Oil Earnings Camouflage U.S. Profit Weakness

Take away Exxon Mobil, Chevron and ConocoPhillips, and profits at U.S. companies are the worst in at least a decade.

Without the $70 billion that oil producers earned in the past two quarters, profits at companies in the Standard & Poor’s 500-stock index tumbled 26 percent and 30.2 percent, the biggest declines for any quarter since Bloomberg started compiling data in 1998. Energy companies made up almost half the income growth reported by S&P 500 companies in the first three months of 2008 as oil prices surged past $100 per barrel, the data show.


The results leave the benchmark for U.S. equities vulnerable to declines as oil companies’ costs balloon and production slips, according to Bank of America, Charles Schwab and Allianz Global Investors. The industry is getting less profit from a barrel of oil than at any time since 2005, just as the rest of the economy is sputtering. Still, energy shares posted the S&P 500’s steepest gains in the past year, bloating their representation to 15 percent of the index.

“It’s kind of a Catch-22,” said Joseph Quinlan, 49, New York-based chief market strategist for the investment management unit at Bank of America. “The better energy does, the weaker the rest of the S&P. It masks some of the weakness.”

Bloomberg