Question about oil companies

[noob investor]

i see a lot of their shares dropping a lot, but this should only apply to oil producers not "middleman", in fact for middleman their price should increase because they obviously won't pass all their savings to the consumer, they'll have even greater margins. why is there an industry spread drop in all oil share prices?

 

[frugal.rock]

You might like to check out some news regarding Russia and Saudi Arabia and OPEC and oversupply.
Their leaders are very chummy to one another...

Who are these middle men companies you refer to?

You might want to check out @Smurf1976 post's on the matter and all things POO related..

F.Rock

 

[Smurf1976]

i see a lot of their shares dropping a lot, but this should only apply to oil producers not "middleman", in fact for middleman their price should increase because they obviously won't pass all their savings to the consumer, they'll have even greater margins. why is there an industry spread drop in all oil share prices?

If you look at refining well that too is a competitive market.

Refinery business model = buy crude oil, turn it into products, sell the products.

At present there are multiple concerns. Among others:

*Overall reduction in fuel demand due to planes sitting idle, factories shut, etc. That is simple supply and demand - same supply, less demand = refining margins are likely to go down not up. Every refinery has access to the cheaper crude oil after all.

*Risk to supply chains of parts and to the workforce directly affecting operation of a refinery. That's a specific risk and reality is nobody outside the relevant companies really knows if any given refinery is going to be affected by that sort of thing or not, indeed they won't even be sure themselves in terms of the workforce getting sick etc.

*That the downturn in product consumption is not evenly distributed. Eg jet fuel is likely to have seen a larger drop than petrol. That's potentially problematic depending on how far it goes since refineries have only a limited technical capability to adjust the product mix. This does raise the possibility that some specific products, most notably jet fuel, could become not worthless but worth a fair bit less than the simple drop in the crude oil price would suggest.

*Shares being sold off for the same reason shares in pretty much everything have been sold off. Reasons relating to the share market and overall economic concerns not to the specific company's business.

It's similar to saying that if building and renovating work dries up then the price charged by a builder to do a particular job will drop far more than just the drop in material costs. They'll also drop their profit margin in order to be competitive, fully aware that plenty of others will be keen to quote on the job if nobody's busy. Building as such is a market in itself separate to the market for materials.

A big risk in all of this is uncertainty. At the moment everything is a moving target - nobody knows for sure how drastic the shutdowns of aviation, major events, cruise ships etc will end up being or how long they'll last.

Those looking at physical consumption of oil products are thus at best making an educated guess as to what may occur but you'd be unlikely to find anyone who didn't acknowledge that there's a lot of assumptions built into whatever they're expecting and that those assumptions could well turn out to be wrong.

We're in a very unusual environment for which there is no direct precedent. There was the Spanish flu just over a century ago but aviation certainly wasn't a big thing back then, medicine has greatly improved and so on so it's not directly comparable.