Why/how are oil companies and supermarkets making record profits?

[Pilatus]

You must think I am rather dim for asking the above question.
BUT please bear with me.
In manufacturing or commodity production ( combinable crops)
To make a large profit margin, the price of the commodity/ product needs to be a lot more than the cost of producing or sourcing that product/ commodity ,yes or no.
So with gas/oil companies how does the system work?
As crude oil is pumped out of the ground, it must go to storage facilities owned by the oil company, and the crude is still the property of that oil company.The crude is then shipped to the oil companies refinery.
Then from the refinery to the petrol pumps owned by the oil company, or Supermarket fuel pumps.
Where in the chain do commodity brokers kick in forcing the price of crude oil up , which is I why the oil companies profits shoot up or down??
Moving on to supermarkets, if they buy packets of crisps at 50p and sell them at 1.50, that is a 300%mark up to cover their costs and profit margin. So if their costs go up 10% and they sell at same price , profit margin will drop 10%.So to keep the “same” profit packet of crisps need to rise 10%.So to “increase profit” supermarkets push selling price up and up, to us the consumer. In my opinion that means we are being ripped off.

 

[Redhill]

Same place as we do in Commodity stock markets. We sell based on "Commodity Prices" but don't necessarily sell on Commodity stock markets.

If you don't sell on Commodity markets then the next available possible seller is Grain Traders and then Mills.

Otherwise it's just BS.

But essentially from one day to the next the price is based, in the main, on traders opinion.

 

[Lowland1]

You must think I am rather dim for asking the above question.
BUT please bear with me.
In manufacturing or commodity production ( combinable crops)
To make a large profit margin, the price of the commodity/ product needs to be a lot more than the cost of producing or sourcing that product/ commodity ,yes or no.
So with gas/oil companies how does the system work?
As crude oil is pumped out of the ground, it must go to storage facilities owned by the oil company, and the crude is still the property of that oil company.The crude is then shipped to the oil companies refinery.
Then from the refinery to the petrol pumps owned by the oil company, or Supermarket fuel pumps.
Where in the chain do commodity brokers kick in forcing the price of crude oil up , which is I why the oil companies profits shoot up or down??
Moving on to supermarkets, if they buy packets of crisps at 50p and sell them at 1.50, that is a 300%mark up to cover their costs and profit margin. So if their costs go up 10% and they sell at same price , profit margin will drop 10%.So to keep the “same” profit packet of crisps need to rise 10%.So to “increase profit” supermarkets push selling price up and up, to us the consumer. In my opinion that means we are being ripped off.

You should also consider the fact that all of this leads to increased tax revenues for the Government so they have no real interest in regulating prices in the short term.

 

[Goweresque]

The oil companies pump it out of the ground, and sell it at world market price, to whoever, including their own refineries. Those refineries are legally distinct businesses, they have to buy their oil at the world market price too, so their profit margins are constrained by that. Similarly the petrol retailers may have 'Shell ' or 'Esso' on the sign, but they are separate businesses who have to buy their petrol and diesel at the going market rate as well.

Basically even though BP (say) have oil wells, refineries and petrol stations doesn't mean that they can provide the oil from the well to their refinery and then the petrol station at cost price. Transactions between the various companies within the BP umbrella have to be a market price. The tax authorities are very hot on this, otherwise its too easy to shift profits away from being taxed. So BP Refinery Inc have to buy BP Oil Well Inc oil at the going market price, and BP Petrol Stations Inc have to buy the refined fuel from BP Refinery Inc at the market rate for that too.

This is why the oil producing parts of the system make insane amounts of money when oil prices go up - their costs are relatively fixed but what they are selling has gone up in price. Everyone else in the chain downwards towards the consumer have to pay the higher market price for their inputs and thus have to charge more for their outputs, until you reach the petrol pump and the consumer finally gets the shaft......

 

[topground]

You should also consider the fact that all of this leads to increased tax revenues for the Government so they have no real interest in regulating prices in the short term.

The high price of fuel will force folk to look at non carbon energy alternatives thereby fitting in nicely with the Carbon neutral agenda so coupled with the tax revenue it is a win win for the government.

 

[bluebell]

we should have told the kuwaities when saddam hussain invaded them and was poised to go into saudi arabia, yes will help you , but, but? we want cheap oil for ever? Thats what the chinease have done or do or will do to countries in the third world that have massive natural assetts that the chinese want but for a price?

 

[Bald Rick]

46% government tax per litre doesn't exactly .. er .. oil the wheels

 

[Pilatus]

The oil companies pump it out of the ground, and sell it at world market price, to whoever, including their own refineries. Those refineries are legally distinct businesses, they have to buy their oil at the world market price too, so their profit margins are constrained by that. Similarly the petrol retailers may have 'Shell ' or 'Esso' on the sign, but they are separate businesses who have to buy their petrol and diesel at the going market rate as well.

Basically even though BP (say) have oil wells, refineries and petrol stations doesn't mean that they can provide the oil from the well to their refinery and then the petrol station at cost price. Transactions between the various companies within the BP umbrella have to be a market price. The tax authorities are very hot on this, otherwise its too easy to shift profits away from being taxed. So BP Refinery Inc have to buy BP Oil Well Inc oil at the going market price, and BP Petrol Stations Inc have to buy the refined fuel from BP Refinery Inc at the market rate for that too.

This is why the oil producing parts of the system make insane amounts of money when oil prices go up - their costs are relatively fixed but what they are selling has gone up in price. Everyone else in the chain downwards towards the consumer have to pay the higher market price for their inputs and thus have to charge more for their outputs, until you reach the petrol pump and the consumer finally gets the shaft......

Thanks for the explanation.
An explanation as to why some supermarkets seem to be doing quite well, especially Tesco, would be appreciated.

 

[Hilly]

Thanks for the explanation.
An explanation as to why some supermarkets seem to be doing quite well, especially Tesco, would be appreciated.

Profiteering .

 

[delilah]

An explanation as to why some supermarkets seem to be doing quite well, especially Tesco, would be appreciated.

Ooh, I know that one. Because Tesco, not your elected representatives, run the country.

 

[Goweresque]

Thanks for the explanation.
An explanation as to why some supermarkets seem to be doing quite well, especially Tesco, would be appreciated.

Are Tesco doing that well? Their 5 year profit record is here:

Five Year Record

www.tescoplc.com

Their UK and RoI stores underlying profits have been pretty flat from 2019 to 2022. A bit up in 2022, but not massively above 2019, from before covid. The headline group figures can be misleading, because they take into account lots of other things such as borrowing costs, which can fluctuate massively. For example Tesco's borrowings cost them £1bn in each of 2021 and 2020, and severely reduced their underlying profitability. In 2022 they had much lower borrowing costs of £0.5bn so that saving fed straight into the bottom line. They also took a big write-off (nearly £0.5bn) on Tesco Bank in 2021, which was a one off cost, so reduced profits massively in that year, so comparing 2022 to 2021 looks like they've tripled profits, when the underlying profitability of the UK stores has been pretty stable throughout.

 

[Pilatus]

Are Tesco doing that well? Their 5 year profit record is here:

Five Year Record

www.tescoplc.com

Their UK and RoI stores underlying profits have been pretty flat from 2019 to 2022. A bit up in 2022, but not massively above 2019, from before covid. The headline group figures can be misleading, because they take into account lots of other things such as borrowing costs, which can fluctuate massively. For example Tesco's borrowings cost them £1bn in each of 2021 and 2020, and severely reduced their underlying profitability. In 2022 they had much lower borrowing costs of £0.5bn so that saving fed straight into the bottom line. They also took a big write-off (nearly £0.5bn) on Tesco Bank in 2021, which was a one off cost, so reduced profits massively in that year, so comparing 2022 to 2021 looks like they've tripled profits, when the underlying profitability of the UK stores has been pretty stable throughout.

Thanks for the info .
Just doesn’t sit well with society that Tesc appear to be doing ok at the expense of the “not so well off in society”.
I live in the affluent Cotswolds so I think I am rather insulated from the plight of some of those in large cities. That said I do realise a big percentage of society, seem to think food should be cheap , yet not complain about the price of the latest “must have gadget etc”in life .

 

[7610 super q]

Can't get over the traffic on the road past my place. Thinking petrol must only be 10p / litre ?

 

[Martin Holden]

Can't get over the traffic on the road past my place. Thinking petrol must only be 10p / litre ?

Yup correct. With demand not dropping prices aren’t going downhill anytime soon!

 

[Lowland1]

we should have told the kuwaities when saddam hussain invaded them and was poised to go into saudi arabia, yes will help you , but, but? we want cheap oil for ever? Thats what the chinease have done or do or will do to countries in the third world that have massive natural assetts that the chinese want but for a price?

What! And how will the oil traders make money if you fix a sensible price Say something like that and all the city trader friends of Boris and Rishi won’t be able to sleep for weeks. As for Tescos et al they aren’t increasing prices in order to maintain prices they’re raising prices to increase profits using the fear of a food shortage to frighten the populace into acceptence. Putin most certainly is an evil man but they are a lot more closer to home of a similar ilk thanking him and the poor Ukrainians for all they’ve done for them.

 

[Nithsdale]

Can't get over the traffic on the road past my place. Thinking petrol must only be 10p / litre ?

Same here... Haven't really been out much since lambing (couple times up to Edinburgh), had to go to Carlisle this morning, was very surprised just how busy the motorway was in both directions. Almost too busy on the old 'Cumberland Gap' stretch

 

[Goweresque]

Thanks for the info .
Just doesn’t sit well with society that Tesc appear to be doing ok at the expense of the “not so well off in society”.
I live in the affluent Cotswolds so I think I am rather insulated from the plight of some of those in large cities. That said I do realise a big percentage of society, seem to think food should be cheap , yet not complain about the price of the latest “must have gadget etc”in life .

Tesco turn over nearly £50bn in the UK, and their profit on that is just under £2.5bn,so just under 5%. I'd pretty much guarantee that their profit as a percentage of sales is less than that of a corner shop.

 

[ollie989898]

It is worth noting that you can have oil refineries that buy oil from anywhere/anyone else they can, refine it and then export some or all of the finished products. The USA has a lot of oil refineries and they certainly made big money from refining oil for many years, despite the fact that US oil production had slowed (until fracking really took off any made them net oil exporters once again). If you have already built your refinery and it is bought and paid for, your aim is to work it flat out and sell stuff. Exactly whose oil you take in makes no odds.
Also, consider that there will be a myriad of products for sale out of an average oil refinery and these may be more valuable in some markets than others if localised demand is greater. Also international sanctions and currencies values have an effect on how easy it is to do business with an American refinery, for example.

The middle east has an issue is that they have a lot of natural gas being brought up, and it is very costly to export in tankers as LNG. The solution of course is to make fully synthetic oils or GTL fuels from them and export them in ships instead. Worth far more money than a cube of natural gas, bigger margins to be made and a smaller volume to transport. The fact these products are generally superior for the consumer is nearly coincidental.

Of course, high oil prices also make biofuels and alternative products more attractive.

 

[betweenthelines]

They work out the cost to them of the goods/products they sell on they add a percentage as their margin.

So if the goods they buy go up 20% then so do their profits

 

[bobk]

Thanks for the info .
Just doesn’t sit well with society that Tesc appear to be doing ok at the expense of the “not so well off in society”.
I live in the affluent Cotswolds so I think I am rather insulated from the plight of some of those in large cities. That said I do realise a big percentage of society, seem to think food should be cheap , yet not complain about the price of the latest “must have gadget etc”in life .

That was the EU 's main policy , ( cheap food ) and still is , they couldn't give a tupenny about Russia invading Ukraine , all wind and plss .