Factoring in $100 oil

A barrel of oil costs nearly $100 after trading for little more than half that price early last year. Profits in the energy industry are soaring, right?

Not at all. The best guess of analysts studied by Thomson Financial is that earnings for U.S. energy companies grew by just 6 percent last year. Estimates for companies elsewhere are harder to find, but Citigroup, citing external sources, expects 5 percent earnings growth for 2007 for the sector globally.


The sluggishness is due partly to the money that poured in during previous years. If earnings grow by 5 percent or so, it is 5 percent of some very large numbers.

Far more important, and less promising, is that oil shows up on both sides of companies’ financial statements. Sure, they sell it for astronomical prices, but they have to pay more to find and extract it.

“Oil prices are up, and costs are up a lot worldwide,” said Tina Vital, an analyst for Standard & Poor’s. “Not all of the oil price is falling to the bottom line.”

IHT