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Friday, December 8, 2023

Oil company CEO claims prices aren’t hurting economy

Rex W. Tillerson, Chairman and Chief Executive Officer of Exxon Mobil, listens as President Barack Obama, not pictured, addresses Business Roundtable, an association of chief executive officers of leading U.S. companies, at a hotel in Washington. Tillerson said Wednesday, March 9, 2011, he doesn't think the recent jump in oil prices is hurting the U.S. economy just yet. But it's getting close.(AP Photo/Charles Dharapak, file)

Exxon Mobil CEO Rex Tillerson said Wednesday he doesn’t think the recent jump in oil prices is hurting the U.S. economy — at least, not yet.

The head of the world’s largest publicly traded oil company said that in 2008, when oil surged to near $150 per barrel, Americans didn’t change their driving and spending habits until gasoline prices topped $4 per gallon. Average gas prices peaked at $4.11 in July that year.

“I don’t know if that tip-over is still at the same $4 level or not,” Tillerson told reporters at the New York Stock Exchange. “We’ll see.”

Oil is now about $104 per barrel after rising more than 20 percent over three weeks because of civil unrest in Libya. Tillerson hasn’t seen any reduction in the demand for fuel from consumers or businesses.

The national average price for a gallon of gas has increased 40 cents to $3.52 in the same period.

Drivers on the West Coast are already paying close to $4, however, and prices are expected to rise through spring and summer.

Gas at $4 a gallon “creates some real challenges” for average American families and their household budgets. When the price rises above that, it’s a “significant emotional event for a lot of people,” he said.

“Even if you’re paying $50 a month (for gas), $50 a month is significant for the way they have to manage their income.”

Tillerson remembered that in 2008, many Americans switched to taking the bus or joining community carpools to save on gas costs.

Tom Kloza, publisher and chief oil analyst at Oil Price Information Service, said Americans forced to live paycheck to paycheck already are cutting back on driving. And not just in the West.

The difference between now and 2008 is that many motorists remember getting burned by high pump prices, Kloza said. They’ll conserve now with the expectation that gasoline will hit record levels this year.

“I think they’re wrong to assume it’ll get that high,” he said. Kloza has predicted the national average would peak at $3.75.

Many analysts think benchmark West Texas crude would have to rise at least another 10 percent to $115 or $120 per barrel to force a significant change in consumer spending. Some economists think oil rising to $150 or more per barrel and staying there for months could trigger another recession.

Output in Libya, which is a member of petroleum export group OPEC, has dropped significantly as rebels battle the government of Moammar Gadhafi for control of the country. Analysts are concerned the unrest could spread to bigger producers in the region like Saudi Arabia.

Tillerson pinned the rise in oil prices on the perception of future shortages rather than actual problems. He said traders are pricing in a “risk premium” to account for Libya’s political situation. Oil executives in both Saudi Arabia and the U.S. have made similar statements.

At an energy conference in Houston, Youcef Yousfi, the Algerian Minister of Energy and Mines, said, “There is no shortage of oil in the market.”

“When people see that the supply is at a normal level, the price will go down,” he said.

Tillerson said Exxon Mobil Corp. was recently forced to stop buying Libyan oil because of U.S.-imposed sanctions, yet the company didn’t have trouble finding other sources of crude.

“And we’re unaware of anyone who is having difficulties.”

Earlier, the CEO told Wall Street analysts that Exxon would spend nearly $100 million per day over the next five years on capital investments, mostly devoted to oil and natural gas production. Capital spending will range between $33 billion and $37 billion annually between 2011 and 2015, he said. At those levels, Exxon’s oil and natural gas volumes should grow between 4 percent and 5 percent until 2014.

Another major disruption in global supplies could still send prices leaping higher. But so far, “I’m not concerned about the ability of producers to meet the market’s demand.”


AP Energy Writer Jonathan Fahey contributed to this report from Houston.

Copyright © 2011 The Associated Press

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9 thoughts on “Oil company CEO claims prices aren’t hurting economy”

  1. My apologies for whatever minor typos and ‘brainfarts’ you might find in my aforewritten expose’ as to how prices get to where they’re at. It’s an abstraction for the moneyguys, but brutal reality at the pump for peasants.

    Carl Nemo **==

  2. I’m thinking folks might care to view some monthly futures chart concerning both oil and it’s derivative, unleaded gas. These charts represent the monthly price swings over a number years. Each bar represents the high and low for a an entire month. The noticeable ‘waterfall’ drop in price in 2008 from $140 to $40 best demonstrates the ‘unwinding’ of long positions by large speculators and institutionals. One of the things that gives them an advantage is access to cheap money via the unholy Fed~U.S. Treasury axis of evil.

    They provide the grease for speculation at low interest rates while the little guy that participates in these markets are the ‘grease’ from which they clip profits along with victims at the pump who are forced to pay ever higher prices. Very few contract positions ever take delivery of the actuals whatever that might be; i.e, corn, wheat, barley, cocoa, orange juice, oil etc. Contracts are rolled forward when coming close to expiration in order to preclude a forced delivery or a very expensive process of precluding such. Futures contracts provide incredible leverage. All that’s required is margin or good faith money per contract, but it allows one to control a large position in a commodity that is used by the public. The oil contract represents 1000 bbl of crude and the unleaded gas contract 42,000 gallons of fuel. Current margin on crude is $6075 per contract with maintenance margin at $4500. Margin for Unleaded is $5400 and $4000 respectively. What this means is for each contract position you must provide margin initiate then to hold a position. If the market moves in your favor then the unrealized profits add to your ability to lay on more contracts while only providing maintenance margin. The contract positions are marked to market daily with the players having to square up losses vs. gains. It’s a zero sum game.

    There’s also futures options which are spendy and classed as a regulated derivative, but you can’t lose anymore than what you’ve paid for the option. No margin is required. In the money options at the price of the underlynig commodity costs more than out of the money; ie., further from the price options, but are more risky. Smart traders by several strikes; ie., price points in the money to insure they’ll have an option that pays instead of one away from the price which is called out of the money and a bust investment. The ‘gearing’ or leveraging is even greater with options, but the rewards far greater.

    In summation if trader/speculators have an unlimited supply of cheap money to speculate with they can wreak havoc on a normal supply and demand market. Seemingly too as the result of the 2008 downdraft we have a criminally disposed government that will bail them out if they lose on their speculative strategies. The little people at the pump are simply victims of a “Grand Casino” that always wins while they always lose.

    Carl Nemo **==

    p.s. I’ll be supplying two additional link posts to complete this article; i.e, another link for the unleaded gas contract and another for the required margin for participating in these markets.

    • Hmmm…How interesting that prices plummeted at the same time Wall Street went belly up, only to rebound shortly after being bailed out. On the rise steadily ever since.

      What Max Keiser refers to as the casino-gulag economy.

      • Thanks for the edifying link Griff. : )

        We heard it here; ie., abolish unregulated derivatives and the Federal Reserve…booya!

        Carl Nemo **==

  3. The overriding theme of this story is that the 2008 shock-test taught them what price they can get away with charging for gas before the plebs get restless. It turned out to be four dollars. They’re basically informing us that they plan on continuing to gouge the American people, but not quite as much as last time.

    They also say that they’ve found other sources for crude, so why is Libya a factor in pricing? Does supply and demand really drive gas prices? in short…no. Just more rape.

  4. “CEO Rex Tillerson said Wednesday he doesn’t think” …snip extract from article

    Nope, ol’ Rex only cares about the economy and the corporate bottomline. People, families households…wuts that? To Rex, them are the ‘little people’…no? Not much to think about there.

    He doesn’t seem like the kinda guy I’d like to share a decompression chamber with for 8-12 hours. / : |

    Carl Nemo **==

  5. Told ya’ll this a week ago. The market isn’t reality based. Rex doesn’t remember the little guys are taking increases in food as well, so the tipping point will come sooner rather than later.

    I still don’t hear anyone calling for market reform back to a supply and demand model. Too much profit to be made from stealing from the poor.

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