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The Times: Petrol near £1 a litre as Exxon profit slips

November 2, 2007
Steve Hawkes

Petrol prices moved closer to £1 a litre yesterday as the world’s largest quoted oil company joined BP and Shell in reporting a heavy fall in quarterly profits.

Unleaded moved to a new record average of 98.81p per litre, with pump prices at some supermarkets rising to 99.9p. An AA spokesman said: “It seems only a matter of time before we hit £1.”

Fresh concerns over the soaring price of petrol came as Exxon Mobil, the world’s largest quoted oil company, said that its net income in the three months to September 30 tumbled by 10 per cent to $9.41 billion (£4.61 billion) – the first time since 2002 that the company has suffered two consecutive quarterly profit slumps.

Alongside Exxon, BP has reported a 45 per cent plunge in third-quarter profits, Shell suffered an 8 per cent fall and ConocoPhillips a 5 per cent drop.

Industry experts said that there was now a creeping realisation that high oil prices do not necessarily translate into record results at a time when companies in the sector are facing a raft of challenges.

One analyst said yesterday: “It is fair to say that given the oil prices we have seen, the results have shocked the casual observer.”

The rapid inflation in crude prices on global commodity markets has put a squeeze on refining margins as gasoline prices in the US and petrol prices in the UK have failed to rise at the same pace.

In the third quarter, the industry-standard NWE refining margin was $2.16 a barrel, more than 60 per cent below the $5.54 seen during 2006.

In a short statement yesterday Rex Tillerson, Exxon’s chairman and chief executive, echoed rival companies that have already reported over the past month by blaming weak refining margins for the performance.

Exxon produces 3 per cent of the world’s oil but refines double the amount. Yesterday’s results revealed that the group suffered a dive of nearly 37 per cent in profits in its downstream refining and marketing business.

Lysle Brinker, an analyst with John S. Herold, the American energy consultancy, said: “There’s a real blood bath in refining margins right now and that will largely offset the higher upstream earnings.”

At the same time as refining margins have weakened, the likes of Exxon, BP and Shell are spending far more on exploration and facing huge cost inflation for equipment they need.

The Institut Français du Pétrole recently said that it expected worldwide investment in exploration and production to rise by 13 per cent in 2007 and by a further 10 to 15 per cent next year.

However, the exploration boom that is desperately needed to replenish reserves has placed unprecedented demand on the oil services industry. The cost of a drilling rig has increased by nearly 200 per cent since 2005.

Analysts point out that this is putting additional strain on cashflow at a time when revenues are coming under pressure from lower production as maturing oil and gas fields are exhausted.

BP reported a 4 per cent fall in output in the third quarter. Exxon yesteday revealed that its oil production dropped by 4.3 per cent.

The industry also faces a growing threat from governments, such as Venezuela’s, that are keen to secure a larger share of the wealth from petro-dollars.

Both ConocoPhillips and Exxon have given up their assets in the South American country after failing to agree revised terms with President Chavez, Venezuela’s populist leader.

BP, Total, Statoil and Chevron have maintained a presence in the country’s oil-rich Orinoco reserve, but now hold smaller stakes.

American companies such as Exxon face the added pressure of contending with the weak dollar. Conoco said that its earnings will be affected by a hit of $155 million from converting profits made in Canada back into US dollars.

Norway’s Statoil was the only oil group to report higher third-quarter profits, but that was largely because of gains made on currency conversions.

One industry expert said: “The key issue going forward for each of these companies will be production. It has been pedestrian at best recently and while relationships with governments are becoming ever harder, older oil and gasfields are dying out.

“The winner will be the one able to change the nature of their business and kick-start volume growth.” and its also non-profit sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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