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How much bigger can big oil get?

Bob Moon Feb 1, 2008
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How much bigger can big oil get?

Bob Moon Feb 1, 2008
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TEXT OF STORY

Scott Jagow: OPEC agreed to keep oil supplies steady today.
Meanwhile, we’re waiting for Exxon to report earnings before the bell. This comes after Royal Dutch Shell set an all-time record for a European company — and disappointed analysts who expected even better numbers.

One of the problem areas: Tigher refining margins. While market speculators are having a high time with high oil prices, they could actually end up hurting profit margins for the refining operations of the major oil companies. Marketplace’s Bob Moon explains.


Bob Moon: With some oil companies posting annual profits that figure out to roughly $60,000 to $70,000 a minute, it might seem it would take a pessimist like the one Jack Nicholson played a while back to wonder:

Jack Nicholson: What if this is as good as it gets?

But that’s exactly the question investors are asking about big oil’s growth potential. There are limits to how much the major companies can pump out of the ground, and what they can make on gasoline.

We caught up with independent analyst Stephen Schork at the latest OPEC meeting in Vienna:

Stephen Schork: High crude oil prices are a cost of doing business. The oil companies have to go out and buy a lot of the crude oil that they’re turning into gasoline.

And at the same time, consumers have been using less.

Schork: You have not yet seen a commensurate return on the price of gasoline, so the margins are very difficult.

In fact, Marathon Oil says it was record-high crude prices that pushed its profits down 38 percent at the end of last year. Leading investors to wonder just how much the market will bear.

In Los Angeles, I’m Bob Moon for Marketplace.

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