By Cliff Montgomery – Mar. 17th, 2012
For the five major oil companies, “market price and the production of key products are not closely related,” according to a recent federal study.
The American Spark is happy to present for its readers something they often don’t see–an easy-to- understand government report that concerns an issue of obvious concern for everyone.
The study was published by the Congressional Research Service (CRS) in February.
CRS reports are not officially released to the general public, even though they are unclassified documents – and even though the public’s tax dollars paid for them (making U.S. citizens the actual owners of these reports).
Below, The Spark also offers important quotes from the study to its readers:
“Periods of rising oil prices can result in reduced economic growth, rising prices, and reduced disposable incomes for consumers, as well as a deteriorating trade balance.”
“High gasoline prices, the most tangible result of high oil prices for consumers, reduce discretionary family income and influence decisions with respect to automobile choice and use.
“However, for companies involved in the oil industry, high oil prices generally result in expanding revenues and cash flow, and in some cases, record profit levels.”
“Although the U.S. oil industry is composed of many firms, to many the face of the oil industry is represented by the five major firms operating extensively in the U.S. market. These firms are ExxonMobil, Chevron, BP plc, Royal Dutch Shell plc, and ConocoPhillips.”
“These companies are involved in all aspects of the oil supply chain from exploration and production through transportation, refining, and retail marketing, both in the United States and globally. They are also very large relative to the rest of the industry, and large even when compared to the economy as a whole – in 2011 their revenues were equivalent to over 10% of U.S. gross domestic product.”
“Over the period 2007 to 2011, oil prices were volatile. They increased to a record peak in 2008, declined rapidly at the end of 2008 and early 2009, and increased through 2010, and remained high during 2011.
“The total revenues and net incomes of the five major oil companies followed a similar pattern. However, the companies’ production of both crude oil and natural gas, their two key products, remained largely unchanged in the face of volatile prices, suggesting that for these firms, market price and the production of key products are not closely related.
“During the period 2007 to 2011, the five major companies’ upstream activities of exploration and production contributed more to the total profitability of the firms than the downstream activities of refining and marketing.
“[But] During the period, capital budgets were more stable than the price of oil, and the companies’ exploration and production activities did little to increase their ability to produce oil or natural gas [Emphasis added].
“The companies used their profits to carry out a number of activities, to include the distribution of dividends to shareholders, the repurchase of shares on the market to enhance investor holdings, and to carry out business strategies.”
“This report examines the financial performance of the five major oil companies for the period 2007-2011. Both the sources and uses of revenue and profit are analyzed.
“The recent behavior of oil prices and company profits have led to changes in the structure of the market for oil in the United States which could have implications for gasoline prices and availability, and energy security. These issues are also analyzed in this report.”
