ExxonMobil Corp. and Royal Dutch/Shell Group yesterday reported large increases in third-quarter profits, part of an industry-wide windfall caused by high oil prices and strong demand.
Irving, Texas-based Exxon said its profit was $5.68 billion, up about 56 percent from the third quarter last year. Royal Dutch/Shell, based in London and The Hague, said that its profit more than doubled, to $5.4 billion.
Analysts said Exxon, Shell and several other oil companies that have reported earnings in recent days could not help but benefit from soaring oil and natural gas prices.
"It's like the gold rush," said Fadel Gheit, an analyst at Oppenheimer & Co. in New York. "It would be shame on them if they did not do what they did."
The price of oil has been above $50 a barrel for weeks. It the past two days, oil prices have fallen but remain more than 70 percent higher than a year ago. Adjusted for inflation, oil prices peaked in 1981.
As oil companies reap the rewards of higher oil prices, consumers suffer. The average price for a gallon of regular gasoline was about $2.03 yesterday, 2 cents less than a record set in May, according to a AAA auto club survey. Diesel fuel prices have reached record highs for weeks. Home heating oil prices are far higher than last year. The prices do not reach record levels when adjusted for inflation.
Prices for oil have risen as demand has increased, especially in China, and world oil production is near capacity. Traders have pushed up prices, fearing that any significant disruption to production could lead to a shortage of oil.
"Demand has far exceeded our expectations at these kinds of price levels," said Paul Sankey, an analyst for Deutsche Bank in New York. "Is it sustainable? Probably not. Demand is bound to slow down."
Big oil companies have been using hefty profits to increase dividends, buy back stock and, in some cases, repay debt. The big companies have not significantly increased their budgets for exploration and development while some smaller companies have spent more, analysts said.
The larger companies say their refining operations have helped increase earnings, but the profit margins have narrowed from earlier this year. In addition, the oil companies' chemical businesses have been strong as they have passed along higher oil prices to customers, analysts said.
Other companies reporting profits this week included London-based BP, whose earnings rose 43 percent in the quarter. ConocoPhillips, of Houston, reported that profit increased 54 percent. Apache Corp. of Houston said its third-quarter profit increased 57 percent.
ChevronTexaco Corp. of San Ramon, Calif., plans to announce its earnings today.
The profits of some companies were held down by disruptions to production in the Gulf of Mexico caused by Hurricane Ivan in September, analysts said. Some smaller companies, such as Marathon Oil Corp. of Houston, were hit harder by storm damage, analysts said.
"The third quarter was marked by record high crude oil prices and strong refining and wholesale marketing margins," Clarence P. Cazalot Jr., Marathon's president and chief executive, said in a prepared statement. "While these market conditions were favorable, we were not able to fully capture the value of this high crude oil and natural gas price environment due to a number of factors, including the effect of hurricanes and unplanned downtime on our oil and gas production during the quarter."
Oil company officials are pondering how long the boom will last. Some analysts predict that prices will gradually ease over the next year and cut into companies' profits.
BP's chief executive, John Browne, said this week that he thought oil would be about $30 per barrel in the "medium term."
"Prices could spike above this level if demand strength outpaces the rate at which additional production capacity comes onstream each year," Browne said.
Also yesterday, Royal Dutch/Shell said it would merge its parent companies after almost a century apart. Earlier this year, company officials acknowledged overstating oil reserves and yesterday warned that further reductions in reserves may occur.