Oil Profits Little Affected by Financial Crisis

(MoneyWatch)  As if by magic, the price of crude oil dove $10 in the last two days, coming in below $100 a barrel for the first time in six months. Conventional wisdom has it that the sudden downward slide had something to do with the financial crisis and the collapse of Lehman and Merrill (although prices rose again somewhat today on news of the AIG bailout).

It is said that speculators are, well, speculating that consumers around the world are prepping for an extended downturn, tightening their proverbial belts, and preparing to spend less money on everything from unnecessary auto travel to plastics. And not even the shut-down of Gulf Coast oil production by storms Ike and Gustav, or even the oil war currently raging in Nigeria, seems to have had much effect on oil prices one way or another.

While the lower prices might seem a boon for consumers, what might they portend for oil companies' profits? Exxon Mobil, for example, has drawn down record profits year over year for the past several years ($40.6 billion in 2007, $39.5 billion in 2006, and $36.1 billion in 2005, etc.). How will this sudden plunge in prices, caused at least in part by the financial crunch, affect its earnings in 2008?

Not much, probably. In the second quarter of this year, Exxon Mobil hit a record $11.7 billion in profits -- a record not only for the company but for any U.S. company in a single quarter, ever. Even if crude oil prices fall further -- and, according to The Forecast Center, they are expected to hover around the $100 per barrel mark well into 2009 -- this year's earlier highs will probably make up for any subsequent loss or plateau. Although Exxon Mobil has lost roughly $80 billion in market value this year, the company nevertheless stands to reap, once again, windfall profits. In the first two quarters of 2008 alone, for example, Exxon Mobile posted profits of $22.6 billion. That's well within reach of 2007's record of $40.6 billion.

Other big oil players, too, should weather well the current financial crunch.

(Image by skampy via Flickr, CC 2.0)