By Steve Gelsi, MarketWatch
NEW YORK (MarketWatch) — While Big Oil’s collective, first-quarter profit jump of 45% to nearly $36 billion added fuel this week to U.S. political heat over rising gasoline prices, Wall Street shrugged off any possible threat from higher taxes on oil companies.
Petroleum shares end the month of April ahead by nearly 3%, including a healthy gain on Friday. See: Energy Stocks add gains to April’s rise.
Gas sits just 20 cents shy of record
As the U.S. dollar continues lower, AAA reports gas prices are now averaging $3.91 a gallon — just 20 cents off their 2008 record high.
The positive move in recent days came as major energy companies’ earnings often beat analyst expectations, sending shares up despite a proposal by the Obama administration to rescind billions in energy company tax breaks. See story about tax breaks for oil companies.
Running down the sector’s list of bottom-line growth, Exxon Mobil Corp.’s /quotes/comstock/13*!xom/quotes/nls/xom XOM +0.73% profit swelled by 69% to $10.7 billion; Royal Dutch Shell’s /quotes/comstock/13*!rds.a/quotes/nls/rds.a RDS.A -0.17% profit jumped 60% to $8.8 billion; BP PLC’s /quotes/comstock/13*!bp/quotes/nls/bp BP -0.30% net income rose 17% to $7.1 billion; Chevron Corp.’s /quotes/comstock/13*!cvx/quotes/nls/cvx CVX +0.58% earnings advanced 36% to $6.2 billion; and ConocoPhillips /quotes/comstock/13*!cop/quotes/nls/cop COP +1.86% profit widened by 44% to $3 billion.
/quotes/comstock/13*!cvx/quotes/nls/cvx CVX 109.44, +0.63, +0.58%
/quotes/comstock/13*!cop/quotes/nls/cop COP 78.89, +1.44, +1.86%
/quotes/comstock/10w!i:dji/delayed DJIA 12,810.54, +47.23, +0.37%
While profits rode a spike in oil prices to $100 a barrel and beyond, energy companies spent heavily to increase their production and continued to lay out big bucks for major capital projects aimed at extracting more fossil fuels, both out of the ground on shore and in deep ocean waters.
“When you produce nearly 5 million barrels a oil a day as Exxon does, and oil costs $100 a barrel, the profit numbers in the industry add up and they can be eye-popping,” said Brian Youngberg, analyst at Edward Jones. “But when you step back and look the profits’ share of sales, it’s lower than most other industries.”
Most of the riches for oil companies come in from their overseas business, where growth prospects in Asia and elsewhere in the developing world offer future returns out of the reach of Uncle Sam, he pointed out.
At the same time, Youngberg warned that higher taxes in the U.S. could shift investment by oil companies overseas, while strict regulations may discourage domestic production — echoing statements by oil companies themselves this week. See story about Exxon Mobil’s $11 billion quarter.
“The simple truth is that these are legitimate tax provisions to keep U.S. industry internationally competitive (and) to keep jobs from being exported to other countries,” Ken Cohen, Exxon Mobil’s vice president of public and government affairs, said in a conference call with reporters after the company’s earnings update on Thursday.
Pain in the pocketbook
Regardless of the ramped-up rhetoric from Exxon and others, Big Oil’s big earnings come as Americans absorb a painful rise in the cost of filling up their gas tanks. See First Take: Exxon’s embarrassment of riches.
Adding higher costs to the sluggish economy and lackluster employment picture, U.S. consumers now face an average retail gasoline price of $3.91 a gallon — up about 36% in the past year, according to the AAA Daily Fuel Gauge Report’s figures on Friday.
As the summer driving season approaches and prices traditionally climb, pump costs are now within 20 cents of the all-time record of $4.11 a gallon on July 17, 2008.
A gallon of gas, by comparison, cost an average of $3.73 a month ago, and $2.88 a year ago.
Looking ahead, fuel prices continue to loom large for the U.S. economic outlook, with Fed Chairman Ben Bernanke citing the impact of energy costs in his comments this week See: Reaction to Fed outlook
House minority leader Nancy Pelosi joined President Barack Obama this week to argue that oil companies don’t deserve tax breaks and that the government ought to be investing in clean energy instead.
“There is no reason American taxpayers should subsidize Big Oil’s profits,” said Pelosi (D., Calif.) in a statement Thursday.
Obama’s 2012 budget aims to set the U.S. on a course to strip oil and gas companies of tax deductions and credits including a credit for oil and gas produced from marginal wells, in order to raise about $46 billion over 10 years. Republicans have traditionally supported those credits. See Political Watch blog, 'Pelosi pounces on Exxon Mobil profits.'
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Steve Gelsi is a reporter for MarketWatch in New York.
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