- Oil firms raked in massive first-quarter profits as gas prices hit record highs and demand surged.
- The blowout quarterly performances have raised concerns of price gouging in the high-inflation environment.
- With gas prices acting as a major source of inflation, scrutiny of Big Oil's profits is at a fever pitch.
Supply-chain snags. Overwhelming demand. Insufficient crude oil production. Refinery backlogs.
A handful of factors have been blamed for soaring gas prices, which have headlined the suffocating inflation of the past year. Yet the blame for the price surge is quickly shifting toward gas companies and their profits.
Several of the world's largest oil companies reported first-quarter earnings in recent weeks, giving investors new detail as to how sky-high gas prices are bolstering firms' bottom lines. Performance, in a word, was stellar. ExxonMobil reported a net profit of $5.5 billion, more than doubling its earnings from the year-ago period. Shell notched its strongest quarterly profit ever, and Chevron posted its best earnings quarter in nearly a decade.
A new analysis from the Center for American Progress examined five major oil companies — Shell, ExxonMobil, BP, Chevron, and ConocoPhillips — as gas prices soar.
The authors of the Center for American Progress post wrote that, in the first quarter of 2022, these companies "brought in more than 300 percent more in profits than in the first quarter of 2021. That is a total of more than $35 billion in profits in just three months."
"In fact, these five companies' first-quarter profits alone are equivalent to almost 28 percent of what Americans spent to fill up their gas tanks in the same time period," the authors added.
The windfalls mark a seismic shift from how oil companies were performing at the start of the pandemic. The first wave of lockdowns saw demand for energy crater. Crude oil prices even turned negative in the spring of 2020 as companies rushed to get unwanted oil off their hands.
The US is now experiencing what happens when the market swings in the opposite direction, and companies with pricing power are making a killing.
Insider looked at the adjusted earnings of Shell each quarter since 2019, BP's underlying RC profits, and net income or loss attributable to Chevron and ExxonMobil. After posting massive losses in early 2020, all four are now enjoying profits far higher than before the pandemic:
Insider reached out to representatives of ExxonMobil, Chevron, BP, and Shell for comment. Chevron forwarded a report published by the American Petroleum Institute that detailed oil companies' earnings over time. BP shared testimony presented by BP America President David Lawler to the House Energy Committee on April 6. Shell and ExxonMobil did not reply to the request for comment at the time of publishing.
The blowout quarter wouldn't have happened without a historic rally in gas prices. The price for a gallon of gasoline surged throughout the first three months of 2022 to hit a record in mid-March. That gave oil companies fresh leverage to rake in huge profits.
The rally has since continued, with pump prices hitting yet another record on Tuesday, according to AAA data.
Biden and Congress are scrutinizing Big Oil's big profits
But as inflation continues to erode Americans' finances, oil giants are catching flak. Some lawmakers have called on the firms to prioritize affordability over shareholder returns. House Democrats Carolyn Maloney and Ro Khanna urged the CEOs of ExxonMobil, Shell, BP, and Chevron in April to cancel plans for stock buybacks and dividends and instead focus on lowering prices. More recently, Sen. Sherrod Brown of Ohio alleged the companies are solely focused on earnings and hiding behind an excuse of rising operating costs.
"They're not raising prices to cover their costs — they're raising prices to pad their profits," he said in a May 11 tweet.
Concerns about oil-sector price gouging even made their way to the White House. The Biden administration called on Congress in late March to charge oil producers for untapped wells and leased public lands not being used for oil production. Companies "aren't doing their part" and are choosing "extraordinary profits" over "investment to help with supply," President Joe Biden said.
To be sure, oil companies are only one player in the complicated commodity market. While much of the rally was powered by soaring crude oil prices, that increase has since reversed course. Refining capacity is now the biggest bottleneck pushing gas prices to all-time highs. Put simply, crude oil supply rebounded but there weren't enough refiners to turn it into much-needed gasoline. The "crack spread" — what refiners charge to process crude oil into gas — jumped to a record high, putting even more upward pressure on pump prices.
"Energy markets are complex and global in nature," BP's Lawler said in his testimony before Congress. "This means that products – like refined fuel – reach end consumers through several different paths along the supply chain."
Seasonality has also played a role. Summer travel planning is in full swing, leading to large price hikes for airlines and hotels. Increased travel will ramp up spending on gas, further widening the gap between supply and demand.
Yet the buck still stops with oil companies. The latest round of quarterly earnings shows the industry enjoying a bonanza, and as Americans' pain at the pump intensifies, scrutiny over those profits is likely to get even more intense.
"Oil executives should not be able to profit off everyone else's financial pain as their companies earn record profits," the authors of the Center for American Progress article wrote. "Congress must provide some relief to consumers—and hold oil companies accountable."