With oil firms profiting, why are gas prices still high?
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Stacey Vanek Smith: The Fortune 500 list is out this morning. It ranks U.S. companies by revenue. Topping the list: Exxon Mobil. Chevron and ConocoPhillips snagged third and fourth place. Sensing a trend? So if oil companies are doing so well, why can’t they give us a break on gas prices? Stephen Schork is an oil trader and industry analyst. Stephen, good morning.
Stephen Schork: Good morning.
Vanek Smith: So Stephen, gas prices have been consistently going up and that’s expected to continue, but as we’re seeing this morning from the Fortune 500 list, oil companies are some of the most profitable companies in the country. Why are gas prices continuing to go up?
Schork: Well we have to separate the oil companies into two different sectors. The oil companies whose primary business is to explore, extract and transport crude oil — indeed with oil prices sat $100-110-120, they are certainly making money at this point. Now on the downstream side, of the balance sheet that is, the refining and marketing side — they are not. In fact, they are losing a considerable amount of money. This is why over the last two years we have seen a lot of oil companies trying to decouple themselves from the refining business and this is what is indeed keeping prices high at this point in the year.
Vanek Smith: There does seem to be a disconnect, though, because oil companies are making such enormous profits. Do big companies like that really not have any control over pricing?
Schork: No. Again, I have to correct on that because the earnings for oil companies are right in line with the S&P 500. That is 9, 10, 11 cents on the dollar. Now we juxtapose that against some of the banks, some of the credit card companies that are earning 20-25 percent on the dollar. Why is a 25 percent return on investment OK for a credit card company, but a 10-11 cent return for an oil company is enormous? If oil companies were indeed making so much money, why are half of their business — that is the refining business — struggling to make a dime at this point?
Vanek Smith: Stephen Schork is an oil trader and industry analyst. Stephen, thank you.
Schork: All right. Thank you, Stacey.
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