Looking for more Oil

[SecondAttempt]

I seem to recall that the current administration was pressuring oil companies to increase production (while also chastising them for high profits) earlier this year but they resisted, citing that they had “learned their lesson” in years prior when chasing high prices and then got burned. Given that, does that make American oil companies like OPEC, controlling supply to increase price? This isn’t meant to be a political question, but more of an observation.

Well there is a relatively simple solution that no administration in the last 50 years has had the guts to pursue. OPEC is an illegal cartel under US law. Simply subject any OPEC official who attempts to enter the US to arrest and detention and trial and they will pay attention.

We have done it with the Debeers diamond cartel.

The children of OPEC offcials could not go to university and graduate school in the US, ships and yachts flagged in OPEC countries or that have visited OPEC countries could be barred from US ports, etc.

The fact is, there is plenty that we can do but very little that we will do.

As someone said, we hardly depend on OPEC these. We produce enough oil of our own. We simply don't have the right kind of refineries. If the oil companies were forced to retool we could be energy independent fairly quickly.

 

[indiajust]

The reserve is a saltdome reservoir in the Southeast.

I like luke gromen and forest for the trees approach. Government can print money, but not energy. He thinks this is the end for the petrodollar that has exported us inflation since we left the gold standard under nixon.

 

[Koolau]

If our so called allies that control the oil spickets want to play games with supply, maybe we should reduce our military/tech support in proportion as reciprocity.

I'm guessing the Chinese will gladly take up any slack we might create in that department.

 

[TripleLindy]

Based on another discussion, I did some research and discovered something that I had heard of before, but never knew the details.

U.S. oil companies export roughly 8.5 million barrels of crude oil and refined fuel per day. That’s almost half the total daily U.S. consumption. If that oil/fuel was kept here for domestic use, what would that do to U.S. prices? It’s not that we don’t produce enough oil, it’s that U.S. companies are allowed to send it overseas. Additionally, you’ll hear lots of carping about the government not allowing U.S. companies to drill on federal land. Even ignoring that they’re currently exporting as much as they are, there are more than 9,000 drilling permits availability today on more than 12m acres of federal land.

So again, the issue isn’t the government, regardless of the party in power, but that the oil companies have found a very profitable model (see their quarterly reports) and they are sticking to it. In that sense, they’re not all that different from OPEC, controlling supply to maintain high prices.

 

[aja8888]

Based on another discussion, I did some research and discovered something that I had heard of before, but never knew the details.

U.S. oil companies export roughly 8.5 million barrels of crude oil and refined fuel per day. That’s almost half the total daily U.S. consumption. If that oil/fuel was kept here for domestic use, what would that do to U.S. prices? It’s not that we don’t produce enough oil, it’s that U.S. companies are allowed to send it overseas. Additionally, you’ll hear lots of carping about the government not allowing U.S. companies to drill on federal land. Even ignoring that they’re currently exporting as much as they are, there are more than 9,000 drilling permits availability today on more than 12m acres of federal land.

So again, the issue isn’t the government, regardless of the party in power, but that the oil companies have found a very profitable model (see their quarterly reports) and they are sticking to it. In that sense, they’re not all that different from OPEC, controlling supply to maintain high prices.

Another post by someone who doesn't know the oil business!

I have 35 years in the oil and gas business. I worked for a major and some smaller companies in operations and engineering.

In the simplest terms:

Crude oil makeup is different depending what basin it comes from. Some crude oil is heavy in sulfur, some light in API gravity. Some crude oil is caustic, some is thin and almost like gasoline. Some is so thick, it has to be heated with steam to flow.

Refineries are designed to refine specific types and grades of crude oil. We haven't built a new refinery here in the US (of any large size) for decades. So what we have in refining capacity is based on crude supply basins decades old. And we have found new sources of crude oil in the last decade (North and South Dakota, some new areas in Texas, etc).

While refineries can be upgraded to run different grades of crude, it's very expensive and long term project work, and generally has marginal payback. Some of this has been done already.

We export crude to several countries, like Mexico which has an energy business that is falling apart. We import crude since some refineries can't process some of our grades of crude due to refineries not having the right configuration or the crude oil is 3,000 miles away.

We also export finished products like LNG, diesel, gasoline, fuel oil, condensate, etc. That's because it's available here and we can sell it to those who NEED it. We also trade oil and gasoline as commodities on a worldwide basis.

Some of our hydrocarbon products get sold into the chemical industries as feed stock for plastics (the computer you are typing on), medicines, auto components (tires, expanded polystyrene parts like dashboards), and host of other finished goods you would recognize if mentioned.

Anyway, the hydrocarbon business is complicated, very complicated and employs millions of people in this country. And it's not a handful of CEO sitting in a conference room planning on how to screw the public with higher prices.

 

[TripleLindy]

Another post by someone who doesn't know the oil business!

I have 35 years in the oil and gas business. I worked for a major and some smaller companies in operations and engineering.

In the simplest terms:

Crude oil makeup is different depending what basin it comes from. Some crude oil is heavy in sulfur, some light in API gravity. Some crude oil is caustic, some is thin and almost like gasoline. Some is so thick, it has to be heated with steam to flow.

Refineries are designed to refine specific types and grades of crude oil. We haven't built a new refinery here in the US (of any large size) for decades. So what we have in refining capacity is based on crude supply basins decades old. And we have found new sources of crude oil in the last decade (North and South Dakota, some new areas in Texas, etc).

While refineries can be upgraded to run different grades of crude, it's very expensive and long term project work, and generally has marginal payback. Some of this has been done already.

We export crude to several countries, like Mexico which has an energy business that is falling apart. We import crude since some refineries can't process some of our grades of crude due to refineries not having the right configuration or the crude oil is 3,000 miles away.

We also export finished products like LNG, diesel, gasoline, fuel oil, condensate, etc. That's because it's available here and we can sell it to those who NEED it. We also trade oil and gasoline as commodities on a worldwide basis.

Some of our hydrocarbon products get sold into the chemical industries as feed stock for plastics (the computer you are typing on), medicines, auto components (tires, expanded polystyrene parts like dashboards), and host of other finished goods you would recognize if mentioned.

Anyway, the hydrocarbon business is complicated, very complicated and employs millions of people in this country. And it's not a handful of CEO sitting in a conference room planning on how to screw the public with higher prices.

A little touchy, huh? That’s ok. You’re correct, I’ve never been in the oil and gas industry and am certainly not offended by someone correcting me when I’m wrong. For the life of me, however, I have no idea what you’re trying to communicate. That we need more refineries? Earlier in the thread, you were advocating for more drilling, or at least saying the government was preventing it. That the industry is complex? Yep, I agree. That oil and gas execs are not milking profits? Got to disagree with you there. Exxon just reported the highest quarterly profit of any oil company in history ($17.9b), Chevron $11.6b, Shell $11.5b, BP $8.5b (obviously British, not U.S., but record profits nonetheless.) Those are easily verifiable facts.

 

[jurgs01]

Based on another discussion, I did some research and discovered something that I had heard of before, but never knew the details.

U.S. oil companies export roughly 8.5 million barrels of crude oil and refined fuel per day. That’s almost half the total daily U.S. consumption. If that oil/fuel was kept here for domestic use, what would that do to U.S. prices? It’s not that we don’t produce enough oil, it’s that U.S. companies are allowed to send it overseas. Additionally, you’ll hear lots of carping about the government not allowing U.S. companies to drill on federal land. Even ignoring that they’re currently exporting as much as they are, there are more than 9,000 drilling permits availability today on more than 12m acres of federal land.

So again, the issue isn’t the government, regardless of the party in power, but that the oil companies have found a very profitable model (see their quarterly reports) and they are sticking to it. In that sense, they’re not all that different from OPEC, controlling supply to maintain high prices.

We would lose our status as world reserve currency if we did that.

 

[aja8888]

A little touchy, huh? That’s ok. You’re correct, I’ve never been in the oil and gas industry and am certainly not offended by someone correcting me when I’m wrong. For the life of me, however, I have no idea what you’re trying to communicate. That we need more refineries? Earlier in the thread, you were advocating for more drilling, or at least saying the government was preventing it. That the industry is complex? Yep, I agree. That oil and gas execs are not milking profits? Got to disagree with you there. Exxon just reported the highest quarterly profit of any oil company in history ($17.9b), Chevron $11.6b, Shell $11.5b, BP $8.5b (obviously British, not U.S., but record profits nonetheless.) Those are easily verifiable facts.

Sorry about the touchy stuff...having a bad day.

 

[Montecfo]

US companies export oil and refined products and they import a similar amount of oil and refined products.

This has to do with where markets for products are located and what refineries are able to process.

As was explained earlier, "oil" describes a wide variety of products, not one homogeneous fuel.. Different refineries are setup to best process specific types of oil. One size does not fit all.

 

[TripleLindy]

We would lose our status as world reserve currency if we did that.

If you’re referring to banning exports, that’s not accurate. We had a ban that restricted exports overseas for 40 years until it was lifted in 2015 due to pressure during the budget/shutdown negotiations. If we just reinstated that ban, we’d have much more oil and gas available in the U.S.

 

[TripleLindy]

Sorry about the touchy stuff...having a bad day.

No worries at all! Hope things improve for you!

 

[indiajust]

My understanding of the refinery situation is no one wants to risk billions in capital and speculate in construction of a long lived capital asset that is politically attacked and financially marginalized by ESG. Add in the permitting nightmare and construction delays... it is a non starter.

This eliminates competition, which is good for existing refiners and raises the profits they can extract. Existing refinery owners benefit from the political impasse.

Calls for financial repression and trade restrictions are the next stage of the ongoing sovereign debt default that caused commodity/currency values to shift. Wage and price controls are logical also.

When Nixon left the gold standard and stagflation followed the surge in money printing for the wars of the moment... the government of that time used this exact same playbook. Demonize industry with "windfall" profits tax, export restrictions, wage and price controls.

And then they set up the petrodollar.

If the US imposes export restrictions... the petrodollar regime falls with the next oil contract. And many trillions of US dollars and debt get sold for local currency. And 50 years of money printing comes home to roost.

 

[TripleLindy]

If the US imposes export restrictions... the petrodollar regime falls with the next oil contract. And many trillions of US dollars and debt get sold for local currency. And 50 years of money printing comes home to roost.

Maybe you’re right, I don’t know. What I do know is that we had export restrictions from the mid-70s until 2015. Why reinstating those same restrictions only 7 years later would cause 50 years of money printing to come home to roost is lost on me.

 

[indiajust]

Restrictions had little effect, US mostly an importer until recently. Shale and natural gas revolution changed US into independent energy producer. That is the difference between 1970 and 2020. We have independent supply now.

aja8888 post very relevant, oil industry complex and interwoven import/export/refine/process worldwide. Not as simple as just having some shale oil/gas. Not an industry you would be able to put back together if it was broken by trade restrictions.

Still big difference is new US energy supply and more US debt. Petrodollar collapse would be a 10 ish trillion dollar onetime hit to inflation. The entire planets annual energy bill is tied up in dollars that would be available to spend once petrodollar contracting stops. Need crystal ball. I suspect Germany and Japan will not sacrifice their own population to a bad winter, but who knows?

 

[Exchme]

The US is a net crude importer, producing about 12MBPD and consuming about 20MBPD. All that happens when we export is we send the light sweet (low sulfur) crude that we have in excess (due to shale wells) to overseas refineries overseas that will pay a premium for it as many of those are simple and lack the ability to clean up and process heavier, nastier crudes.

Meanwhile, the US brings in cheaper crudes that are heavier, higher sulfur and more difficult to process as that better fits our are complex refineries. US refineries could be switched to light crudes at a capacity penalty, but limiting where our own oil can go penalizes US producers by lowering the price they get, which will cause people to stop drilling here. Sort of the opposite of what we want.

You sometimes hear that we are energy independent, to the extent it is close to true it is because we sell a lot liquified natural gas (LNG) overseas.

 

[Fire2019]

A little touchy, huh? That’s ok. You’re correct, I’ve never been in the oil and gas industry and am certainly not offended by someone correcting me when I’m wrong. For the life of me, however, I have no idea what you’re trying to communicate. That we need more refineries? Earlier in the thread, you were advocating for more drilling, or at least saying the government was preventing it. That the industry is complex? Yep, I agree. That oil and gas execs are not milking profits? Got to disagree with you there. Exxon just reported the highest quarterly profit of any oil company in history ($17.9b), Chevron $11.6b, Shell $11.5b, BP $8.5b (obviously British, not U.S., but record profits nonetheless.) Those are easily verifiable facts.

Is that profit such a bad thing? Google made $19b per quarter in 2021 on less revenue. Does that make them bad too. It should considering the amount of money at risk an oil company has compared to Google.

 

[Car-Guy]

Is that profit such a bad thing? Google made $19b per quarter in 2021 on less revenue. Does that make them bad too. It should considering the amount of money at risk an oil company has compared to Google.

And I could do without Google for the most part, but not so much O&G.

 

[TripleLindy]

Is that profit such a bad thing? Google made $19b per quarter in 2021 on less revenue. Does that make them bad too. It should considering the amount of money at risk an oil company has compared to Google.

No, not at all. In fact, it is the epitome of capitalism in its purest form - maximize profits. My point in highlighting it was as a counter to all of the rhetoric about government restrictions being the cause of high gas prices. I'll concede that the government plays a role, but I'd submit that the oil and gas industry has much more control over pricing and is often overlooked. While there are ample opportunities for more drilling right now, including on federal land, energy companies choose not to do so, which is their prerogative. And the comments regarding refinery capacity are duly noted.

 

[street]

I been involved with large O&G companies most of my working life. My observation is that they have way too much power and I believe they control the prices more than people think. IMO only.

Why not more refineries, why are they all in one area where weather has them shut down every time a cloud comes up? So, many questions that need to be answered but seems like those are off limit to make things better.

Our Gov. plays a part in those decisions also. I believe the O & G world could be run more efficient with better decision making so it can be sustainable and more consistent.

The power these companies have is huge and very controlling and dictating.

 

[ERD50]

... My point in highlighting it was as a counter to all of the rhetoric about government restrictions being the cause of high gas prices. I'll concede that the government plays a role, but I'd submit that the oil and gas industry has much more control over pricing and is often overlooked. ...

If the oil/gas industry has so much price control, why did Exon Mobile lose so much money in 2020~2021? Why does their net profit margin for the past 12 years have only one quarter above 10% (10.67%, and as low as minus 12.36%)?

https://www.macrotrends.net/stocks/charts/XOM/exxon/net-profit-margin

If I eyeball that average at ~ 8%, that's ~ $0.337 net profit per gallon @ current IL price of $4.22/gallon. But Fed and state tax is ~ $0.587 - the government takes in about 1.7x what the gas companies are.

-ERD50

 

[ERD50]

.... Why not more refineries,... .

I'd guess that current regulations make it difficult to open a new refinery. IIRC, there has been a lot of expansion of refinery capacity - probably some 'grandfathering' of regs, or just easier on an existing site?

And with the government pushing EVs and so much anti-fossil-fuel sentiment, it might be difficult to raise funds with such an uncertain future (not that gasoline is going away, but can growth be justified?)

.... The power these companies have is huge and very controlling and dictating.

But more than the government? See my previous post.

-ERD50

 

[Mark1]

I been involved with large O&G companies most of my working life. My observation is that they have way too much power and I believe they control the prices more than people think. IMO only.

Why not more refineries, why are they all in one area where weather has them shut down every time a cloud comes up? So, many questions that need to be answered but seems like those are off limit to make things better.

Some folks might still believe that the major O&G companies have a huge interest in the refinery business, which is not entirely true. I worked for ~26 years at one of the majors and over that time I worked at 2 refineries and billed time to at least 15 different locations out of a head office technology center. Currently, all but two locations have been divested or closed.

As Bob Dillon would say, "the times they are-a-changin".

 

[TripleLindy]

If the oil/gas industry has so much price control, why did Exon Mobile lose so much money in 2020~2021? Why does their net profit margin for the past 12 years have only one quarter above 10% (10.67%, and as low as minus 12.36%)?

https://www.macrotrends.net/stocks/charts/XOM/exxon/net-profit-margin

If I eyeball that average at ~ 8%, that's ~ $0.337 net profit per gallon @ current IL price of $4.22/gallon. But Fed and state tax is ~ $0.587 - the government takes in about 1.7x what the gas companies are.

-ERD50

I highly doubt that there’s a direct line from O&G margins to the margin per gallon at the pump. The supply chain is long and complex, with many other organizations in between. Using O&G margins at the end of that line isn’t a valid calculation. Having said that, the gasoline tax is obviously an component of the overall price, but the federal gasoline tax hasn’t changed since 1993, so we can eliminate that as a contributor to rising prices.

As far as margins in ‘20-‘21, virtually the entire world was shut down. It’s not a period that many would use for anything other than to highlight an extreme situation.

Your point regarding net profit rate is interesting, but it doesn’t change my opinion that O&G companies have more control over pricing than the government.
I’d submit that the long-term macro trends actually support that argument. Look at how steady those margins are over the long-term, obviously excluding the pandemic years. That’s an indicator of an industry that knows exactly what it’s doing, controlling supply based on demand and therefore managing prices within a range. And there’s nothing wrong with that - Exxon is clearly a well-managed organization.

Again, my point was never to bash oil companies. It was to counter the argument that government restrictions on drilling are the main cause of high gas prices. That’s an argument that you hear over and over, and many people just accept it as true. However, when you look at the facts, it doesn’t hold water.

 

[street]

Some folks might still believe that the major O&G companies have a huge interest in the refinery business, which is not entirely true. I worked for ~26 years at one of the majors and over that time I worked at 2 refineries and billed time to at least 15 different locations out of a head office technology center. Currently, all but two locations have been divested or closed.

As Bob Dillon would say, "the times they are-a-changin".

O&G do supply the raw materials to those refineries and that control/power gives them leverage. O&G controls this world we live in. It all revolves around black gold and what I have seen with US O&G is all finger pointing and very poorly run and mismanaged. To me it is one of the most crooked businesses in the WORLD. Oil industry is at the top of the power scale.

I'm not disagreeing or agreeing with all that has been said. Articles on the subject we are talking about may have some truth but may be just bits and pieces to the oil industry.

I'm all for O&G we need it and puts a lot of people to work in the US. With the highest paying jobs.

 

[street]

So, what I have read so far here, there is no shortage of oil in the US. So, if supply and demand regulate prices why is oil and by products so high.

The answers will be the over sea war, covid and everything under the sun. From refineries shut down because of storms etc. Some of those same causes credited to high prices. Those same causes can be fixed and made better, but it doesn't happen. Markets are made by the producers and the refineries and oil power.