Oil Cramps Send Exxon Mobil Searching

Only five months ago, gas prices were at a record $4.11 a gallon. And for a while, the market was digesting the potential for gas prices to stay up indefinitely.

But July’s prices were the top, and not the bottom. The unintended consequence of $4 gas was that U.S. consumers started limiting their driving. The fundamentals of supply and demand have reappeared in the market, and it shows. The average price for gasoline is now below $2.

Crude oil dipped below $50 yesterday for the first time in three years. And it could go even lower. That hasn’t stopped major gas companies from reporting record profits.

Exxon Mobil (NYSE: XOM) reported the biggest quarterly profit by a U.S. company ever – $14.83 billion. But its future revenue projections don’t look as promising. Its newest Black Sea agreement with Turkey signals it’s looking for new sources in harder-to-reach areas.

The most interesting part of the recent price plunge is what’s happening among the oil producers. Recently, the International Energy Agency (IEA) put out a report outlining the amounts needed by the biggest oil-producing nations to balance their budgets. The details are intriguing.

A few of the nations needed high oil prices just to balance their 2009 budget. The government of Venezuela needs to receive an average price per barrel of $85 to $100. Iran needs $86 to $95. Both nations receive most of their revenue from oil profits.

It remains to be seen if these countries will cut back their spending, or if they will start using their cash reserves built up by $100+ per barrel oil. Russia, with some of the world’s largest cash reserves, has already started using them to fund stimulus programs.

Companies mentioned in this article: XOM

 

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