Houston-based ExxonMobil xom, the No. 1 publicly traded oil company in the world, rode record crude oil prices to $10.9 billion in first-quarter earnings Thursday, despite lower production of oil.
ExxonMobil's 17% increase in quarterly earnings from a year ago continues a string of eye-popping earnings announcements from big oil companies in the USA and the United Kingdom this week, including BP bp, up 60%; Shell rdsa, 25%; and Conoco cop, 17%. Chevron cvx announces its earnings Friday.
"A rising tide lifted all ships," says Fadel Gheit, an oil industry analyst at Oppenheimer. "The gains from higher oil prices more than offset the lower production volume."
Still, Exxon's results fell short of Wall Street expectations, and its profit was $1 billion below the record it set in last year's fourth quarter. Exxon's net income rose to $2.03 a share, while analysts had expected $2.13 a share.
Exxon's share price fell 3.6% to close at $89.70 in trading Thursday on the New York Stock Exchange.
As energy experts and scientists debate whether the world is running out of oil or not, Exxon says it's spending more on exploration.
In a statement, Exxon CEO Rex Tillerson said, "Spending on capital and exploration projects was $5.5 billion in the first quarter, up 30% from last year, as we continued to actively invest in projects to bring additional crude oil, natural gas and finished products to market."
Analysts say Exxon's lower numbers were caused by everything from the weak U.S. dollar, which means the rest of the world is paying much less per barrel of oil than U.S. oil companies are, to gas prices at the pump not rising as quickly as the cost of crude oil, which squeezes profit margins for U.S. refinery operations.
"It's not a pretty environment to be operating in," says Justin Perucki, an oil analyst at Morningstar, the investment research firm in Chicago. "The U.S. is feeling the brunt of the pain."
While Exxon's earnings may have disappointed Wall Street, record profits by oil companies and rising fuel prices have ignited a huge backlash from some politicians and consumer activists. They're calling for a windfall profits tax and other measures to rein in what they believe to be excessive profits.
Last year, ExxonMobil's record $41 billion in earnings was the highest ever for a U.S. corporation. At the same time, oil prices this year have nearly doubled from 2007, at times rising well above $100. Drivers also are outraged over retail gas prices approaching $4 around the USA.
Consumer Watchdog, a non-profit consumer advocacy group in Santa Monica, Calif., says record oil company profits are hurting the U.S. economy and consumers.
"With gasoline prices topping $4 a gallon in some cities and averaging $3.60 nationwide, nobody is surprised to see the latest string of outrageous profits posted by Big Oil," John Simpson, consumer advocate at Consumer Watchdog, said in a statement. "People are driving less, but for every trip they cancel, rising prices at the pump more than wipe out their savings."
The consumer group urged the federal government to stop buying market-priced oil for the U.S. Strategic Petroleum Reserve, which it contends worsens speculative trading on the crude oil futures market and drives up prices.
"Purchases for the reserve at these record oil prices come straight from the pockets of taxpayers," says Judy Dugan, research director at Consumer Watchdog. "And by taking oil off the market, they fuel continued speculation."
Rayola Dougher, senior economic adviser at API, the trade group for the U.S. oil and natural gas industry, says prices aren't set by oil companies but by the marketplace of buyers and sellers. Global oil production in many regions is flat, while worldwide consumption rises 1.3 million barrels of oil a day, Dougher says. Unless oil supplies increase and consumers buy less gas, prices could stay high. "The line between supply and demand has become very, very thin," Dougher says.
Dougher concedes that while oil companies are making large profits, they're also spending "10 times as much bringing these products to market and making those investments for the future."
Even with record profits, the U.S. oil industry faces steep challenges, according to Gheit and Perucki. Those include:
•Strong competition from state-backed oil giants in Russia, China and India.
• A long economic slump that could lead to higher prices for steel, energy and other refinery costs.
Gheit says high prices have forced the oil industry and governments to use new technology and search harder for new oil fields and other energy sources.
"Higher oil prices have unleashed a lot of resources that were not economic before," Gheit says. "That is a blessing in disguise."