How can Mobil Exxon net $39B?

Question

Didn't their raw materials cost (crude) go UP in unison with their finished priced goods (gasoline)? Or did Mobil make a ton because their raw materials cost were much LOWER due to hedging in the futures markets months earlier?

Answer 1

Exxon's costs for extracting crude do not go up in every case, because they have contracts that stipulate a price or they own the oil that they recover. When the price at which they can sell it goes up they earn a larger profit.

This is a good thing and it keeps the supply of oil available - if there were no opportunity to Exxon to earn this profit they would have much less incentive to invest the huge amount of money it takes to drill successful oil wells.

Answer 2

Good question and I’m sure there are a lot of complexities involved. But if distilled (no pun intended) to it’s basics, I think it comes down to these points:
First, the prices of oil we all hear about are the speculative prices on the commodity exchanges, supposedly in response to (1) supply, (2) demand and (3) risk, whether real, perceived, or imagined. It is not necessarily the price at the wellhead paid to, say, the Saudis. (By taking long or short positions, the speculators make enormous profits, with little or no added value. But you and I suffer for it at the pump.)

Second, many oil users including refiners and airlines try to lock in long term contracts for crude at the lowest possible prices.

So if Mobil/Exxon were to lock in a good price for crude and the speculators drive up the price of gasoline (and diesel, JP-8, etc) their profit margin for the refining phase of the business will increase.

But even if their profit margin were to remain unchanged, any increase in consumption yields a corresponding increase in their net profit. And since consumption is bound to keep increasing for the foreseeable future, their net profits will do the same.