Sunday, July 25, 2004

Drip Down Economics

Record quarters seen from Big Oil
By Lisa Sanders, CBS.MarketWatch.com
Last Update: 5:46 PM ET July 24, 2004

DALLAS (CBS.MW) -- Oil is selling over $41 a barrel, with profits dripping to the bottom line.

"Chevron is printing money," said Oppenheimer & Co. analyst Fadel Gheit. "They're having Christmas in April, May and June. Gasoline prices are at record levels and they're making obscene profits."

On Friday, analysts expect ChevronTexaco (CVX: news, chart) to report earnings of $2.70 per share, a sharp increase from the $1.61 a share earned in the second quarter of 2003.

The major integrated oil companies report quarterly results in force during the next week, with high commodity prices and refining margins seen as drivers for record profit reporting.

"If they don't, shame on them," said Gheit. "Oil is at record levels, natural gas prices are at historical highs and refining margins are very close to record levels. And the chemicals business is improving because of global economic improvements. So they're firing on all cylinders."

ExxonMobil (XOM: news, chart) , the world's largest oil and gas company, reports its second quarter results Thursday.

"Exxon had record earnings last quarter, and they will beat that," Gheit added. "My bet is that the majority [of the companies] will."

Analysts polled by Thomson First Call expect Exxon, which has about $16 billion in cash, to earn 87 cents a share, on average. A year ago, the company earned 62 cents.

"Although they are still buying back stock, the money is coming in a lot faster than they are able to spend it," Gheit noted. "I still believe [Exxon is] eyeing investments in Russia. With more uncertainty surrounding Iraq, Russia becomes the only game in town." [emphasis mine]

Commentary:  On 5/11/2004 I posted a blurb about the sudden rise in gasoline prices.  I got the following comment:

The oil companies generally don't have the ability to collude--the execs get put in jail if it even looks like they did that. There's a shortage and oil companies always buy at whatever today's market price is and sell based on today's price, because they have to buy at a constant rate.

It's a little early to be getting worked up over these things--we don't know if it's the start of a trend or not.