Wabash
11-10-2007, 02:03 PM
It’s hard to feel sorry for big oil companies earning tens of millions in profits.
But as the price of crude has skyrocketed – nearing $100 a barrel from half that at the beginning of the year – oil processors haven’t been able to raise the price of gasoline to match.
So Big Oil is being squeezed: Higher crude costs have dampened demand, even as refining margins remain slim.
As a result, for example, third quarter profits for Chevron, the second-largest U.S. oil company, fell 26 percent from last year, its steepest drop since 2002.
Chevron actually lost $110 million in its U.S. refining and retail operations during the quarter. It earned $831 million the year before.
The combined third-quarter profit of Chevron, Exxon Mobil, ConocoPhillips, BP and Royal Dutch Shell fell 11 percent to $28.1 billion, according to the Associated Press.
“It was a tough quarter,” energy analyst Chi Chow told Bloomberg. “The supply-demand fundamentals definitely weakened.”
Prices at the pump remained low for a while, but now they’re starting to catch up.
During the peak of the summer season the price of gas fell — from an average of $2.34 a gallon to $1.97 a gallon in certain East and West Coast areas, according to the U.S. Energy Information Administration.
This week, however, the EIA reported that the national average price for a gallon of gas rose to $3.01. It increased by 14.1 cents per gallon — nearly five percent — in the last week alone.
Despite the higher prices at the pump, Fadel Gheit, an analyst at Oppenheimer & Co., doesn’t see the situation changing any time soon for oil producers.
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Gheit says oil companies will not be able to pass on all of their higher costs. “Doing so would risk weakening demand even further,” he told the AP.
“It's going to be bleak for refiners,” Gheit said.
Bleak indeed. Bloomberg reported recently that Sunoco, the largest oil refiner in the eastern United States, saw third-quarter profit declined 39 percent. The culprit: The cost of crude is too high.
It’s still hard to gauge what the impact of higher oil and gas prices will be on the overall economy, although experts agree that decreased consumer spending is likely.
They see gasoline prices continuing to rise, further dampening spending in other key sectors of the economy, like retail.
“With oil prices going up and gasoline prices likely to follow, there will be less room for real consumer spending growth in the fourth quarter,” Avery Shenfeld, a senior economist at CIBC World Markets, told Bloomberg.
“The slowdown could be quite sharp,” he said.
Money News.com
But as the price of crude has skyrocketed – nearing $100 a barrel from half that at the beginning of the year – oil processors haven’t been able to raise the price of gasoline to match.
So Big Oil is being squeezed: Higher crude costs have dampened demand, even as refining margins remain slim.
As a result, for example, third quarter profits for Chevron, the second-largest U.S. oil company, fell 26 percent from last year, its steepest drop since 2002.
Chevron actually lost $110 million in its U.S. refining and retail operations during the quarter. It earned $831 million the year before.
The combined third-quarter profit of Chevron, Exxon Mobil, ConocoPhillips, BP and Royal Dutch Shell fell 11 percent to $28.1 billion, according to the Associated Press.
“It was a tough quarter,” energy analyst Chi Chow told Bloomberg. “The supply-demand fundamentals definitely weakened.”
Prices at the pump remained low for a while, but now they’re starting to catch up.
During the peak of the summer season the price of gas fell — from an average of $2.34 a gallon to $1.97 a gallon in certain East and West Coast areas, according to the U.S. Energy Information Administration.
This week, however, the EIA reported that the national average price for a gallon of gas rose to $3.01. It increased by 14.1 cents per gallon — nearly five percent — in the last week alone.
Despite the higher prices at the pump, Fadel Gheit, an analyst at Oppenheimer & Co., doesn’t see the situation changing any time soon for oil producers.
Editor’s Note: Our Options Plays Are Up 60%-1593%. Don't Miss Out.
Go Here Now.
Gheit says oil companies will not be able to pass on all of their higher costs. “Doing so would risk weakening demand even further,” he told the AP.
“It's going to be bleak for refiners,” Gheit said.
Bleak indeed. Bloomberg reported recently that Sunoco, the largest oil refiner in the eastern United States, saw third-quarter profit declined 39 percent. The culprit: The cost of crude is too high.
It’s still hard to gauge what the impact of higher oil and gas prices will be on the overall economy, although experts agree that decreased consumer spending is likely.
They see gasoline prices continuing to rise, further dampening spending in other key sectors of the economy, like retail.
“With oil prices going up and gasoline prices likely to follow, there will be less room for real consumer spending growth in the fourth quarter,” Avery Shenfeld, a senior economist at CIBC World Markets, told Bloomberg.
“The slowdown could be quite sharp,” he said.
Money News.com