Should the Oil Industry Make a Profit?

The price of gasoline has never been higher, with many Americans feeling the pinch on their wallets. But not those who own stock in oil companies.

As soaring gas prices have turned into massive profits for big oil, the shareholders of these companies are cashing in. And if you own a mutual fund, that may even be you.

BP yesterday reported a staggering 63 percent surge in first quarter net profit to $7.6 billion, and Royal Dutch Shell posted a 25 percent increase to $9.1 billion. Last week, ConocoPhillips reported a 16 percent rise in net income to $4.1 billion.

The earnings bonanza is expected to continue when ExxonMobil and Chevron report earnings later this week.

How Are You Dealing With Gas Prices? Tell ABC News.

But is there anything wrong with that? Isn't earning a profit the American way?

Robert Strom, director of research and policy at the Ewing Marion Kauffman Foundation, which works to advance entrepreneurship, could not speak directly about oil companies but pointed out that profits are the driving motivation behind most business ventures.

"In a market economy, production is driven by a profit motive," Strom said. "If I'm an entrepreneur and I'm starting a business and there's no prospect of me making a profit, there is little, if any, reason for me to undertake that activity."

The same can be said for existing companies looking to launch new production or make innovations to existing technologies.

For its part, the oil industry concedes that the oil companies are making lots of money, but Rayola Dougher, senior economic advisor at API, the industry's trade and lobbying group, said those companies are also spending billions and billions of dollars.

"That's just one part of the story. They are earning a fortune. That's tens of billions of dollars. But they're spending hundreds of billions getting the product to market," Dougher said.

Fair Share of Profits

The profits seem so giant, Dougher said, because of the scale of the industry.

But if you take a closer look at each dollar invested and how much is earned, Dougher said the oil industry earns a lot less than some other major industries. API says its members earn about 8.3 cents per dollar invested, compared to 18.4 cents for pharmaceutical manufacturers and 19.1 cents for beverage and tobacco producers.

"A lot of consumers think that [a $2 per gallon run-up in gas prices] is all in profits, it's all going to some fat cats back in some room somewhere," Dougher said. "It's 8 cents. It's fair. The other 92 cents is going back into investments, back into operations, to bring more product back to the market."

The oil companies' profits are a frequent target of the driving public and some politicians in Washington.

Earlier this month, top executives of the nation's largest oil companies were summoned to Washington to testify before Congress about their profits.

During that hearing some of the frustration and anger that many Americans feel with the oil companies bubbled up.

"On April Fool's Day, the biggest joke of all is being played on American families by big oil," Rep. Edward Markey, D-Mass., chairman of the Select Committee on Energy Independence and Global Warming, said at the hearing.

Markey expressed frustration that some oil companies aren't taking more of their profits and putting them into development of alterative energy products.

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