Les Jones

Economics > About Those Oil Company "Record Profits"

Jeff Jacoby:

"Come on," the enemies of Big Oil will snort. "Gregg's winnings weren't out of line for a lottery winner, and he collected a lot less than some winners do. These oil company profits are unprecedented. ExxonMobil reported $9.9 billion in profits last quarter. That's not just high, that's obscene!"

But profits can't be judged by dollar amounts alone. What counts is the percentage of revenues those profits represent. "Our numbers are huge because the scale of our industry is huge," Exxon CEO Lee Raymond tried, probably in vain, to explain during last week's big Senate hearing on oil company profits. Exxon's profits last quarter amounted to 9.8 cents for every dollar of sales. Is that obscene? Well, it was more profitable than Shell (which netted 7.8 cents of each dollar of revenue) or Chevron (6.6 cents) or BP (4.6 cents). But compared to Coca-Cola (21.2 cents), Bank of America (28.3 cents), or Microsoft (33.2 cents), it was nothing to write home about.

Smacking oil bosses around may be good politics, but the unglamorous fact is that Big Oil's earnings, 7.7 percent of income in the second quarter of 2005, is lower than the overall US corporate average of 7.9 percent. The oil industry is more profitable than some (automobiles, media, utilities), but it can only envy the profits earned by semiconductors (14.6 percent), pharmaceuticals (18.6 percent), or banks (19.6 percent). Exxon is doing all right, but it didn't hit the big jackpot any more than Senator Gregg did.