Business Week has picked up on a growing conundrum for the oil industry. Even as oil prices soar, earnings at Exxon, BP, and ConocoPhillips are coming back down to earth. Are lower profits here to stay?

Yesterday, ExxonMobil, the world’s largest integrated oil company, reported a 10% drop in profits for the third quarter from a year ago. Last week BP, Europe’s second-largest oil company, reported a 29% drop in third-quarter profit, while ConocoPhillips, the U.S.’s third-largest oil company, reported its third-quarter profit fell 5%. Chevron which reports earnings tomorrow, has already warned that profits would fall sharply for the period.

What’s ailing Big Oil, asks Business Week? 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. (OPY). “Going forward, whatever an oil company can get for crude oil [production], it will forfeit at the pump.”

Still, others 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.”

Tell you a secret, Peter. You are not the only one.


  • I think I know what’s up with energy.

    With the cost of gas so high and the instability in the middle east, Big Oil has realized that their days are at a minimum very turbulent. Cars made with rechargeable batteries are here and GM also realizes that fuel cell cars are years away and that rechargeable is the way forward. That means trouble for Big Oil. Recently private equity funds (Big Oil and Saudi Arabia) has purchased the biggest electrical utility (TXU) in the country for $32 Billion. Utilities were never a good investment for private equity funds, thus the only reason for this purchase and others to follow are to control and own their competition. The rechargeable battery is one technology that stand in the way of Big Oil continuing to dominate the energy markets.

    Plug-in hybrids would be a simple adaptation of existing hybrid technology by adding a battery that can recharge from the grid. You’d charge your hybrid at night and drive about 10 to 30 miles on the overnight power before you start using liquid gas, which means your 50-mpg Prius now becomes a 100- to 150-mpg Prius. Based on current electricity prices, you would get the functional equivalent of 50-cent-a-gallon gasoline.

    The TXU purchase was followed by the cancellation of 9 new coal fired plants in the works. The global war on the dirty coal fired plants may be financed by Big Oil. The global warming hysteria may also part of this equation.

    I have discovered a means of producing electric power from the wind that is many times more efficient then the horizontal turbines now in use. My patent pending wind machine will power the 21st. Century! Imagine a 50 MW wind power plant that is operational 100% of the time.

    The cost of wind electric energy must be reduced to below $.03/ kWh. and made more reliable in order for wind power to become competitive with coal. My discovery is an innovative machine using static airfoils. Rotors produce power proportional to the diameter squared. My patent pending invention produces power from the wind not by increasing rotor diameter to immense sizes but by increasing the wind velocity, and since power is proportional to the cube of the velocity you immediately see the advantage.

    Where does one go from here? Unless the Middle East spigot is shut off, there no chance that wind or any renewales will be more then a curiosity.

  • Non-renewable energy has (and will) dominated energy markets since coal, gas and oil was discovered, and capitalism dosen’t want your revolutionary cost effective design competing against their obsolete practicies which brings major profits to those who belong to the establishment.
    Your great idea would be very attractive to socialistic governments such as Bolivia and Venezuela and also to any country who’s market is dominated by selling mostly oil for their returns.

    Wish you all the luck Grassi

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