Even as oil prices break records and «www.businessweek.com» (BusinessWeek.com, 10/16/07), profits aren’t gushing for major oil companies.

On Nov. 1, ExxonMobil («www.businessweek.com»), the world’s largest integrated oil company, reported a 10% drop in profits for the third quarter from a year ago. Last week British Petroleum («www.businessweek.com»), Europe’s second-largest oil company, reported a 29% drop in third-quarter profit, while ConocoPhillips («www.businessweek.com»), the U.S.’s third-largest oil company, reported its (BusinessWeek.com, 10/26/07). Chevron («www.businessweek.com»), which reports earnings Nov. 3, warned last month that profits would fall sharply for the period.

Exxon shares tumbled more than 3.5% on the news, and contributed to a steep fall in the Dow Jones industrial average, which dropped more than 360 points Nov. 1. Refining Margins on the Decline

What’s ailing Big Oil? This round of lower profits was caused by low refining margins, or the difference between the price of crude oil and that of refined products like gasoline. Because gasoline prices haven’t been rising in tandem with soaring crude, integrated oil companies and refiners are suffering a major blow in refining and marketing profits. Some analysts say refining problems are here to stay.

“Gasoline prices can’t keep pace with the sharp runup in crude oil prices,” says Fadel Gheit, senior energy analyst for Oppenheimer & Co. («www.businessweek.com»). “Going forward, whatever an oil company can get for crude oil [production], it will forfeit at the pump.”

Still, analysts say it’s important to keep the industry’s woes in perspective. “Only in this crazy bull market do people think that Exxon making $9.4 billion is some sort of problem,” says Peter Beutel, president of the energy risk management firm Cameron Hanover in New Canaan, Conn. “I’m personally not shedding any tears for Exxon; it’ll keep making plenty of money.”

International political developments have been causing more problems, too. From Russia to Nigeria to Venezuela, private energy companies have been struggling to get access to oil as governments become more difficult to work with. In June, Venezuelan President Hugo Chavez forced international oil companies to hand over equity stakes in their local operations to the state oil company Petrуleos de Venezuela («www.businessweek.com»), prompting Exxon and ConocoPhillips «www.businessweek.com» (BusinessWeek.com, 6/26/07). That contributed to a 2% drop in Exxon’s production in the third quarter, despite the sharp runup in crude prices. Crude Highs Have Mixed Impact

Crude oil prices, which have been on a bull run throughout 2007, are having a dual effect on oil majors, benefiting their exploration and production businesses while compromising refining segments. Amid tensions between Turkey and Iraq, fear of a U.S. confrontation with Iran, and supply concerns, crude oil prices have broken consecutive records in the last month. A barrel of light, sweet West Texas Intermediate benchmark crude settled at $93.49 on the New York Mercantile Exchange on Nov. 1, having surpassed a record $96 in overnight trading.

But high crude oil prices are only good news for refiners if they can charge high prices for refined products like gasoline. And relatively soft demand for gasoline is holding down prices at the pump, at least for now. Since the end of August, the wholesale price of crude oil has risen 60 per gallon, while gasoline is up only 16 a gallon.

This entry was posted on Thursday, March 20th, 2008 at 3:19 am While Dave was in Money. Responses are currently closed, but you can trackback from your own site.