Home > Uncategorized > Relative oil prices and differential oil profits

Relative oil prices and differential oil profits

from Shimshon Bichler and Jonathan Nitzan

If you thought that oil profits are about producing oil, think again.

The enclosed chart, updated from our 2015 Real-World Economics Review paper, ‘Still About Oil?’, shows that the main determinant of oil profit — and specifically of differential oil profit — is not output, but prices.

The figure shows the correlation between two series: (1) the differential oil profits of the world’s integrated oil companies, computed as the ratio between their earnings per share and the earnings per share of all listed firms; and (2) the relative price of oil one year earlier, measured by the $ price of crude oil relative to the U.S. consumer price index. (The reason for the annual lag is that ‘current’ profits represent a trailing average of earnings recorded over the past 12 months.)

When we wrote the article in 2015, differential oil profits and the relative price of oil were both at record highs; nowadays, they brush against record lows. And that pattern is to be expected. As the chart shows, the correlation between these two measures remains positive and tight, with a Pearson coefficient of +0.69 for the entire period since Dec 1973, and +0.75 since January 1980.

Inflation is always and everywhere a re-distributional phenomenon.

(And expect differential oil profits to rise next year.)

  1. Ken Zimmerman
    January 1, 2022 at 9:53 am

    If the relationship is not supply and demand, then why do prices increase and decrease? In this instance largely in coordination?

  2. January 2, 2022 at 6:05 pm

    About oil prices, read ‘Still About Oil?’

    Click to access t3.asp

    About demand, supply and equilibrium, or rather their total absence, read ‘The 1-2-3 Toolbox of Mainstream Economics: Promising Everything, Delivering Nothing’.

    Click to access t3.asp

    • Ken Zimmerman
      January 4, 2022 at 9:47 am

      On oil, I don’t disagree with the story you’ve assembled. But I believe you’ve omitted one major element, political accommodation. I’ve not carried out interviews or direct observations since I changed jobs doing such research in 2012. But that research from 1989 forward clearly shows an ongoing effort by sellers, buyers, re-sellers, and brokers to reduce political fallout for one another from changes in oil prices. All complex, low key, and guarded. You might want to consider carrying out some interviews and direct observations to look at whether this remains a factor in oil prices. And, if so how much of a factor?

  3. January 4, 2022 at 4:26 pm

    Thank you Ken.

    We have researched the topic since 1989, so maybe others should pick it up from here….

    For a partial list of our works on this subject, see:

    The Political Economy of Armament and Oil – A Series of Four Articles (1989) https://bnarchives.yorku.ca/136/

    Bringing Capital Accumulation Back In: The Weapondollar-Petrodollar Coalition – Military Contractors, Oil Companies and Middle-East “Energy Conflicts” (1995) https://bnarchives.yorku.ca/13/

    Putting the State In Its Place: US Foreign Policy and Differential Accumulation in Middle-East “Energy Conflicts” (1996) https://bnarchives.yorku.ca/11/

    The Global Political Economy of Israel (2002) https://bnarchives.yorku.ca/8/
    It’s All About Oil (2003) https://bnarchives.yorku.ca/38/

    Dominant Capital and the New Wars (2004) https://bnarchives.yorku.ca/1/

    New Imperialism or New Capitalism? (2006) https://bnarchives.yorku.ca/203/

    Still About Oil? (2015) https://bnarchives.yorku.ca/432/

    Profit Warning: There Will Be Blood (2017) https://bnarchives.yorku.ca/432/

    Still in the Danger Zone (2020) https://bnarchives.yorku.ca/634

    • Ken Zimmerman
      January 10, 2022 at 2:20 am

      Thanks for the information. I’ve discussed this with colleagues I worked with at DOE and DOD. They’re not enthusiastic about the work right now. And all my data, notes, and drafts are in their archives. Maybe we can circle back later.

  4. January 10, 2022 at 10:13 pm

    Thank you.

  5. January 13, 2022 at 11:46 am

    Hi Jonathan,
    first thanks for your recent work on Creorder out of Chaos, I think it is very insightful and explains a lot of the processes and bad outcomes coming out of the “Pandemic Response”?
    You might enjoy this excellent article
    “”“The consequences of emergency capitalism are emphatically biopolitical. They concern the administration of a human surplus that is growing superfluous for a largely automated, highly financialised, and implosive reproductive model. This is why Virus, Vaccine and Covid Pass are the Holy Trinity of social engineering.””
    On the question of energy inputs into the world economy, there is an open question as to whether World demand has reached a hard ceiling in terms of the ability to expand Energy production to meet global demand.

    A new Paradigm, Democracy before the Fall. Energy rationing by stealth.

    There are Population COntrol agendas hiding behind some policy narratives I think.
    A population perspective on the steady-state economy 106
    Herman Daly

    Click to access Daly70.pdf

    That this Herman Daly paper is in the same issue as your own Still about oil? 49
    Shimshon Bichler and Jonathan Nitzan is a strange coincidence

    As are Ken’s comments appearing on this thread and another in which I participated in mid-2019

    Happy New year,

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: