Regan Brown
The profit made by fuel oil companies is a highly debated topic, with consumers alleging gasoline price gouging at the pump. In 2022, five major oil companies reported record profits: Exxon, Chevron, Marathon, Valero, and Phillips 66. These companies profited from the surge in oil prices, with Exxon, for example, reporting a Q4 profit of $9 billion. While the markup on a gallon of gas averages 30 cents, retailers' net profits are around 10 cents per gallon after expenses. Oil companies' profits depend on various factors, including the price of crude oil, operating costs, and market dynamics. The recent Russia-Ukraine conflict has also impacted oil prices and, consequently, the profits of oil companies.
| Characteristics | Values |
|---|---|
| Average profit per gallon | $1.22 |
| Average profit for oil companies per gallon | $1.12 |
| Average profit for refineries per gallon | $0.05 |
| Average profit for retailers per gallon | $0.04 |
| Average retail net profit per gallon | $0.10 |
| Average retail price per gallon | $4.353 |
| Record high retail price per gallon | $6.42 |
| Average gasoline price per gallon | $3.87 |
| Average gasoline price per gallon (February 2012) | $3.58 |
| Average monthly gasoline purchase per U.S. household | 100 gallons |
| Average monthly fuel bill per U.S. household | $366 |
| Average annual profit of Exxon | $55.7 billion |
| Annual profit of Chevron | $36.5 billion |
| Annual profit of Marathon | $14.5 billion |
| Annual profit of Valero | $11.6 billion |
| Annual profit of Phillips 66 | $11 billion |
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What You'll Learn
Oil company profits
It is important to note that the profit per gallon for fuel oil companies is influenced by various factors, including the volatile nature of the market. Oil companies generally thrive when oil prices are higher, but they also need to consider the lag in price adjustments, which can range from two to four days. Additionally, the price of crude oil is a significant component of the retail price per gallon for gasoline, accounting for nearly 54% in 2021, according to the Energy Information Administration.
The markup on a gallon of gas averages 30 cents, but after expenses such as credit card fees, the net profit for retailers can be around 10 cents per gallon. When multiplied by the total consumption of gasoline in the United States, this seemingly small profit per gallon translates into substantial annual profits for the entire industry. For example, the five major oil companies in California reported record profits in 2022, with Exxon leading the way at $55.7 billion, Chevron at $36.5 billion, Marathon at $14.5 billion, Valero at $11.6 billion, and Phillips 66 at $11 billion.
While oil companies defend their profits, citing factors like the Russia-Ukraine conflict and the subsequent sanctions on Russian oil exports, consumers and politicians alike have expressed concerns about price gouging at the pump. This sentiment has led to hearings with oil company executives and discussions of profit-windfall levies in response to rising energy prices. Additionally, some states, like California, have taken proactive measures to curb price gouging and hold oil companies accountable for their profits.
Ultimately, determining the exact profit per gallon for fuel oil companies is a complex task, requiring the analysis of financial reports, consultations with industry experts, and the consideration of various market factors. However, it is evident that the oil industry profits handsomely, especially during periods of high oil prices, while consumers bear the brunt of these price increases.
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Factors influencing gasoline prices
The retail price of gasoline is influenced by a multitude of factors, which can be broadly categorised into four main components: the price of crude oil, refining costs, marketing and distribution, and taxes.
Firstly, the price of crude oil is the largest component affecting the retail price of gasoline. The cost of crude oil is influenced by supply, demand, and geopolitics. For instance, sanctions on Russian oil by several countries reduced the global supply, leading to increased prices. The Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, also influences oil prices by setting production targets for its member countries.
Secondly, refining costs are a significant factor in the price of gasoline. These costs depend on factors such as the type of crude oil used, the technology available at the refinery, and the time of year. For example, it is more expensive to produce gasoline in the summer due to higher demand.
Thirdly, marketing and distribution costs impact gasoline prices. These include the costs of shipping gasoline from refineries to local terminals and then to gas stations for distribution to consumers. The marketing strategy of the gas station owner, including employee wages and benefits, equipment costs, and location-specific factors, also influences the final price.
Lastly, various taxes are levied on gasoline, including federal, state, and local taxes. The federal gasoline tax in the United States is 18.4 cents per gallon, while state taxes vary across the country. States with high gas taxes often invest in infrastructure improvements or local transportation.
Other factors that influence gasoline prices include the octane level of the gasoline, with higher-octane fuel being more expensive, and local market conditions such as competition, traffic patterns, and sources of supply.
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Oil company expenses
Oil companies incur various expenses in their operations, and these costs can vary widely depending on the company's size, goals, and other economic factors. These expenses are necessary for the business to function and are known as operating expenses or OPEX.
One significant expense is lease operating expenses (LOEs), which refer to the recurring costs of operating wells and equipment. LOEs cover maintenance, chemical treatments, and other costs associated with extracting oil and gas from wells. As wells age, production declines, and additional expenses may be incurred to extend their productive life. For instance, a wellhead compressor can be used to lower fluid density, making extraction easier and increasing a well's production potential.
The size of the company also impacts expenses, with larger companies like ExxonMobil and Shell, which produce crude oil, generally having higher margins and operating expenses. Integrated oil and gas companies, which handle most aspects of drilling and marketing, tend to have the best margins on a net basis. On the other hand, service and equipment companies, which provide well services and equipment, have lower margins and operating expenses.
Other common expenses for oil companies include equipment, rent, marketing, insurance, payroll, and research and development. These costs are essential to the business's operations but can be optimized to increase profitability. For example, investing in technology and applications can help streamline operations and reduce the need for labour.
Overall, managing operating expenses is crucial for oil companies to maintain profitability and competitiveness in the market. By optimizing expenses, companies can gain a strategic advantage while ensuring the quality and integrity of their operations.
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Oil company acquisitions
In 2012, oil companies made an estimated profit of $1.22 per gallon of gasoline, with $1.12 going to the producers of crude oil and $0.05 to refineries. Oil companies' profits can be difficult to ascertain, as they require a close examination of financial reports, consultations with industry experts, and analysis of publicly available data.
Now, onto the topic of oil company acquisitions:
The oil and gas industry has witnessed several notable mergers and acquisitions in recent years, with many deals aiming to enhance operational efficiency, leverage advanced technologies, and increase production.
For instance, in May 2024, ExxonMobil, a prominent US provider of oil, gas, and petrochemicals, acquired Pioneer Natural Resources, a company specializing in hydrocarbon exploration. This acquisition aimed to strengthen ExxonMobil's position in the Permian Basin and contribute to its strategy of providing more affordable and reliable energy.
Similarly, in May 2024, ConocoPhillips, an exploration and production company, acquired Marathon Oil Corporation to reduce expenses, improve operational effectiveness, and signal a shift towards more robust energy market players.
Another significant merger occurred between Diamondback Energy and Endeavor Energy in February 2024, resulting in a stronger, independent entity with increased production efficiency and expanded influence in the Permian Basin, a key US oil region.
Chevron, another major player, has also been active in acquisitions. In October 2023, it announced the acquisition of Hess, an independent crude oil and natural gas exploration and production company, adding valuable assets like the Stabroek Block in Guyana to its portfolio.
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Oil company profit reports
A breakdown of the profits per gallon provides further insight. In February 2012, when gasoline prices averaged $3.58 per gallon, oil companies made over $1 in profit for every $3 spent on gasoline. This equates to approximately 34% of the price, or $1.22 per gallon. Of this, the producers of crude oil, such as ExxonMobil and Shell, kept the lion's share of $1.12 per gallon, while refineries turning crude oil into gasoline made about $0.05 per gallon. The remaining profit went to retailers, distributors, and marketers, who made about $0.04 per gallon.
Oil tankers and pipelines, many of which are owned by oil companies, make a more modest profit of $0.01 per gallon. However, these profits add up significantly when considering the average household's fuel consumption. For instance, a household with two cars purchasing 100 gallons of gasoline per month would pay about $125 in oil industry profits out of a total fuel bill of $366.
The trend of increasing profits for oil companies has continued in recent years. In 2022, the five oil majors saw their profits soar to nearly $200 billion. The following year, in 2023, the global oil and gas industry earned record income of over $2.7 trillion, and French energy company TotalEnergies announced an annual net profit of $21.4 billion. Despite falling oil and gas prices, TotalEnergies' profits increased by 4% year-on-year, outperforming other major U.S. and European oil and gas companies. In 2024, profits for the five oil majors reached $102 billion, and oil major CEOs received substantial annual bonuses.
While oil companies reap enormous profits, they have been criticized for their continued investment in fossil fuels instead of transitioning to clean energy. This has contributed to record-high global CO2 emissions and climate disasters, disproportionately affecting low- and middle-income families. Some governments, like California's, have taken steps to protect consumers from price gouging and hold oil companies accountable.
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Frequently asked questions
The profit made per gallon depends on the company and the year. In 2012, oil companies made a profit of $1.22 per gallon. In 2022, oil companies made record profits, with Exxon making $6.3 million per hour.
The price of crude oil, operating costs, and demand are some of the factors that affect the profit made by fuel oil companies. For example, the spike in gasoline prices in 2022 resulted in record refiner profits of $63 billion in 90 days.
To estimate the profit of a fuel oil company, you can look at their income statement or profit and loss statement. You can also consider the number of gallons sold annually, the number of customers, the delivery method, and the margins.
