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Shell and Mobil Hit Hard by Recession: It's a Matter of Perspective

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Contributor:
Dave Griffith
Dave Griffith

In our credit driven lives we need money, so we need the banks. In our demand for transportation and consumer goods we need oil, so we need the oil companies.

They have got us over a barrel so to speak. We need the banks and the oil barons. They understand this and are happy to make a killing together. After all there is no need to turn on each other when there is plenty of profit for all by milking the consumers. It's like GST – the consumer is the one that pays the end bill. Everyone else just passes it on. Rather like winning pass the parcel at a kid's party we get left with the lot.

First we had to feel sorry for the banks. They couldn't lower their floating interest rates because the cost of getting the money was a lot higher. We just didn't comprehend the complexities of it all. It was all way too complicated for us to understand and we were being ignorant bleating about it.

Now this morning we hear the sad news that Exxon Mobil profits are down to $3.95bn(US). Just when you were crying in your cornflakes over that one, Shell announce that they are only making $2.3bn (US). The bad news just keeps on coming when we hear that they only made that much in 3 months – the April to June quarter. Last year they made $11.68bn (US) and $7.9bn (US) profit respectively in the same quarter.

Now from my perspective at the end of the food chain $6.25bn (US) for 3 months work in a recession is not bad coin for these two companies. Shell Chief Executive Peter Vosser sums up the situation in simple terms– "There is ample supply and not enough demand. Quite a turnaround from a year ago".

So that means that there is a stack of oil for everyone – Yay! But hang on, wasn't there plenty of oil for everyone a year ago? Were there any petrol stations in the world outside of Zimbabwe that ran out of petrol? – No.

Ok, so let me get this straight. The oil companies control the production, the supply and the retailing of oil products, and there was no problems with anyone running out of oil then why did the prices spike? Well it was because of the demand in the developing Asian economies, threats to supply and, and well…..other stuff that is way too complicated for us to understand. It's all a matter of perception of how confident countries and companies feel about there being enough oil around for their needs. So really it's all about smoke and mirrors not reality. Reality is going to the petrol station today and forking out $1.63 a litre for Regular 91.

In more murky tones Mr.Vosser points out that "Shell is adapting to this new situation, and we must do more. We are sharpening our focus on delivery and affordability," So my uneducated brain tells be that this means that they urgently need to get back to the good old days of last year when both companies made $19.58bn (US) for 3 months work.

Pavel Molchanov an energy analyst for investment and financial planning company Raymond James has this to add "Demand has been falling and refining capacity has been growing, that's not a good combination". Not good for who Pavel? Well says Pavel "When demand is down and supply is up, that's a recipe for lower profits".

Shells Peter Vosser adds to the doom and gloom "Conditions are likely to remain challenging for some time, and we are not banking on a quick recovery".

Well to Mr. Vosser, and all our friends in the corporate towers of Shell and Exxon Mobil, on behalf of the consumers of New Zealand and around the world (and the wildlife of Prince William Sound), my heart goes out to you. My thoughts are with you all in your hour of need. Doing it tough in a recession and only making half a billion $US dollars a week must be soul destroying. Hang in there chaps.

Be assured, we will all play our part in dragging you back from the brink of 'very profitable' to the more familiar world of 'mega profitable' – we have no choice. We also recognise that all this is way too complicated for us to understand, and we should just stick to being 'worker ants' – it is what we are good at. We will draw comfort though from the fact that the Shell share holders have received a 5% increase in their dividend. At least some good has come from this whole terrible profit reduction thing.

 

 

 

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