Oil Profits Likely to Impress

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"Booming prices are poised to put a firecracker under Big Oil's Q111 earnings, which should rival the industry's record year of 2008."

Booming crude-oil prices and improved refining profits are poised to put a firecracker under Big Oil's first-quarter earnings and set the stage for a year that could come close to rivaling the industry's record year in 2008.

First-quarter crude prices averaged about $100 a barrel, or about 20% higher than a year ago, pushed upward by oil-supply concerns due to political unrest in the Arab World and a recovering global economy. That spike is expected to lift earnings by about 50% at Exxon Mobil Corp., and about 33% each at Chevron Corp. and ConocoPhillips, compared with a year earlier.

The year is still young and crude is trading at about $112 a barrel in New York and about $124 a barrel in Europe. That unusually large difference between the price of oil sold in the U.S. and Europe will spur earnings on two counts. First, a big chunk of Big Oil's crude and liquefied-natural-gas production comes from Africa, the Middle East and Asia, where European pricing is the norm.

And the spread between the two regions, caused by a glut in the U.S., is helping refining profits.

"Major oil companies are firing on all cylinders," says Fadel Gheit, an analyst with Oppenheimer & Co. "Their first-quarter earnings are going to be much, much better than a year ago."

If oil prices continue to climb, they could at least rival 2008. That year, U.S. producers reported astronomic profits as crude hit $147 a barrel for a time. Exxon that year earned $45.2 billion, more than any other U.S. publicly traded company in history.

If there is any brake on energy-company earnings this year, it is the weakness in natural-gas pricing. Although crude-oil prices have roared back to near-2008 levels, natural-gas prices have remained depressed, says Sal Ilacqua, an analyst with Monness, Crespi, Hardt & Co. Stung by an overabundance of supply, natural gas traded around $4.10 a million British thermal units in the first quarter, about 22% lower than a year earlier.

Natural gas plays a much bigger role in Big Oil's fortunes than three years ago. Exxon Mobil last year became the largest natural-gas producer in the U.S. after its $25 billion acquisition of XTO Energy Inc. ConocoPhillips is also vulnerable to low natural-gas prices.

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