Big Oil rakes in profits as motorists fume over gas prices
Exxon's first-quarter earnings surge 69% as crude oil creeps above $100. Includes video.
By Jeff Reeves, editor of InvestorPlace.com.
Consumers are feeling the pain at the pump right now. The average price of a gallon of gas has jumped about 12 cents in the U.S. over the past two weeks to $3.88, with the highest average reaching $4.27 in Chicago.
When MSN Money ran a story recently about the positive aspects of $5 gas, it got more than 600 comments, most of them from irate readers.
But one company that appears to be doing just fine in this era of expensive energy is Big Oil poster child Exxon Mobil (XOM).
Post continues after video about Exxon's earnings:This morning the company reported first-quarter profits that surged 69% over last year. Though some oil and gas players have yet to report their numbers for the period, analysts expect the entire sector will see big gains like this as crude oil remains above $100 a barrel.
That has many motorists fuming, and Big Oil is worried that as it rakes in massive profits like it did in 2008, it will face the same ugly accusations of price fixing and market manipulation.
First some context. In fiscal 2007, Exxon posted profits of $40.6 billion -- the largest number ever for a corporation. That in itself wasn't exactly shocking, as XOM is the largest stock on Wall Street by most measures. It currently has a market size that tops $430 billion, making it twice the size of Microsoft (MSFT) and more than seven times the size of Ford (F). (Microsoft owns and publishes MSN Money.)
But as oil raced up to a peak of about $145 and the financial crisis eviscerated the U.S. economy, Exxon shattered its own record with a profit of $45.2 billion for 2008. Its cohorts in Big Oil were cashing in, too. Chevron (CVX) saw its fiscal 2008 profits leap 28% over the previous year. Shell (RDS.A) and BP (BP) announced record profits as well.
That made people take notice. Banks and automakers reported multibillion-dollar losses at the same time, and layoffs were being announced left and right in all corners of the U.S. economy. Why did Exxon, BP and others think they could profit like that while America collapsed? Congress called for hearings about manipulation in the crude market, regulators blamed speculators, and consumers accused Big Oil of price fixing.
But then just as quickly, the oil bubble burst. Prices tumbled week after week until crude bottomed out below $35 a barrel at the end of the year. Big Oil earnings dried up, too. For fiscal 2009, Exxon's profits were slashed in half. Chevron's income fell nearly 60%. BP suffered a profit decline of 27% that year, but the Gulf oil spill in 2010 quickly weakened its position. It seemed that the 2008 energy bubble had burst and we were getting back to normal.
But now, massive oil profits are seeping into the news once more. Exxon's profits are up 69% in Q1, and Shell's profits are up 60%. Chevron reports earnings Friday, and you can bet it will see a big boost, too.
So where does this leave motorists in 2011? It's too soon to tell. Oil prices are notoriously volatile, and we could very well see another collapse that sends gasoline prices tumbling in kind. Oil peaked on July 11, 2008, before plummeting 70% in the next several months. Maybe in fall and winter things will be better for consumers.
But even if energy prices do roll back, Big Oil may have already made its fortune. Crude oil prices have jumped more than 20% in the past three months, so second-quarter profits may be even bigger than the ones we're hearing about this week. In fact, if you multiply Exxon's $10.65 billion quarterly profit by four, you're looking at $42.6 billion for the fiscal year. That's pretty close to that high-water mark of $45.2 billion.
In short, it's not unrealistic to expect record-breaking profits from Big Oil in 2011 as $4 gas returns this summer. That means it could be deja vu for motorists -- and Big Oil -- as the tensions of the 2008 energy bubble return.
Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks or funds named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.
2008 oil was $150 a barrel when gas hit $4, this time $4 gas at $112 a barrel how long are these crooks going to be aloud to rape and pillage America?
All the speculators and Oil CEO's belong in jail for this price fixing, as well as the crooks in Washington standing by watching this happen and doing nothing cause they want oil company money to fund them in the next election.
When will our leads do what's right for america instead of what's right for them self's?
Term limits in Washington is the only way to change our corrupt leaders
The same ugly accusations of price fixing and market manipulation.
Have they ever lost money?
Prooves right there it is a scam, and they are greedy scum bags period.
Help this country instead of being greedy, and screwing everybody.
The raises will be a dime where I work. The Middle Class is under constant attack. This is just another sign of the Greed that is destroying this country. Will prices fall? Once, again, after these greedy "sobs" almost kill the economy; will they loosen the noose around the throat of this country. The whole crying "We didn't do it".
Once again...so much BS. The oil companies do not drive the cost of oil up. The speculators do, i.e. Goldman Sachs...Morgan Stanley, et. al. The oil companies may "Lobby" the speculators, I don't know.
The oil companies profits increase even if the cost of oil fluctuates only mildly. That's because EVERY single time the cost of oil goes up, they add the cost of the oil price increase PLUS a profit markup. When the cost of oil goes down they lower the cost due to the cost decrease, BUT THEY DON'T REMOVE THE PROFIT THEY ADDED TO THE LAST INCREASE. Oil goes back up again, they add the cost increase PLUS A PROFIT. Don't believe that? Here's proof. Last time gas went to $4.00 a gallon, the cost of oil was $145 a barrel. Now gas is almost to $4.00 a gallon, and oil is only $110 a barrel. See the difference? That's because of the profit added to each cost increase is NEVER removed after the cost falls.
The oil companies love the price to rise and fall and rise and fall, because it means their profit margin keeps rising.
Remove the tax on gas and you'll be driving on bad roads. You mean like the potholed, cracked roads you're currently driving on? That's like saying the tax on cigarettes which was passed using the excuse that it's needed to pay for the health care costs of smokers who can't afford the healthcare. Now show me proof that ONE PENNY of that tax money went to cover health care costs. IT DIDN'T. That tax was created to help local, state, and federal governments balance their budgets. Instead of stopping all the wasteful spending, making their friends...the wealthy richer, they keep finding ways to steal more money from the middle class and poor. Think the road taxes aren't making the rich richer? I watched a new 20 mile long connecting freeway get built in California, of all places, in 6 MONTHS! Now it takes two years and millions of dollars to fix an intersection. So much BS.
They need to remove oil and other necessities from the "Supply and Demand" commodities market.
Oil currently costs $35 a barrel to remove from the ground. BS. It costs a million dollars or so to drill a well. From that point on, it's being pumped 24 hours a day. The cost of drilling is recovered in the first few days that well runs. But even at the inflated $35 a barrel for "obtaining" the oil, how can any decent human being say the price at $110 isn't EXCESSIVE?
That's like the big tax cuts that were given to the wealthy by Bush. He also signed the Nafta trade agreement that shipped more high paying jobs overseas so the companies could make even more Millions and Billions. They paid for relocating their business overseas with the tax cuts. Meanwhile American workers were offered jobs in the service industry paying $10 an hour to replace the manufacturing jobs they held paying $20 an hour.
It's pure greed from the top down.
Big oil making RECORD profits, say it isnt so.
I know the big oil execs dont gives a rats behind how this is effecting us but this is america, land of the free, home of the brave. My grandfathers who fought for this country are rolling in their graves at how the government and country they fought for is treating us like this!!!
This needs to stop!
First not all Americans can afford to go out and just buy a new electric car when a good portion of this GREAT NATION is presently unemployed. An electric vehicle would be great if you can afford the 40K to buy the thing and if it can do the job that you need to get done.
As for big oil making such large profit that is just obsene!!!! The American people still must do what they have to do and riding a scooter or a bicycle does not work for everyone. Some of us would have a full day of riding just to go the store to get or grociers. But as we are all welcome to our oppion on this.
Myself, I have been pay close attention to what has been going on with our economy and it is just down right FUBAR!!!! If we want our economy to get back to what it should we can not count on the goverment because it is bankrupt. What could be done is if the President were to force down the price of gas (get it back to $1.00 p/gal.) then you would see the American people spending money. The price of our grocieries would come back down, folks would go out to eat, they would maybe even be able to keep their homes and buy those high priced electric cars.
I believe that if the President were to force down the price of fuel the big oil companies would still make a large profit, maybe even higher than now because we would drive more!!!!!! This is the one thing that could be done to maybe get our economy back on track.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
Traders might want to bite on BABA, but long-term investors have reasons to wait.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.