Major oil companies, including Chevron and ExxonMobil, are experiencing a significant surge in profits due to the US-Iran conflict and the virtual closure of the Strait of Hormuz. Chevron nearly quadrupled its profits to $12.07 billion, a 385% increase from the previous year, with revenues reaching $70.06 billion, up 56%. ExxonMobil is projected to report $14.9 billion in quarterly profits, more than double its year-ago earnings. These increases are largely attributed to higher crude oil and natural gas prices, along with boosted refining margins, particularly for jet fuel and diesel, which are 41% higher in the US than before the Strait of Hormuz blockage.
Refineries are benefiting immensely from these conditions, with potential profits of $50-$60 per barrel of oil, compared to an average range of $20-$25. This situation has led to historically high "crack spreads," which measure the profits refineries expect to make from converting crude oil into products like gasoline and jet fuel. Companies that both extract oil and own refineries, such as Exxon and Chevron, are particularly well-positioned to capitalize on the current market.
However, these soaring profits come at a cost to consumers, as US gasoline prices have risen back above $4 a gallon to $4.10, a 31% increase from year-ago levels. Diesel and jet fuel prices have also climbed, contributing to increased costs for drivers and airline passengers. The conflict has caused an unprecedented supply shock, impacting global oil distribution, with American refineries running near full capacity while some in the Middle East and Russia are damaged, and Asian refineries face supply constraints.
The substantial profits accruing to oil companies between April and June are likely to face scrutiny. There are legislative proposals, such as those from Senator Sheldon Whitehouse and Representative Ro Khanna, to impose a per-barrel excise tax on companies producing or importing over 300,000 barrels of oil per day, taxing 50% of the difference between the current oil price and the average price from the previous year. Similar proposals have failed in the past but could gain traction given the current economic climate and consumer impact.
European oil giants have also reported strong results; Shell's profits tripled to $10.8 billion, and TotalEnergies saw a doubling of profits to $5.4 billion. This widespread profitability across the industry underscores the significant financial impact of the ongoing geopolitical tensions on the global energy market.
