by Devilstower
Sat Aug 02, 2008 at 07:00:15 AM PDT
At first, the fact that Exxon Mobil scored the biggest quarterly profit for any company in history may seem like the central (and maddening) point of Thursday's press release, but looking past the top number shows several more interesting items.
First off, that record $11.68 billion is less than expected, sending Exxon Mobil's shares down on Wall Street. Why did they underperform the analyst's expectations? Well, with rising oil prices come rising amounts of overseas strife.
Production tumbled 7.8 percent after assets were seized in Venezuela, Nigerian workers went on strike and record prices triggered contract clauses that give oil-rich governments a bigger share of output.
Countries that are selling oil -- from Russia to Iran -- are getting richer as the prices climb, and they see less and less reason to give any of their wealth to the big international companies. Exxon Mobil, like other companies, finds that their leverage is slipping.
But there's an even more interesting calculation at work. While Exxon Mobil was cranking out record profits on oil production, its refineries were actually bringing in less money than last year. Why?
Profits from its refining business totaled $1.6 billion in the quarter, less than half of what they were last year. ... Oil prices in the quarter were nearly twice as high as the same time last year, while gasoline prices were an average of nearly 30% higher.
Oil prices doubled, but the price of the biggest product produced from oil didn't follow suit. Exxon was unable to maintain the same margins on their refining business that they have in the past. And there's a good reason for that.
Americans drove 9.6 billion fewer miles in May 2008 than in May 2007, according to federal data released Monday. The 3.7 percent decline was the third-largest monthly drop in the 66 years the Department of Transportation has been collecting the data.
For decades, gasoline has been considered a commodity that lives by its own special rules. In a country that was designed around highways, gas was required to get Americans to work, school, and stores. It wasn't fungible, and demand wasn't tightly coupled to price. Whatever they asked for it, Americans would be forced to pay.
As it turns out, that's not entirely true. The sharp decline in miles driven and even sharper turn away from low mileage vehicles shows that gas is not a product untouched by pricing. $4 gas turned out to be enough to make Americans simply park it. Which, paired with increasingly bad signs in the economy, was enough to spur a retreat in the price of oil. If the increased price of oil had been directly reflected at the pump this year, we'd be looking at $6 gas -- and likely taking actions that would put Exxon's future in serious doubt. They took lower profits at the refineries because they had to.
Even more interesting is where Exxon spent its money.
On an earnings-per-share basis,
http://www.dailykos.com/storyonly/2008/8/2/1002/80386