Don’t Waste Your Money On Exxon

| May 25, 2011 | 0 Comments

Oil StocksCan you believe it’s almost summertime?  Kids are nearly out of school for the year.  Temperatures are heating up across the country.  Swimming pools are getting more and more crowded.

And of course… gasoline prices are going through the roof!

Now, to be fair, there’s a lot more than just warmer temperatures causing gas prices to climb.  In fact, most experts believe the Middle East crisis is what’s really driving up prices.  Violent revolutions in the world’s top oil producing countries aren’t exactly price stabilizing events.

One look at the recent action in the oil market shows just how destabilizing these events can be.

When fighting in the Middle East began, the price of crude oil shot to the moon.  It even crested $110 a barrel in April.  That’s the highest crude’s been since the commodity boom of 2008.

You know what I find interesting?

Americans collectively agree on very few things.  But one topic gets everyone’s blood boiling… rising gas prices.  $4.00 per gallon gas is a surefire way to generate anger and resentment across the country.

Typically, gas price anger is directed toward the big oil companies.  And you know what… they deserve it.

Let me explain…

Big oil doesn’t deserve our ire because they make money on oil.  After all, they’re in business to make a profit.  As a capitalist, I don’t have any problems with a business earning lots of money.

No, what really irks me (and plenty of others I’m sure) is something else entirely.  It’s how these ridiculously profitable oil companies claim they aren’t earning higher profits off surging oil prices.

Huh?  Is that some kind of joke?

The world’s largest company, Exxon Mobil (XOM) – with an astronomically high market cap over $400 billion – isn’t making money off higher oil prices?  We’re supposed to believe that?

In other news, Exxon plans to replace all gas burning vehicles with flying unicorns.

Seriously though, what exactly are the executives at Exxon (and other Big Oil companies) thinking?

According to Exxon management, their poor, misunderstood company makes a mere $0.07 in profits per gallon of gas.  And turning crude oil into gas supposedly makes up a miniscule 6% of the company’s earnings.

Here’s what I think…

  • Americans consume roughly 400 million barrels of gas a day, so $0.07 is still a big deal
  • There’s no way Exxon’s making such a small amount given the profits they’re posting

Exxon made $11 billion in profits this past quarter.  $11 billion. That’s more than the market caps of most American public companies!

More importantly, the company’s top performing quarters always coincide with high gas prices.  In 2008, crude oil topped $145 a barrel… an all time record high.  And right around that time, Exxon pulled in a record $14.8 billion in profits.

But I’m sure it’s just a coincidence, right Exxon?

As if that’s not enough, here’s more evidence of Exxon’s endless greed…

The oil giant recently said they don’t want to limit the amount of speculation in the oil markets.  They claim speculators are an integral part of a healthy crude oil market.

To some extent, that’s true.

But, speculators also tend to push oil prices higher than what the fundamentals suggest.  And lately, speculators have been on an oil buying rampage.  They come out in droves whenever there’s some kind of global crisis.

Hmm… so more speculators equals more money for Exxon.  What a shock that Exxon doesn’t want to curb rampant speculation!

Here’s the thing…

I can bash Big Oil all day long.   But, whether we like it or not, gasoline’s a part of our lives.

Eventually, other forms of energy will become prominent… whether it’s electric cars, solar power, or something we haven’t even thought of yet.  But it’s not going to happen overnight.  And it’s probably going to take years to truly make a lasting change.

For now, we need to figure out how to cash in on rising oil prices.  Quite simply, we don’t want to miss out on an opportunity to make our own huge profits.

Fortunately, you don’t have to invest in expensive, huge companies like Exxon to make money in the industry.  There are plenty of ways to cash in on the explosive potential of the oil industry without supporting Big Oil.

My favorite method… investing in small cap energy companies.

There are over 70 small penny stocks in the oil exploration and drilling space alone.  Most of these companies are still in the early development stage.  So, there’s an opportunity to pick them up at dirt cheap levels… before their prices skyrocket.

Yours in profit,

Gordon Lewis

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Category: Energy Stocks, Oil Stocks

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