From USNews and World Report (Frebruary 1, 2008): "The oil industry urges people to look beyond its profits to its profit margin: about 7.6 percent of revenues late last year. That's not much higher than the 5.8 percent profit margin for all U.S. manufacturing, and if you exclude the financially troubled auto industry from that analysis, the oil industry actually appears less profitable than most manufacturers, which were earning 9.2 cents on every dollar of sales."

From Gibson Consulting: "The US deficit, around $500 billion in 2004, causes the value of the dollar to decline. Because oil is priced in dollars, no matter where in the world it comes from, producers want higher prices in order to maintain their income." That means that adjusting for inflation and measuring this in real dollars, with the decline settling in, the profits made are actually worth less, which means a lower profit margin compared to previous years. And the higher our deficit, the less our dollar is worth.

From the NYTimes: "Exxon said its refining margins dropped last quarter, reducing its profit from refining operations by 39 percent, to $1.17 billion, from the period a year earlier."

From the International Herald Tribune (January 17, 2007): "Crude and natural gas futures have found stability after a year of spikes due to major hurricanes, production mishaps and geopolitical fears. Earnings for Big Oil are bound to fall by 20 percent to 30 percent from the peak profits obtained in the second and third quarters, experts say. Analysts surveyed by Thomson Financial also expect oil company profits to fall between 7 percent and 37 percent from the same quarter a year earlier, when natural gas prices were sky-high due to the shortage produced by hurricanes Rita and Katrina."

From the Contra Costa Times (May 6, 2008): "While the dollar amount of oil company profits is indeed huge, the profit margin is in line with other industries. Over the past several decades, oil company profit margins have been below the national average for all industries."

From James Schott: "Everyone got all excited about Exxon-Mobile’s $40 billion profit in 2007. But looking just at the amount of the profit—the number of dollars—doesn’t provide you with enough information to discuss the issue of whether that profit is “indecent.” In order to have made $40 billion (that’s $40,000,000,000) in profits, Exxon-Mobile needed revenues of more than $404.5 billion (that’s $404,500,000,000), of which $334 billion ($334,000,000,000) goes to cover costs. By the way, Exxon-Mobile paid about $30 billion ($30,000,000,000) in taxes in 2007."

From Forbes, May 2, 2008: "But because gasoline prices have not kept pace with oil's stunning ascent to triple digits, Exxon Mobil and other big oil companies have seen far lower margins from refining and selling gasoline and other petroleum products. That's because Exxon Mobil and others don't produce enough oil to satisfy their refining operations, so they have to buy crude at market prices too."

So here's the bottom line on all this:

The dollar is weak; that causes the price to go up. It also causes the real-dollar value of any profits to decline because they're not worth as much. $40 billion sounds like a lot, but compared, in real money, to profits from the 80s, it's down.

And the real culprits, investors, fresh off their run from housing (which was fresh off their run from internet stocks) are jumping into commodities like gold and oil; that causes the price to go up. They will get burned just like before, and the price will drop to ~$80.

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