What to Expect When Big Oil has Friends in Government

In the 1970’s when oil prices went through the roof -- and oil profits soared – oil companies were viewed as public enemy Number One and were treated as such by congress and the president.

Today, oil companies are again reporting increased profits as international crude oil prices hit new highs; yet congress has just handed them anywhere from $1.4 billion to $4 billion in tax breaks in the new energy bill and the people have said nothing.

Isn't there something wrong when oil companies profit from the misfortune of the U.S. economy and American consumers or is it just the American Way?

The drain on the average American's pocketbook has been a gusher for the big oil companies. Just look at the financial statements issued at the end of July. Exxon Mobil Corp.'s second quarter earnings climbed 35 percent from the second quarter of 2004. BP PLC said its net income increased 29 percent. At Royal Dutch Shell PLC, second-quarter profits rose 34 percent. ConocoPhillips reported a 51 percent jump in earnings.

When oil prices rise, petroleum companies that have long-term contracts or own oil reserves get a huge windfall; after all, they might have invested and developed those oil fields when prices were anywhere from $10 to $25 a barrel. Suddenly prices skyrocket and the companies are swimming in profits.

Prices for North Sea Brent crude oil averaged 46 percent more than the average a year earlier. In the United States, crude oil prices have been running about five times as high as 1998 levels.

If those companies that refine crude oil and market gasoline experience an increase in their raw material (oil), shouldn't that squeeze their earnings? One might think 'yes' but not this year. We haven't changed our driving habits, so the oil companies have just raised the price at the pump without worrying about losing business.

More than half of Exxon Mobil’s profit increase came from bigger earnings on the 2.5 million barrels a day of oil and 8.7 billion cubic feet of natural gas that Exxon Mobil produces itself. Exxon Mobil as well as other oil companies boosted margins for operations of retailing and refining. Profits in those operations were up 47 percent from 2004 while the amount of petroleum products the company sold rose less than 3 percent.

Exxon Mobil’s sales in the second quarter were at a rate that would make its revenues larger than the gross domestic product of all but 18 or so countries.