WASHINGTON, July 31 (UPI) -- Favorable market conditions, like record-high gas and oil prices, may have led to recent near-record oil company profits -- and shock from consumers of record gas prices -- but various factors could put a stop to that.
Exxon Mobil Corp. led the pack last Thursday of the big five oil companies reporting huge second-quarter profits, with $10.36 billion in net income, a $2.7 billion jump from the same period in 2005, and nearly a U.S. corporate record beaten only by its $10.7 billion take in fourth quarter 2005.
BP, Royal Dutch Shell, Chevron Corp. and ConocoPhillips all posted multibillion dollar profits.
All were bolstered by, among many factors, including oil prices, increased demand and shallow supply. Instead of investing profits into the supply side, many looked to add to their company's value and bought back stock. Exxon alone spent $6 billion, along with nearly $2 billion on shareholder dividends.
Oil experts say the profit margins are pushed by not-so-simple supply vs. demand fundamentals, as well as speculators making long-term buys to lock in oil prices amid expected continued or increased high prices.
And the fear of global instability and violence, both real and perceived, in and out of oil-producing countries, is a thruster for steady $70-plus barrels of oil.
"Mix that all together and you get high energy prices," said David Kirsch, oil markets group analyst with PFC Energy. He said the cost of producing the actual oil isn't growing, while the price for the product is at record numbers.
For the future, Kirsch said he envisions a continued tight market caused by poor investment climates in exploration, production and refining oil.
He said access to oil reserves is becoming scarcer, violence or government policy is restricting access to oil fields and there is less oil in certain regions. That phenomenon is driving up estimated future prices, as is a lack of finished product, especially gas and diesel, being produced by old refineries.
"Crude markets are amply supplied now," he said. "It's about refining products."
The uncertainties are preventing new refineries from being built, Kirsch said. "Higher oil prices can be passed onto the consumer. The real question: Is supply going to be there?"
Put together, it is market fundamentals -- fears augmented by violence such as attacks on pipelines in Nigeria and threatened supply shutoffs by Iran and Venezuela -- that's keeping up the price of oil.
Put simply, soaring pump prices and profit announcements are what the average consumers see, and reaction of members of Congress has ranged from understanding to condemnation to calls for action.
"The profits are absolutely to be expected," said Rep. Roscoe Bartlett, R-Md., "it's not costing them much more to produce oil," at $75 or $25 a barrel.
Others decry what they see as excessive profits while some demand a tax on profits over a certain mark, to be diverted either back to consumers or to domestic energy exploration -- both fossil fuel and renewables.
"If they don't want to invest in ending the addiction to oil, it's up to the American people to do it," said Tyson Slocum, director of Public Citizen's energy program. "Taxing oil company profits is a very equitable and just way to get those things done.
"I'm not talking about ending their ability to profit. I want them to profit. But is $10.4 billion in profit good for America?" Slocum said, pushing for investment in alternative fuels, energy efficiency and mass transit.
Slocum criticized what he sees as giveaways to oil companies, most recently the Energy Policy Act of 2005, which included billions of dollars, in various forms, as a carrot for domestic exploration and drilling.
"Why are taxpayers giving incentives to an industry reaping the biggest benefits in the history of capitalism?" he said.
That's a concern Bartlett shares. Although he doesn't want another tax on oil companies, he wants a large-scale effort at energy conservation and a move to renewable and alternative sources.
"Since we can't produce more oil we need to us less oil," said Bartlett, who says he thinks the world is at or near the downward slope of oil availability. "And then use the time you've bought and energy you've freed up to invest wisely in alternatives."
None of the reactions or plans will bring the price of gas down tomorrow, though. PFC Energy's Kirsch said it could be those very high prices that may lead to lower prices -- and lower oil company profits.
Energy costs are slowing economic growth, possibly to recession, which may force down prices.
He said other, less likely, ways prices could fall are an unexpected glut in supply or world peace.
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