Oil Industry Profit Review 2007 (CRS Report for Congress)
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| Release Date |
April 4, 2008 |
| Report Number |
RL34437 |
| Report Type |
Report |
| Authors |
Robert Pirog, Resources, Science, and Industry Division |
| Source Agency |
Congressional Research Service |
Summary:
Increases in the price of crude oil that began in 2004 pushed the spot price of West Texas Intermediate (WTI), a key oil in determining market prices, to nearly $100 per barrel in the third quarter of 2007. Tight market conditions persisted through the remainder of 2007, with demand growth in China, India, and other parts of the developing world continuing. Uncertain supply related to political unrest in Nigeria, Venezuela, Iraq, and other places continued to threaten the market and contribute to a psychology that pushed up prices.
The decline of the value of the U.S. dollar on world currency markets, as well as the investment strategies of financial firms on the oil futures markets, has also been identified by some as factors in the high price of oil.
The profits of the five major integrated oil companies remained high in 2007, as they generally accounted for approximately 75% of both revenues and net incomes. For this group of firms, oil production led the way as the most profitable segment of the market, even though oil and gas production growth was not strong. The refining segment of the market performed relatively poorly.
Independent oil and natural gas producers are small relative to the integrated oil companies, and their financial performance was weaker, with more than half of the firms reporting declines in net income.
Independent refiners and marketers also experienced a difficult year that was reflected in profits in 2007. The combination of high crude oil prices that raised their costs and the inability to quickly pass cost increases on to consumers lowered refining margins, resulting in generally declining profits.
The potential volatility of the world oil and financial markets, coupled with the weakness of the U.S. and other economies, makes any profit forecast for 2008 highly speculative. While continued high oil prices are likelyâthe price of oil reached $110 per barrel in the first quarter of 2008âthe ability of the industry to pass those prices on to consumers of gasoline and other products during 2008 is uncertain due to possibly weakening demand.
