The Oil Industry in U.S.

Yanming Zhang
Apr 27, 2009
Microeconomics presentation
 Description
• The oil (petroleum) industry includes the
global processes of exploration,
extraction, refining, transporting, and
marketing oil products.
• Fuel oil (for example, diesel) and gasoline
are the major products of this industry.
 The Black Gold
• A barrel (42 gallons) of oil makes about
19.5 gallons of gasoline, 9 gallons of fuel
oil, 4 gallons of jet fuel, and 11 gallons of
other products.
• Petroleum is also the raw material
including pharmaceuticals, solvents,
lubricants, kerosene, fertilizers, pesticides,
and plastics.
 History(1)
• 5000BC Water-proof roof, road
• 1500BC Fuel for lighting
• 1800’s, Western Pennsylvania-- Oil Creek
• 1850's, the Pennsylvania Rock Oil Co.
(led by the invention of the kerosene
lamp )
• 1870, Standard Oil Company founded in
Cleveland, Ohio by John D. Rockefeller
 History (2)
• Between 1875 and 1878, Rockefeller
acquires control of 80% of the total US
refining capacity through alliances with
other refiners.
• In 1881, Standard Oil Trust is formed,
combining the interests of 40 companies
under a single board of trustees.
• Monopoly
 January 1,
1886 -
Standard
Oil
Marketing
Map
Exxon

BP acquired 1978

Mobil
Conoco
ARCO
 The Break Up
• 1890 July 2, Sherman Antitrust Act
“Every contract, combination in the form of trust
or otherwise, or conspiracy, in restraint of trade
or commerce among the several States, or with
foreign nations, is declared to be illegal.”
• 1906, US government files law suit against
Standard Oil with Sherman Antitrust Act.
• 1911, the US Supreme Court orders Standard
Oil Trust to break up.
• Standard Oil was dissolved into 35
companies

• Standard Oil of New Jersey later became

Esso, then Exxon (named in 1972),
Standard Oil of New York became Mobil,
and Standard Oil of California (Socal) is
now Chevron.
Exxon
Chevron
BP acquired 1978
Amoco

ARCO
 The Seven Sisters
• SO of New Jersey— Exxon (named in 1972)
• SO of New York – Mobil
• S Oil of California (Socal) – Chevron.
• Royal Dutch Shell (1907)
• Texaco (1901)
• Gulf (1890, acquired by Chevron in 1984)
• British Petroleum (BP) (previously Anglo-Persian
Oil Company, third largest global energy company,
1909)
 ARCO
• Atlantic Petroleum Storage Company (1866)
• it became part of the SO Trust in 1874, but
achieved independence in 1911’s broke up.
• It was the basis of ARCO, which was the merger
of East Coast-based Atlantic Refining and
California-based Richfield Petroleum in 1966.
• In 1969, ARCO acquired Sinclair, but later
divested certain Sinclair assets during the mid
1970s, resulting in Sinclair returning as a private
company.
 Current Market-Oligopoly
• Five companies control 62% of the US
retail gasoline market:
• ExxonMobil, BP, ChevronTexaco,
Royal Dutch Shell, and ConocoPhillips.

They also control 50% of the refinery

capacity in the US, and 48% of the oil
production.
 Concentration Ratio
• Measuring the percentage of market shares by
the largest N(e.g. 4 or 5) firms in the industry
• monopoly— near-100%
• oligopoly— 40-60%
• monopolistic competition—less than 40%
• perfect competition 1-10%.

• A small number of producers of similar size. The

oil product and its derivatives are homogeneous
products throughout the world.
 Recent Mergers
• 1997 Ashland Oil combines most assets with Marathon
Oil
• 1998 British Petroleum (BP) acquires Amoco
• 1998 Pennzoil merges with Quaker State Oil
• 1999 Exxon and Mobil join to form ExxonMobil
• 1999 British Petroleum (BP) Amoco acquires ARCO
(Atlantic Richfield), became the second largest private oil
company, next to ExxonMobil
• 2001 Chevron acquires Texaco to form ChevronTexaco,
Philips acquires Tosco
• 2002 Conoco merges with Phillips to form
ConocoPhillips
• 2002 Royal Dutch Shell acquires Pennzoil-Quaker State
 WORLDWIDE OIL
COMPANY PRODUCTION
Million barrels per year, 1998
Saudi Arabian Oil Co.* 3028
Petroleos Mexicanos* 1278
Petroleos de Venezuela* 1258
China National Petroleum* 1168
BP Amoco + Arco 963
Exxon-Mobil 894
Royal Dutch/Shell 859
Nigerian National Oil Co.* 772
Iraq National Oil Co.* 770
Kuwait Petroleum* 757
Chevron + Texaco 756
 Revenues Profits
Rank 2008 Company
($ millions) ($ millions)
1 Wal-Mart Stores 378,799.0 12,731.0
2 Exxon Mobil 372,824.0 40,610.0
3 Chevron 210,783.0 18,688.0
4 General Motors 182,347.0 -38,732.0
5 ConocoPhillips 178,558.0 11,891.0
6 General Electric 176,656.0 22,208.0
7 Ford Motor 172,468.0 -2,723.0
8 Citigroup 159,229.0 3,617.0
9 Bank of America Corp. 119,190.0 14,982.0
10 AT&T 118,928.0 11,951.0
11 Berkshire Hathaway 118,245.0 13,213.0
12 J.P. Morgan Chase & Co. 116,353.0 15,365.0
13 American International Group 110,064.0 6,200.0
14 Hewlett-Packard 104,286.0 7,264.0
15 International Business Machines 98,786.0 10,418.0
16 Valero Energy 96,758.0 5,234.0
17 Verizon Communications 93,775.0 5,521.0
 Revenues Profits
Rank Forbes 2009 Company
($ millions) ($ millions)
1 Exxon Mobil 442,851.0 45,220.0
2 Wal-Mart Stores 405,607.0 13,400.0
3 Chevron 263,159.0 23,931.0
4 ConocoPhillips 230,764.0 -16,998.0
5 General Electric 183,207.0 17,410.0
6 General Motors 148,979.0 -30,860.0
7 Ford Motor 146,277.0 -14,672.0
8 AT&T 124,028.0 12,867.0
9 Hewlett-Packard 118,364.0 8,329.0
10 Valero Energy 118,298.0 -1,131.0
11 Bank of America Corp. 113,106.0 4,008.0
12 Citigroup 112,372.0 -27,684.0
13 Berkshire Hathaway 107,786.0 4,994.0
14 International Business Machines 103,630.0 12,334.0
15 McKesson 101,703.0 990.0
16 J.P. Morgan Chase & Co. 101,491.0 5,605.0
17 Verizon Communications 97,354.0 6,428.0
 Largest US oil producers, 2004
thousand barrels per day
BP 827
Chevron Texaco 493
Shell 413
ConocoPhillips 322
Occidental 261
Aera Energy 216
ExxonMobil 213
Kerr-McGee 152
Apache 95
Anadarko 88
These top 10 companies represent 56% of total US oil
production.
 Largest US natural gas producers, 2004
million cubic feet per day
BP 4252
ExxonMobil 2513
Devon Energy 2244
ChevronTexaco 2128
ConocoPhillips 2110
Burlington Resources
1928
acquired by ConocoPhillips, 2005-06
Shell 1894
Anadarko 1628
Kerr-McGee 1459
Chesapeake Operating 1368
These top 10 companies represent 39% of total US natural gas production.
16%

28%

56%