Houston Oil Industry

[Guest Plastic]

As you've noticed oil prices are sorta high now. This imeans bad luck for the motorists but good fortune for the oil companies. As a matter of irony most o f the oil companies are based here in Houston.

Oil companies are what drive Houston's economy. Now I know CEOs aren't eager to share but is any of that deniro seeing it's way out of the oil companies and into our local economy? Kind of a 2nd Oil Boom?

[JasonDFW]

Yes, most certainly. In many ways Houston is benefiting.

Jason

[Ethanra]

True, Houston benefits. From egineers to scientist to the blue collar guys, they all get paid more and new people are hired. Their wifes buy new cars and shop more, a trickle down effect is caused, everyone benefits. If I understand right, oil companies matain a 7% profit margin, The gov't taxes per gallon is more then what the oil companies make. The oil companies are not the bad guys, they add to the economy a lot more then take away. Companies like Walmart have a 12% profit margin, hire illegals, get 90% of the goods from other countries who have child laborers. Oil companies donate to charities more then any other type of company. Next time your buying that $5 coffee or $2 bottle of water think about that $3 gallon of gas. Oil companies are the back bone of this country, with out them we would be a third world country.

[Houston1stWordOnTheMoon]

True, Houston benefits. From egineers to scientist to the blue collar guys, they all get paid more and new people are hired. Their wifes buy new cars and shop more, a trickle down effect is caused, everyone benefits. If I understand right, oil companies matain a 7% profit margin, The gov't taxes per gallon is more then what the oil companies make. The oil companies are not the bad guys, they add to the economy a lot more then take away. Companies like Walmart have a 12% profit margin, hire illegals, get 90% of the goods from other countries who have child laborers. Oil companies donate to charities more then any other type of company. Next time your buying that $5 coffee or $2 bottle of water think about that $3 gallon of gas. Oil companies are the back bone of this country, with out them we would be a third world country.

nice quote by the way :)

[TheNiche]

As you've noticed oil prices are sorta high now. This imeans bad luck for the motorists but good fortune for the oil companies. As a matter of irony most o f the oil companies are based here in Houston.

Oil companies are what drive Houston's economy. Now I know CEOs aren't eager to share but is any of that deniro seeing it's way out of the oil companies and into our local economy? Kind of a 2nd Oil Boom?

Greater Houston Partnership - Economy at a Glance

This data is overwhelmingly positive news.

Basically, before the median joe (meaning someone who is employed by a firm in the Houston MSA with a household of $51,000 per year) starts to directly experience an upswing in terms of wage appreciation, the Houston MSA is going to have to reduce its unemployment rate slightly. In the mean time, there will be three big categories of people that will gain from high oil prices: 1) the presently-unemployed or those wishing to change jobs, 2) people in other cities moving to the Houston MSA, and 3) those with ownership positions in local establishments or real estate.

[nmainguy]

I took my Ford 150 to the gas station today. $50 maximum when the pump shut down. I was trying to fill up before the prices went even higher-didn't quite get there. So yes, plastic; it is definatly a boon for the oil companies-too bad for them they choose to cap my tank and miss the additional windfall.

Seriously, no this is NOT a second oil boon.

[TheNiche]

Seriously, no this is NOT a second oil boon.

Its certainly not as big of a boom as the 70's and early 80's were, but make no mistake about it: we are in a boom cycle, just as we were in a boom cycle in 1998...although the oil & gas producers jumped the gun on it and cut that one very short. Look up the BLS labor statistics for the Houston MSA.

Even under the best of circumstances, I must admit that because Houston's economy is so much more diversified than it had been in the big boom of the 70's/80's, we WILL NOT see the same kind of growth rate. It just isn't going to happen.

[Guest Plastic]

Well what I'm not understanding is how Oil COmpanies are profiting.

Oil producers are raising prices cause supply is low and ddemand is high. SO the oil companies who buy from them have to raise their prices just to sustain profit. Are they raising just to keep profit level or to get more $$$$?

[editor]

Well what I'm not understanding is how Oil COmpanies are profiting.

Oil producers are raising prices cause supply is low and ddemand is high. SO the oil companies who buy from them have to raise their prices just to sustain profit. Are they raising just to keep profit level or to get more $$$$?

Oil companies make about 9 cents a gallon profit on gas. Americans are using more gas than ever, driving bigger cars trucks and SUVs, and commuting longer distances, sitting in traffic longer, and in many cities developing the mindset that they can't walk three blocks to the convenience store -- they have to fire up the Hummer to get a loaf of bread.

[Houstonian in Iraq]

Oil companies make about 9 cents a gallon profit on gas. Americans are using more gas than ever, driving bigger cars trucks and SUVs, and commuting longer distances, sitting in traffic longer, and in many cities developing the mindset that they can't walk three blocks to the convenience store -- they have to fire up the Hummer to get a loaf of bread.

Yep that might be the only good thing coming out of these increases, people might just get off there bums and walk for a change.......or ride a bus......or a bike

[TheNiche]

Well what I'm not understanding is how Oil COmpanies are profiting.

Oil producers are raising prices cause supply is low and ddemand is high. SO the oil companies who buy from them have to raise their prices just to sustain profit. Are they raising just to keep profit level or to get more $$$$?

First of all, supply is not low and demand is high, but not so high as to threaten to outpace supply. Oil prices are high because energy traders must take into account the various geopolitical risk factors. If this nasty business with Iran cleared up tomorrow, prices would plummet because the risk of supply disruptions would be diminished.

Oil and gasoline are commodities. That is, they are divided into grades that are exactly the same in every respect and are traded in nearly perfectly competitive and very efficient markets. So, to begin with, oil producers are price takers...they do not set prices (although situations with some pipeline operators frequently make things really complicated on a wellhead-by-wellhead basis). In any case, they sell at the price that the market will bear. As it so happens, producers presently stand to make a significant profit by expanding operations...that's just how the numbers work out. So they will then produce more oil and make more money.

Refiners, also price takers, purchase oil and gas at market prices at the other end of the pipeline. Refining margins can be extremely volitile, fluctuating wildly from month to month. After Katrina and Rita, for instance, when so much refining capacity was knocked offline, the price of gasoline got bid up at a more rapid rate than oil did, breaking with its typical correlation, because there was a short-term supply disruption in the refining process that could not be immediately corrected through international commodity flows. As we enter this year's hurricane season, the risk of a similar event occuring is considered to be very high, so there is a risk premium placed upon the price of gasoline by commodity traders.

As far as the big oil companies are concerned, there really isn't very much opportunity for price-fixing to occur, and it would be extremely risky from a financial and political perspective to engage in any form of collusion because there are so many congressional investigations into such activities.

On the other hand, gasoline retailers, the individual owners of gas stations, frequently do have a say in how prices are set. That is where 'price gouging' occurs. I, myself, would argue that there is no such thing, or at least that it should not be illegal for an independent retailer to set prices as high or low as they like as long as all of a neighborhood's retailers do not collude to raise prices uniformly at the same time. Under normal circumstances, however there is a fair bit of competition in place and plenty of supply to meet demand, so the margins are pretty low. Gas stations typically make more money off of their convenience items than they do from gasoline sales.

So the bottom line is that there are profits in the energy industry because the numbers work at the moment. The numbers work because commodity traders place a premium on energy prices based upon perceived future risk, mostly of a geopolitical nature.

[RedScare]

I received an article from my brother last week that I should have posted here. It brought up a lot of Niche's points. In addition, an oil company like Exxon may be a producer, refiner and retailer. However, only 26% (I think) of Exxon's oil comes from it's own production. It must buy the rest from other producers, who may be charging that $70 you see on the news. So, while some of Exxon's oil may be cheap, 74% of it is expensive. And, as a for-profit corporation, it is their duty to sell the product at the price the market and competition will bear.

When all is said and done, consumers have more say than the government. True, government policies can affect political volatility, but consumers decide what to drive, and how much to drive. When I lived in The Woodlands, I drove 2,000 miles per month on $1.00 gas. I spent $125 per month. In the Heights, I drive less than 500 miles on $2.90 gas. I spend less than $100. If I choose to drive a different vehicle, it would drop further.

The anger is simple. Consumers want to drive what they want, as far as they want, at the price they want. As the politicians SHOULD be saying, Accountability begins at home. But, Houston still benefits from the crunch, be it our tool makers, drillers, pipeline operators, refiners or Big Oil.

And, those of us who own stock benefit too.

[musicman]

Yep that might be the only good thing coming out of these increases, people might just get off there bums and walk for a change.......or ride a bus......or a bike

I"ve been doing the bus and bike. But on the bus, I seem to be jeopardizing my life cause those bus drivers sure don't see the red lights! I'm surprised MORE people don't get maimed.

RedScare.....AMEN!

Edited May 4, 2006 by musicman

[RedScare]

More food for thought (though this may belong in another thread).

http://www.msnbc.msn.com/id/12617717/site/newsweek/

Only 6% of world oil is controlled by the Big Oil Companies. 77% is controlled by Governments.

[Guest Plastic]

I'm still not seeing how oil companies are making more profit. Are they making more than if the prices were low?

Say it should usually cost 89cents to buy a gallon of oil and refine. THey turn around and sell it to us to $1.70 THats a profit og 81 cents.

Now say suplly is low and demand is how. SO now it costs $1.45 to buy and refine. SO they'd have to sell at $2.26 to make the same 81 cent profit. Is that what they're doing or are they setting the price higher to say $2.53 and getting. $1.07 profit?

In other words is it evening out or are they seeing more profit than normal?

[TheNiche]

I'm still not seeing how oil companies are making more profit. Are they making more than if the prices were low?

Say it should usually cost 89cents to buy a gallon of oil and refine. THey turn around and sell it to us to $1.70 THats a profit og 81 cents.

Now say suplly is low and demand is how. SO now it costs $1.45 to buy and refine. SO they'd have to sell at $2.26 to make the same 81 cent profit. Is that what they're doing or are they setting the price higher to say $2.53 and getting. $1.07 profit?

In other words is it evening out or are they seeing more profit than normal?

What is it about competitive markets and the difference between price-taking and price-making that you don't understand?

Seriously Plastic, I know that you're college educated and consider yourself a bright guy, but what school did you go to that didn't require you to at least take an introductory microeconomics course?

[editor]

I'm still not seeing how oil companies are making more profit. Are they making more than if the prices were low?

Say it should usually cost 89cents to buy a gallon of oil and refine. THey turn around and sell it to us to $1.70 THats a profit og 81 cents.

No, that's not pure profit. That's income. There's a difference.

[Guest Plastic]

Profit not equal to income?

And I went to Devry. Studying was almost purely Electronics and Math.

Edited May 7, 2006 by Plastic

[Houston1stWordOnTheMoon]

Profit not equal to income?

And I went to Devry. Studying was almost purely Electronics and Math.

Should have gone to Rice University, all with good heads on their shoulders know its the best school :):)

[Guest Plastic]

Do you know how hard it is to get into Rice?

Edited May 7, 2006 by Plastic

[Montrose1100]

Do you know how hard it is to get into Rice?

Not if you know the right people (unfortunatley).