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 InvestorPlace Apr 28, 2011 10:38AM

By Jeff Reeves, editor of InvestorPlace.com.


investorplace logoConsumers 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.


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295Comments
Apr 28, 2011 11:37AM
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I find it real interesting how when there's serious words to start drilling for oil here in the US, that the price of gasoline drops like a rock.  Next thing we'll hear is that OPEC will cut production.  The whole thing is a total scam, and it's been going on since 1973,  When are our dumb politicians from both parties going to wake up and do something about this BS?
Apr 28, 2011 1:27PM
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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

Apr 28, 2011 11:40AM
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The same ugly accusations of price fixing and market manipulation.

 

Have they ever lost money?

No

Prooves right there it is a scam, and they are greedy scum bags period.

 

Help this country instead of being greedy, and screwing everybody.

Apr 28, 2011 11:44AM
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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".

Apr 28, 2011 12:18PM
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The sad truth is it does not cost much more to refine oil today, as it did in 1935.  Although the big oil companies try to fool us by using rising cost to refine as a factor in pricing.  I think it's time our pathetic government took on OPEC, and drop the hammer for us the people.  All that happens when we import oil is, we make some new prince in the middle east even richer than they already are.
We here in the US have more oil in the Montana region, which would only cost Americans about $.16 cents a gallon to refine.  The area in question was ordered to be harvested by the Bush administration.  The report commissioned by the president stated, that the field found in Montana would supply America for 2,012 years.  More oil than all the eastern countries combined, but it has yet to be developed.  
This is due to big oil corporate greed and control, who do not want us to get lower pricing.  If this field was developed and because it's light sweet crude found there, it would be very cheap to the consumer.  Based on the government report the American consumer could enjoy gas prices equal the 1940.  If this were enacted by our government, all American families would instantly feel as if they received a raise.  Since the cost to commute and operate our vehicles would decrease, thus putting those dollars back in our pockets.  Americans would see at least a 70% return of money into their bank accounts & family budgets.
We all know as Americans, however that this will never happen.  Since we do not really have a Government for the people by the people.  What we have are puppets, front men & women who are controlled by greed and corruption.  Every politician takes bribes and is corrupt at the very core, and get away with it every day.
"The truth still holds, The office changes the man more than the man changes the office"

We are all sheep, being sheered every day of our controlled lives!
Apr 28, 2011 12:31PM
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I'm tired of giant corporations, I'm tired of lawmakers and corporations telling us its our fault, and the idiots that believe the related the media propaganda.. Exxon is telling us with 69% profits they are not price gouging. BS!, The corporations are the true enemies of our country. We the people must be irate, and remember when push comes to shove there is more of us then them. 
Apr 28, 2011 12:39PM
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To the folks that suggest that we stop driving our "big gas guzzling SUVs" and our $5 Starbucks coffees, and invest in our houses by installing Solar panels, double paned windows, and purchase hybrid or electric vehicles. Let me just say that I would be glad to do all those things if you would kindly loan me the money with which to do them. As it is, I drive an 11 year old car that I purchased used. I'm paying off educational loans that landed me a job that pays $32K per year. I also have a mortgage and a whole bunch of other bills that I have to pay. I don't think any of the financial instituitons which my tax money just helped to bail out would be willing to lend me the money to purchase the items that you have suggested so, could you please lend a foolish transgressor like myself enough money to do the right thing? If so I would willing do as you have suggested.
Apr 28, 2011 12:34PM
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There are untold billions of barrels of oil in the Bakken Shale Formation in North Dakota and Montana. Tapping this vast source would probably give US $0.16 per gallon gas. Who needs the middle east?
Apr 28, 2011 11:48AM
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How about we discontinue the $4 Billion in annual subsidies to the oil industry?  They continue to reap record profits, and yet Boehner says he might "look at" the subsidies as a way to cut spending.  I wonder who's paying for his campaign? 
Apr 28, 2011 1:27PM
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People stop the bickering and remain focused here.  The simple fact is that corporate oil, including those from other countries like British petroleum are out of control.  The politicians will most likely never do anything about it, because they don't feel the effects.  Every politician in Washington enjoys taxpayer funded transportation, while they hold office.  On top of that they are so rich from bribes by the time they leave, that they don't care what prices are.
We as a country in 1972 began a law suit initiated by the justice department, against Bell Telephone.  Anyone who remembers that knows it was due to price fixing, and stifling competition.  Since Bell's monopoly threatened the government and the people's national security, they were broken into smaller companies.  If ever there was a time for our government to use the lessons of the past, it is now.  
The government which are supposed to represent us the people, needs to act!  The immediate and systematic break-up of big oil needs to take place, for our national security.  Sanctions should be placed on all oil companies, whether foreign or US owned.
When the oil companies have the audacity to brag about record profits, during a severe economic hardship.  It is time to take them down and end their monopoly!!!!!!    
Apr 28, 2011 2:24PM
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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. 

Apr 28, 2011 11:45AM
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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! 

 

Apr 28, 2011 12:24PM
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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.

Apr 28, 2011 11:52AM
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I find it amusing that the article states,"Then, Big Oil's profits dried up. Exxon-Mobil saw its profits cut in half." That's half off a back-to-back record-breaking period...or, in real terms, still a profit of $22.5 BILLION. Cry me a river. Meanwhile, I'm laid off again. Why,you ask?(maybe not;I'll tell ya anyway) High gas prices from market manipulations are dragging on the economy. These Masters of the Universe are draining us dry, and nobody's willing to Tax the Bastards!
Apr 28, 2011 12:59PM
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It's funny how the cost of the raw material seems to be going up, and at the same time the profits for the companies using the crude oil to make their products (gasoline, diesel, etc.) jump up just as high, if the raw material goes up in price profits normally go down or stay flat, the oil companies are all in bed together, they're robbing us blind and the politicians put on the farce inquiries that don't amount to ****!
Apr 28, 2011 1:00PM
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Just bend over and grasp your ankles people and get ready to take it hard.   Big Oil and the government don't care.  They just like all the money they can make.   Funny that no one is talking about what happened last time oil went crazy and the economy collapsed.  Kind of feels like deja-vu.
Apr 28, 2011 11:51AM
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Are you kidding me, when a ceo can create a 500 million dollar retirement, are you kidding me?. The whole oil industry is a sham. they haven't even cleaned up the mess they created in Valdez. Makes me wonder how many politicans they have in their pocket.
Apr 28, 2011 12:53PM
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Everyone in government needs to wear a suit like NACAR drivers so we all know who has bought and paid for them. Then, you'll see real term limits.
Apr 28, 2011 12:34PM
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I think it's pure greed.  There hasn't been an ounce of friggin' proof provided to us about how the costs are so high.  And until I see undisputable proof, I'll assume it's just greed.  What else is there?
Apr 28, 2011 12:07PM
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Go figure, they make the big profits while the rest of us struggle to buy groceries.  Thanks, big oil.  Thanks for watching out for your fellow Americans.  Can't wait to buy an electric car.
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