Don’t blame big oil for high gas prices

For the first time ever, the average retail price of gasoline, at $4.02/gallon, has cracked the $4.00/gallon barrier, according to the latest research by AAA. That is up nearly 30% from a year ago and up almost 10% from just four weeks ago.

It seems as though discussion of high gas prices has replaced the weather as the most popular means of small talk. A big part of the discussion I hear is who is to blame for higher gas prices.

One of the first to receive blame is the oil companies. Since oil was struck in Pennsylvania in the late 1800s, “Big Oil” has been seen by the public as a greedy monopoly — but they are not to blame.

Much has been made about ExxonMobil’s record-breaking profits of $40.6 billion in 2007, up from $39.5 billion in 2006 and $36.1 billion in 2005.

There is no doubt the nominal amount of money ExxonMobil and oil companies have profited has benefited from the high price of oil and its products.

However, you cannot look at the sheer money amount of profit to gauge if they are truly doing better thanks to the higher prices.

You have to look at the profit margin, the net profit divided by revenues, which measures the profitability of a company. The profit margin for Exxon Mobil has held steady around 10%. In fact, it dropped from 10.4% in 2006 to 10% in 2007. Yes, that’s right, ExxonMobil actually profited less in real terms even with the price of oil and products increasing more than 50%.

Why, you ask? Well, oil companies just like everyone else are facing higher costs which are offsetting the higher prices they receive for their product. As oil becomes harder to find, it costs more to explore, extract and transport it. Not to mention that refining is a rather unprofitable business, given the constant maintenance needed to run a refinery properly.

So when pumping $4.00/gallon gasoline, do not blame it on “Big Oil.” They are not making more money from higher prices in real terms.

Business columnist Worth Richardson can be reached at .