8 ms·

Shell profits nearly triple as oil prices surge

51 points by kitkat_new 4y ago

jleyank 4y ago
Gee, what a surprise. Last time I checked, the oil producing regions of Canada aren’t providing their product to Canada at a discount to help reduce gas prices here. That would reduce their profits, violate fiduciary duty, blah blah blah.
- Danieru 4y ago
  Oh but they are. Alberta's producers are forced to sell at a discount due to low/no pipeline capacity. What keeps Canada's gas prices high are lack of refining capacity. Much of Canada's oil is shipped down south, refined in America, and sold back to Canadians.
  - jleyank 4y ago
    I would check this as there is refining capability throughout Canada to handle local consumption. Shipping refined gas is a problem as it goes boom too easily, Canada needs the pipelines to get their product to market as Alberta is landlocked. Newfoundland has open access but it’s at the back of beyond. Edit: https://www.cer-rec.gc.ca/en/data-analysis/energy-commodities/crude-oil-petroleum-products/report/2019-gasoline/index.html https://www.cer-rec.gc.ca/en/data-analysis/energy-commoditie... Turns out that building key pipelines in other countries is stupid as a Canada to Canada pipeline went through the us. Probably cuz it was cheaper and who would have thought there’d be a difference of opinion between neighbours.
    - Danieru 4y ago
      Nice reference. It even has a page with historical graphic data showing the gradient in gasoline prices. In 2019, the newest year, it lists Edmonton at 118.9cents and Vancouver at 167.4cents. A rather massive gradient considering in theory these two markets are connected by pipeline. Note how Kamloops, also in BC and subject to the same taxes, is at 139cents.
  - jleyank 4y ago
    It’s also tougher to refine. Heavier than the good stuff which frustrates the producers.
- coldcode 4y ago
  If you own producing wells the cost is mostly constant other than transportation; if the price goes up, you make more money. Pricing for gas is different, the price is dependent on the price of crude, the availability of refining, the distance from refining to the pump, and demand for driving. Thus the price fell off of a cliff during the pandemic since no one went anywhere. The price of crude is dependent on demand and supply. The price of crude was $20-25 lower before the war started which is likely more economic; it went up because Russia is a large supplier and losing/reducing that supply caused the spike. People love to blame a market when the price goes up and forget to blame the market when the price goes down. At one point during the pandemic the futures price crashed below zero. No one complained. You may not like oil companies, but oil is about as basic a market as you can get as long as there is no collusion (aka cartels like in the 70's). Arguing we should no longer use crude for burning is different; I'd rather see renewables to provide energy and heat.
rkangel 4y ago
Can anybody suggest why normal competition isn't working here? One would expect providers of an identical product to push their prices down to the minimum profitable level to compete with others doing the same. From a consumer point of view, why is Texaco (for example) not charging significantly less for its fuel (while still retaining a healthy margin) and capturing all the market, triggering similar in other providers and a general downward price pressure? Is it in fact a demand vs supply thing, and even if they had a bigger market they couldn't supply it due to limitations on production and refinery capacity?
- refurb 4y ago
  Because in a resource and capital intensive industry the good years pay for all the costs to date. In bad years you might break even in terms of variable costs but contribute nothing towards capital costs. Gasoline variable costs might be [cost of oil] + $6/bbl, while full baked in fixed and variable costs are [cost of oil] + $25/bbl. It looks like profit now only because the capital expenditures were in prior years. It’s like building a house for $500,000 cash and asking the landlord why they charge $2,000 a month in rent when their costs are only $500 per month in property taxes, maintenance and insurance. The oil industry and many other similar industries couldn’t survive if they only charged the marginal cost of extraction and refinement and ignore the fixed costs of operation.
- bretpiatt 4y ago
  The constraints are in the shipping and refining. When demand goes up exploration and production (firms who find and get it out of the ground) get to charge more as end users fight over the limited supply. Due to environmental regulations it is very difficult to build refineries, pipelines, import / export terminals, etc. This is why when prices go up from $65 to $105 you do not see production companies increase supply further to get the extra sales, there's no way for them to get another barrel to the end customer.
  - akrymski 4y ago
    I don't buy this argument. Assume the oil has already been dug up and refined. Two gas stations next to each other: Shell & BP should compete on price to the point that minimum profit margins are established. This doesn't happen because it's not in their interest to compete. Instead it's in their interest to collude and maintain prices as high as possible knowing full well that a new player won't enter the market any time soon. The oil cartel is alive and well.
TamDenholm 4y ago
This video explaining why prices are so high might be valuable to this discussion: https://www.youtube.com/watch?v=AQbmpecxS2w https://www.youtube.com/watch?v=AQbmpecxS2w
- sofixa 4y ago
  I just knew it'd be that video. His content on the war in Ukraine, and pretty much everything, is very good.
akrymski 4y ago
Tax payers are paying for this war in the form of higher energy bills. The oil cartel and major shareholders (Vanguard, BlackRock, Chase etc) are getting the rewards.
- breakfastduck 4y ago
  It is, frankly, disgusting.
- adam_arthur 4y ago
  Oil prices were 50% above prepandemic levels even before the war. The war is just one more element to the puzzle, not the primary reason oil prices are high. A developing structural gap between supply and demand is the primary one. Despite hopes about a green world, oil demand increases globally every year. If we don't invest in new production, prices will continue to increase
breakfastduck 4y ago
Absolutely absurd that consumers are expected to stomach huge COL increases so that these companies can triple their profits.
- esotericimpl 4y ago
jmyeet 4y ago
Biden has clearly taken a hit for these high energy prices. Here's my sincere hope: that people start to realize this is nothing more than unjustifiable, opportunistic greed by oil companies that would be no different in any other administration. Just like with foreign policy, there's absolutely zero difference between the US political parties here. None. The conversation we should have as a consequence of this is why are we giving away natural resources to allow private companies to make massive profits paying the government just a token for the privilege? The US (and every other country) should have a model like Norway where they get the lion's share of the profits from resource extraction. As an example of how far we are from this, look no further than the case of Steven Donziger. He is an American lawyer who helped Ecuador obtain a $9.5 billion judgement against Chevron for the massive pollution Chevron caused in Ecuador. As a result of this, Chevron found a friendly US judge to appoint a private oil law firm to criminally prosecute Donziger for fraud (in the US). He has been disabarred in New York for his "extravagant" pursuit of Chevron and charged with criminal contempt. Donziger had a bail set of $800,000 for a misdemeanour contempt charge and spent over two years in home detention. I bring this up as a stark example of just how beholden the US government is to corporate interests.
- kmlx 4y ago
  > that people start to realize this is nothing more than unjustifiable, opportunistic greed by oil companies i assume no one was complaining when petrol was below 2015 levels during the 2020-2021 covid period. or when the US spent close to $10 trillion on covid. or when shell made a loss in 2020. sources: https://www.statista.com/statistics/262860/uk-brent-crude-oil-price-changes-since-1976/ https://www.statista.com/statistics/262860/uk-brent-crude-oi... https://www.statista.com/statistics/260287/shells-net-income/ https://www.statista.com/statistics/260287/shells-net-income... https://www.covidmoneytracker.org/ https://www.covidmoneytracker.org/
- 0des 4y ago
  > no different in any other administration disagreed.
mensetmanusman 4y ago
Sometimes I wonder what an alternative timeline would look like had Tesla not existed. Would the auto-makers have made a move by now to EV?
- 0des 4y ago
  ...they did, several times before tesla.
  - polygloty 4y ago
    Yes, as half-heartedly as GM's EV1. Musk and the boys were really committed to the cause.
shiftpgdn 4y ago
This is a pretty bizarre comment section. Oil companies have a fixed extraction cost and the market sets the price of the commodity they produce. Should Google arbitrarily force the price of ads lower when the instant bid happens for ad placement? I saw no tears shed for the oil industry when prices completely collapsed in 2015 causing the bankruptcy of thousands of companies over the following six years.
- ZeroGravitas 4y ago
  Bankruptcy? As in them legally not paying the debts they owed? And yet here they all are making record profits. Weird that they couldn't plan well enough to deal with the ups and downs. Though it's a nice, unanticipated bonus for them that they get to ditch their debts with bankruptcy every so often. Wouldn't want those record profits going to pay off debts.
  - shiftpgdn 4y ago
    Oil companies aren’t silos where everything is done in house. Supermajors depend on tens to hundreds of service companies to accomplish literally anything. For example on the exploration side almost 100% of the companies who do offshore surveying have gone bankrupt in the last 6 years. And they continue to go bankrupt! Ion geophysical went into chapter 11 just two weeks ago with prices at an all time high. As far as I know there is just one company left who can do deep water surveys and they’re busy for years to come. Think about how that affects the ability for a supermajor to drill new oil wells.
    - ZeroGravitas 4y ago
      This is a known strategy used by big players in every industry. You can bully small suppliers and contractors into bankruptcy and basically get free work at their (and then societies) expense. The ex-president was a big fan of this tactic. https://fortune.com/2016/09/30/donald-trump-stiff-contractors https://fortune.com/2016/09/30/donald-trump-stiff-contractor... Apparently US law encourages this and relies on repeat business to keep it in check, so watch out if you deal with an industry that looks like it's coming to an end. People will try to cash out while still owing you money.
Panzer04 4y ago
I’m a little surprised at the vitriol towards market forces here. What would happen if we fixed prices? Make things even worse longer term as no incentive exists to reduce consumption and increase production. The shale boom has made oil companies reluctant to increase production only to see them get screwed down with low prices later. Even more ironic when tech companies have far more market power and fully exploit it, both to the benefit of shareholders and their employees. (Not arguing against that either, those stratospheric returns drive new companies to try and improve to take their place)
- giraffe_lady 4y ago
  The idea that "market forces" is a neutral thing we can only accept, like the weather, is a particular ideology that is widely, but not universally, accepted. There are people behind these forces and people beneath their consequences. The balances here are the result of choices we've made and vitriol is a valid reaction to those results. Personally I'm very comfortable directing that vitriol at the actual people who benefit from the exploitation of these market powers at the expense of others. But everyone isn't there yet so you have to give them a little room to be proxy mad at the "market forces" in the mean time.
- belltaco 4y ago
  Why not tax say 20% of the new profits and help the poorest who are most hit by gas price inflation?
specialist 4y ago
Wind fall taxes are the remedy to price gouging, excessive profits, runaway exec compensation, etc. Let the belligerents have their fun in the "free market". Publicly recognize all the "winners" with Presidential Medals of Awesomeness, karma, and ambassadorships. (Bravo, well done. Now please go away.) Then claw it all back with repeated radical cashectomies. "The secret of great fortunes without apparent cause is a crime forgotten, for it was properly done." -- Honoré de Balzac

51 points by kitkat_new 4y ago

Gee, what a surprise. Last time I checked, the oil producing regions of Canada aren’t providing their product to Canada at a discount to help reduce gas prices here. That would reduce their profits, violate fiduciary duty, blah blah blah.

Danieru 4y ago
Oh but they are. Alberta's producers are forced to sell at a discount due to low/no pipeline capacity. What keeps Canada's gas prices high are lack of refining capacity. Much of Canada's oil is shipped down south, refined in America, and sold back to Canadians.
- jleyank 4y ago
  I would check this as there is refining capability throughout Canada to handle local consumption. Shipping refined gas is a problem as it goes boom too easily, Canada needs the pipelines to get their product to market as Alberta is landlocked. Newfoundland has open access but it’s at the back of beyond. Edit: https://www.cer-rec.gc.ca/en/data-analysis/energy-commodities/crude-oil-petroleum-products/report/2019-gasoline/index.html https://www.cer-rec.gc.ca/en/data-analysis/energy-commoditie... Turns out that building key pipelines in other countries is stupid as a Canada to Canada pipeline went through the us. Probably cuz it was cheaper and who would have thought there’d be a difference of opinion between neighbours.
  - Danieru 4y ago
    Nice reference. It even has a page with historical graphic data showing the gradient in gasoline prices. In 2019, the newest year, it lists Edmonton at 118.9cents and Vancouver at 167.4cents. A rather massive gradient considering in theory these two markets are connected by pipeline. Note how Kamloops, also in BC and subject to the same taxes, is at 139cents.
- jleyank 4y ago
  It’s also tougher to refine. Heavier than the good stuff which frustrates the producers.
coldcode 4y ago
If you own producing wells the cost is mostly constant other than transportation; if the price goes up, you make more money. Pricing for gas is different, the price is dependent on the price of crude, the availability of refining, the distance from refining to the pump, and demand for driving. Thus the price fell off of a cliff during the pandemic since no one went anywhere. The price of crude is dependent on demand and supply. The price of crude was $20-25 lower before the war started which is likely more economic; it went up because Russia is a large supplier and losing/reducing that supply caused the spike. People love to blame a market when the price goes up and forget to blame the market when the price goes down. At one point during the pandemic the futures price crashed below zero. No one complained. You may not like oil companies, but oil is about as basic a market as you can get as long as there is no collusion (aka cartels like in the 70's). Arguing we should no longer use crude for burning is different; I'd rather see renewables to provide energy and heat.

rkangel 4y ago

Can anybody suggest why normal competition isn't working here? One would expect providers of an identical product to push their prices down to the minimum profitable level to compete with others doing the same. From a consumer point of view, why is Texaco (for example) not charging significantly less for its fuel (while still retaining a healthy margin) and capturing all the market, triggering similar in other providers and a general downward price pressure? Is it in fact a demand vs supply thing, and even if they had a bigger market they couldn't supply it due to limitations on production and refinery capacity?

refurb 4y ago
Because in a resource and capital intensive industry the good years pay for all the costs to date. In bad years you might break even in terms of variable costs but contribute nothing towards capital costs. Gasoline variable costs might be [cost of oil] + $6/bbl, while full baked in fixed and variable costs are [cost of oil] + $25/bbl. It looks like profit now only because the capital expenditures were in prior years. It’s like building a house for $500,000 cash and asking the landlord why they charge $2,000 a month in rent when their costs are only $500 per month in property taxes, maintenance and insurance. The oil industry and many other similar industries couldn’t survive if they only charged the marginal cost of extraction and refinement and ignore the fixed costs of operation.
bretpiatt 4y ago
The constraints are in the shipping and refining. When demand goes up exploration and production (firms who find and get it out of the ground) get to charge more as end users fight over the limited supply. Due to environmental regulations it is very difficult to build refineries, pipelines, import / export terminals, etc. This is why when prices go up from $65 to $105 you do not see production companies increase supply further to get the extra sales, there's no way for them to get another barrel to the end customer.
- akrymski 4y ago
  I don't buy this argument. Assume the oil has already been dug up and refined. Two gas stations next to each other: Shell & BP should compete on price to the point that minimum profit margins are established. This doesn't happen because it's not in their interest to compete. Instead it's in their interest to collude and maintain prices as high as possible knowing full well that a new player won't enter the market any time soon. The oil cartel is alive and well.

TamDenholm 4y ago

This video explaining why prices are so high might be valuable to this discussion: https://www.youtube.com/watch?v=AQbmpecxS2w https://www.youtube.com/watch?v=AQbmpecxS2w

sofixa 4y ago
I just knew it'd be that video. His content on the war in Ukraine, and pretty much everything, is very good.

akrymski 4y ago

Tax payers are paying for this war in the form of higher energy bills. The oil cartel and major shareholders (Vanguard, BlackRock, Chase etc) are getting the rewards.

breakfastduck 4y ago
It is, frankly, disgusting.
adam_arthur 4y ago
Oil prices were 50% above prepandemic levels even before the war. The war is just one more element to the puzzle, not the primary reason oil prices are high. A developing structural gap between supply and demand is the primary one. Despite hopes about a green world, oil demand increases globally every year. If we don't invest in new production, prices will continue to increase

breakfastduck 4y ago

Absolutely absurd that consumers are expected to stomach huge COL increases so that these companies can triple their profits.

esotericimpl 4y ago

jmyeet 4y ago

Biden has clearly taken a hit for these high energy prices. Here's my sincere hope: that people start to realize this is nothing more than unjustifiable, opportunistic greed by oil companies that would be no different in any other administration. Just like with foreign policy, there's absolutely zero difference between the US political parties here. None. The conversation we should have as a consequence of this is why are we giving away natural resources to allow private companies to make massive profits paying the government just a token for the privilege? The US (and every other country) should have a model like Norway where they get the lion's share of the profits from resource extraction. As an example of how far we are from this, look no further than the case of Steven Donziger. He is an American lawyer who helped Ecuador obtain a $9.5 billion judgement against Chevron for the massive pollution Chevron caused in Ecuador. As a result of this, Chevron found a friendly US judge to appoint a private oil law firm to criminally prosecute Donziger for fraud (in the US). He has been disabarred in New York for his "extravagant" pursuit of Chevron and charged with criminal contempt. Donziger had a bail set of $800,000 for a misdemeanour contempt charge and spent over two years in home detention. I bring this up as a stark example of just how beholden the US government is to corporate interests.

kmlx 4y ago
> that people start to realize this is nothing more than unjustifiable, opportunistic greed by oil companies i assume no one was complaining when petrol was below 2015 levels during the 2020-2021 covid period. or when the US spent close to $10 trillion on covid. or when shell made a loss in 2020. sources: https://www.statista.com/statistics/262860/uk-brent-crude-oil-price-changes-since-1976/ https://www.statista.com/statistics/262860/uk-brent-crude-oi... https://www.statista.com/statistics/260287/shells-net-income/ https://www.statista.com/statistics/260287/shells-net-income... https://www.covidmoneytracker.org/ https://www.covidmoneytracker.org/
0des 4y ago
> no different in any other administration disagreed.

mensetmanusman 4y ago

Sometimes I wonder what an alternative timeline would look like had Tesla not existed. Would the auto-makers have made a move by now to EV?

0des 4y ago
...they did, several times before tesla.
- polygloty 4y ago
  Yes, as half-heartedly as GM's EV1. Musk and the boys were really committed to the cause.

shiftpgdn 4y ago

This is a pretty bizarre comment section. Oil companies have a fixed extraction cost and the market sets the price of the commodity they produce. Should Google arbitrarily force the price of ads lower when the instant bid happens for ad placement? I saw no tears shed for the oil industry when prices completely collapsed in 2015 causing the bankruptcy of thousands of companies over the following six years.

ZeroGravitas 4y ago
Bankruptcy? As in them legally not paying the debts they owed? And yet here they all are making record profits. Weird that they couldn't plan well enough to deal with the ups and downs. Though it's a nice, unanticipated bonus for them that they get to ditch their debts with bankruptcy every so often. Wouldn't want those record profits going to pay off debts.
- shiftpgdn 4y ago
  Oil companies aren’t silos where everything is done in house. Supermajors depend on tens to hundreds of service companies to accomplish literally anything. For example on the exploration side almost 100% of the companies who do offshore surveying have gone bankrupt in the last 6 years. And they continue to go bankrupt! Ion geophysical went into chapter 11 just two weeks ago with prices at an all time high. As far as I know there is just one company left who can do deep water surveys and they’re busy for years to come. Think about how that affects the ability for a supermajor to drill new oil wells.
  - ZeroGravitas 4y ago
    This is a known strategy used by big players in every industry. You can bully small suppliers and contractors into bankruptcy and basically get free work at their (and then societies) expense. The ex-president was a big fan of this tactic. https://fortune.com/2016/09/30/donald-trump-stiff-contractors https://fortune.com/2016/09/30/donald-trump-stiff-contractor... Apparently US law encourages this and relies on repeat business to keep it in check, so watch out if you deal with an industry that looks like it's coming to an end. People will try to cash out while still owing you money.

Panzer04 4y ago

I’m a little surprised at the vitriol towards market forces here. What would happen if we fixed prices? Make things even worse longer term as no incentive exists to reduce consumption and increase production. The shale boom has made oil companies reluctant to increase production only to see them get screwed down with low prices later. Even more ironic when tech companies have far more market power and fully exploit it, both to the benefit of shareholders and their employees. (Not arguing against that either, those stratospheric returns drive new companies to try and improve to take their place)

giraffe_lady 4y ago
The idea that "market forces" is a neutral thing we can only accept, like the weather, is a particular ideology that is widely, but not universally, accepted. There are people behind these forces and people beneath their consequences. The balances here are the result of choices we've made and vitriol is a valid reaction to those results. Personally I'm very comfortable directing that vitriol at the actual people who benefit from the exploitation of these market powers at the expense of others. But everyone isn't there yet so you have to give them a little room to be proxy mad at the "market forces" in the mean time.
belltaco 4y ago
Why not tax say 20% of the new profits and help the poorest who are most hit by gas price inflation?

specialist 4y ago

Wind fall taxes are the remedy to price gouging, excessive profits, runaway exec compensation, etc. Let the belligerents have their fun in the "free market". Publicly recognize all the "winners" with Presidential Medals of Awesomeness, karma, and ambassadorships. (Bravo, well done. Now please go away.) Then claw it all back with repeated radical cashectomies. "The secret of great fortunes without apparent cause is a crime forgotten, for it was properly done." -- Honoré de Balzac