Exxonmobil - Social Responsibility in a Commodity Market

ExxonMobil

Social Responsibility In a Commodity Market

Prepared by Group #5:

Eyad AlHazmi

Khaled AlShuwaikhat

Abdulla Khabbaz

Murad AlAliat

5/8/2012

Table of Contents

ARTICLE SUMMARY 2

Exxon Mobil: Social Responsibility in A Commodity Market 2

Demand & Supply: Is It That Simply? 2

The Anatomy of Gas Galloon Price 3

What To Do? 4

DISCUSSION QUESTIONS 5

Question #1 5

Question #2 6

Question #3 7

Question #4 8

Question #5 9

Article Summary

ExxonMobil: Social Responsibility in a Commodity Market

In 2008, Joe Tyler has noticed the big rise of the petrol prices when has was filling up his economic car (2002 Toyota) at the neighborhood Exxon station. To fill up his empty car tank, 11 gallon of petrol will be required. And at $4.04 per gallon, this was the first time that a fill up had cost him $43.63.

Prior to that event, Joe had never looked at his petrol receipt because they have been relatively cheap by the world standard which still cheaper than a bottle of water. However, a wake-up call was given to Joe by crossing the $40 line and his personal budget has being affected enormously. Joe still remembered in early 2002 when he purchases his new car that it costs him less than $10 to fill up the same car. But, since the petrol price has rising from $1.20 per gallon in 2002 to $ 4.04 per gallon in 2008, he was starting to feel the frustration. So, what had happened?

When Joe and other consumers were going through pain at the pump, ExxonMobil had been the most profitable company in the US. It had maintained one of the top three spots on Fortune's 500 list year after another with total revenue of $372 billion and $40 billion in profit. Actually, a quarter revenue of ExxonMobil alone exceeded the annual GDP of Kuwait and UAE. The pension ford for the last CEO (Lee Raymond) reached a mind boggling $400 million.

So, what is the relationship between ExxonMobil high profit and the consumer expensive petrol prices? Some consumers didn't think so, but some politicians and consumer advocate who understand the exact relationship and who were not convinced by the oil company's reason, start calling for action in order to calm the angry consumers. Therefore, they have suggested the following actions:

Issue new legislation by the U.S government to monitor oil, petrol and electricity markets.

Threatened the CEOs of the largest oil companies with nationalizing if things did not change.

Launch investigation into the petrol pricing.

However, no investigation into the petrol pricing lead to an evidence of substantial wrongdoing and wide spread oil market manipulation. Only some isolates examples of price cheating during 2005 hurricanes of Katrina and Rita.

Demand and supply; is it really that simple?

There is no consensus on who to blame for the extremely high petrol prices, but economists and oil industry observers look at crude oil and petrol as commodities such as corn and wheat. Also, customers do not generally perceived a difference no matter how hard Exxon mobile has tried to convince customers that its petrol differs from other brands in terms of detergents and additives, the market treats all the offering as the same.

Even some expert in the pricing commodity has confirmed that the oil and petrol market accurately reflect tight world energy supplies and a pickup in growth and demand.

The global demand for oil had risen from 70 million barrels a day (MBD) in early 2000 to 87 MBD by 2008. Also, the U.S is still one of the world's leading petroleum consumers with an appetite that grows every year. Although, the U.S always criticize high petrol price, they have done nothing to change this consumption level. However, most of the additional global demand for oil has come from Chain and India over the last ten years. Both countries have demanded more and more oil that reflects their annual economic growth rate of 10% and 8% respectively to support their manufacturing and production industry.

Oil supply limitations and restrictions are occurring at a time associated with huge demand for oil. Some limitations in the oil production process (e.g. drilling refining and distribution, etc.) had caused and lead to some kind of supply shortage in the oil market. Moreover, oil companies have not invested a lot of their resources in the exploration and production processes in the past decades due to oil cheap prices, and environmental regulations constraints. However, global consumption of oil is still increasing steadily due to more and additional demand of oil by the oil consumption countries providing that the oil producing countries are producing at or near their full capacity.

Other limitations have negatively impacted the supply chain cycle. For example, the U.S government and public resistance groups have put a lot of pressure on oil companies. This result in shrinking the number of oil refineries and stopped them from constructing new refineries in the last 30 years. In addition, the distribution line has reached their bottleneck as a result of new regulation requirements of petrol mixture for different regions.

In addition, a third significant factor that affected oil fluctuation prices as well as demand and supply which is the oil trading market speculation in the global petroleum future trading market. However, many specialists argue that speculative future trading have short term impact on the petrol prices while they are actually stabilizing the oil market in the long term. They said that the oil speculation process reduces the costs for the companies at all stages of the value chain which eventually

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