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Exxon's Biggest Profit Ever

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Exxon Mobil (XOM) reported the biggest quarterly profit ever in U.S. corporate history. With sales of $138 billion the oil giant earned profits of $11.7 billion. Those earnings were only 14% higher than last year despite nearly double price of oil. Unfortunately Wall Street was not impressed after Exxon said production dropped -8% for the quarter.

Exxon may be a giant in the U.S. but globally they only produce 3% of the world's oil. National oil companies owned by countries control over 80% of the remaining oil reserves. Those countries include Russia, Venezuela, Saudi Arabia, Kuwait, Iran and Iraq. None of those countries are our friend despite what they may say in public. As oil becomes harder to get they will have the most to gain at our expense.

Exxon was hammered for a -5% loss after reporting their earnings. They will also win the prize for the biggest consumer backlash as most U.S. citizens blame big oil for the rising prices. They will also win another round of government attacks and new calls for a windfall profits tax. It makes no difference that their percentage of profits at 8% is well below companies like Microsoft, Apple, Intel, IBM and just about every other major company in America. They are just penalized for being so successful and diversified. Much of that profit is made outside the U.S. from selling oil drilled elsewhere. If IBM made $20 billion a quarter everyone would cheer it because John and Jane Doe don't buy from IBM twice a week when they get gas. IBM's profits would not be felt at the consumer level like $4 gasoline. Exxon said they were going to invest $25-$30 billion a year for the next five years on exploration but nobody cared. It must be tough to be so successful that people hate your company.

Elsewhere in the sector Dawson Geophysical (DWSN) pulled off a strong beat of analyst estimates by +10% and the stock was rewarded with an $11 gain.  Coal Miner Consol Energy drop -30% and the stock was rewarded with a -$14 haircut. The table below shows the market results of some of the other energy reporters on Thursday. 

Oil prices pulled back from $127 to $124 on the weak economics in the U.S. economy. U.S. GDP for Q2 rose only +1.9% despite the tax rebates. Analysts had expected +2.4%. The weekly jobless claims rose to the highest level in five years. The national average for gasoline prices fell to $3.909. With gasoline prices falling and summer coming to an end the expectations for oil prices are looking like a decline to $110. Sunday remains the deadline for Iran's nuclear answer but it appears that "NO" has already been factored into the market.  Crude is down -0.78 cents at 2:AM Friday morning.

Jim Brown

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