If Oil Companies Control Prices, Why Do They Ever Lose Money?

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High oil prices are currently driving inflation and leading to high oil company profits. Yet many people still have cause and effect reversed.

Apple, on the other, hasn’t lost money once in the past decade. Are their executives being called to Congress to explain why an iPhone costs $800 when they are reaping huge profits? No, of course not.

ExxonMobil doesn’t set oil prices. They are set in the market by how much people are willing to pay, just like with Apple stock. U.S. oil companies are price takers, not price makers. Yes, speculators have an influence, just as they do with Apple stock. It is true that oil companies benefit from OPEC’s and Russia’s actions to restrict production. But they are also at the mercy of those actions when they decide to flood the market with oil .

Yet, in the good years they are called to Congress, blamed for high prices, and threatened with windfall profit taxes. In reality, cause and effect are backwards. High prices drove the profits, not vice versa. Likewise, when the oil companies are being blamed for inflation, cause and effect are backwards. Just as high prices drove profits, they also drove inflation. High profits are an effect, not a cause.

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