Transcripts

Gas Supplies Drop & Oil Prices Rise

SUSIE GHARIB: A big rebound in oil prices today after a surprise drop in the nation's gasoline supplies. In New York trading, September crude futures jumped $4.58 to $126.77 a barrel. The news fueled a rally in oil stocks. Chevron shares spiked more than 5 percent and ExxonMobil rose almost 4.5 percent. High oil prices could mean strong quarterly profits for these big integrated energy companies. ExxonMobil reports earnings tomorrow. Chevron's numbers are released on Friday. Erika Miller has a preview of what to expect and the outlook for energy stocks. ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: While it has been a dismal earnings season overall, that cannot be said of energy companies. ExxonMobil reports second quarter earnings tomorrow and Chevron reports Friday. Both are expected to post profit growth over 30 percent. Oppenheimer's Fadel Gheit says both companies can thank high oil prices for their strong profit growth.

FADEL GHEIT, SR. OIL ANALYST, OPPENHEIMER & CO.: The second quarter earnings will be a record because oil prices have doubled from a year ago. They're up almost 30 percent from the first quarter. So, what do you expect except record earnings.

MILLER: According to Thomson Reuters, energy is expected to be the best performing sector in the second quarter, with a gain of 25 percent. Analysts will be paying close attention to the oil companies' refining and marketing margins. Most firms don't produce enough oil on their own to meet refining needs, so they buy crude on the spot market where prices have roughly doubled from a year ago. Yet, analysts say energy companies can't raise retail prices for gasoline fast enough to cover their higher costs. But S&P analyst Tina Vital is optimistic about those refining and marketing margins.

TINA VITAL, OIL ANALYST, STANDARD & POOR'S: We expect their refining and marketing businesses to hold up, due to the fact that they are large, efficient processors of crude. And they can also handle the cost advantage to heavy sour blends.

MILLER: Oppenheimer's Gheit says the other big issue facing major oil companies is government interference including the possibility of a windfall profit tax in the U.S.

GHEIT: As higher oil price push earnings to record levels, governments, including our own and others, they can be greedy. They want to balance their budgets. They want to do a lot of things, so guess what? The most convenient things is to dip their hand in the pocket of oil companies.

MILLER: These concerns help explain why oil stocks have not done well this year, despite record profits. The American exchange oil index is down 12 percent. Vital says now is a good time to buy many big oil companies, partly on the expectation of increased production in coming years.

VITAL: We don't believe that these future production results as well as their reserves have been factored into their current stock prices. As a result we think the super majors are quite attractive.

MILLER: However, some analysts worry high energy prices could actually be a downfall for oil companies. If crude surges back to record levels, analysts fear that could choke off economic growth and cut demands for energy. Erika Miller, NIGHTLY BUSINESS REPORT, New York.