ExxonMobil Earnings Drop, but Beat Expectations

ExxonMobil (XOM), the world's largest publicly traded oil company, has been getting pinched by falling gasoline demand and rising oil prices. Today that trend continued.

The company earned a profit of $6.05 billion, or $1.27 per share, beating Wall Street's consensus estimates of $1.19. Revenue at the Irving, Texas-based company came in at $89.8 billion, beating analysts' expectations of $86.19 billion.But earnings fell 23% year-over-year, marking Exxon's fifth straight decline in quarterly profit.

Shares, which have slumped nearly 16% over the past year, rose in early trading.

The results underscore the changing fortunes of the oil companies, which were regularly vilified by Barack Obama when he was running for president in 2008. At the time, Obama and other Democrats regularly called for imposing a windfall profits tax on Exxon and its competitors. Such talks appears to have died down for now. Wall Street analysts doubted such a tax would have accomplished its purpose anyway, and would likely have resulted in higher gas prices.

Squeezed at the Refinery

Though contrary to popular conception, higher oil prices do not necessarily help the bottom line of Exxon and other big oil companies because costlier crude squeezes the margins of their refining businesses. Further hurting profits is a slump in demand for oil-based fuels as the economy tries to rebound from its worst slowdown since the Great Depression. No. 2 U.S. energy company Chevron (CVX) last week reported a 37% drop in fourth-quarter profit as lower demand for gasoline and diesel outweighed any benefits from higher prices. Bloomberg News says it was Chevron's biggest drop in a fourth quarter since 2001.

Analysts are expecting oil prices to keep rising this year as demand increases from emerging markets like China and India. Last week, Morgan Stanley (MS)predicted that that oil prices would rise to $95 by year-end and average $100 next year as supplies continue to dwindle. Goldman Sachs Group (GS) recently forecast potential oil shortages next year as "the market is back to capacity constraints."

In December, Exxon agreed to acquire XTO Energy (XTO), for $41 billion in stock to boost its presence in the natural gas market. It's ExxonMobil's biggest deal in a decade and will add the equivalent of 45 trillion cubic feet of gas from shale gas, tight gas, coal bed methane and shale oil sources.
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