not as strong as of 1H22.

In short, oil companies sell oil & gas and most of what they sell have seen market prices shoot up and cost structure has not.

quote:

---

The US refinery capacity has been reduced by 1.2 million barrels per day since covid. You can thank Biden and his policies that target oil and gas for this.

---

While the direction of the energy industry is indeed in play, oil is a world market. As proud as I am to be an American, the profits explanation is far less to do with Biden than the world events that are in play in the world oil market.

Get a strong sense that many on this board think that crude price is regional (Americas, Europe, Asia, etc.), and it is NOT. Gas, however, is regional.

Also get a strong sense that many on this board see the world through political lens and few things will change that. Be aware of the blind spots when you do that (no matter which party you are).

One particular blind spot that I have sensed in many on this board is the number of variables that go into this complex subject. While it is not incorrect to spotlight the political factors, it is not accurate to explain away all things that make up complex oil & gas industry and markets to politics.

quote:

---

The US refinery capacity has been reduced by 1.2 million barrels per day since covid. You can thank Biden and his policies that target oil and gas for this.

---

As much as I think the President and his administration are idiots when it comes to energy policy, several of the refineries that have shut down or converted had those plans in place before Joe Biden took office.

quote:

---

gas prices went up yet oil and gas companies are reporting record profits.

---

Simply math. Let's assume gas company profits average 10% of gross refined fuel sales. 10% of $2/gallon is greater than 10% of $5/gallon. Also, every day that goes by, they're instituting new cost-cutting initiatives that heretofore didn't exist. You can also increase profits by lowering expenses.