Tuesday, June 10, 2008

How Much Oil Companies Really Make When Oil Price Increase?

Viewers question: Hi Sir, say if oil price increase by 40% within few months time, does it mean that profitability of oil companies increase by that amount as well or more?

Ok, interesting question!! As oil price increase, definitely those oil producing companies will chunk in more profit but not as much as people would have anticipated.

Of course, by looking at the raw figures of $16 or even $20 billion will certainly raise our eyebrow. But don’t forget, these are few of the industries that reinvested high proportion of their profits into the business & their reinvestment cost billions too. It would be better if we look at their profit margin as in how much they make of each dollar sold.

I don’t have the latest statistics. But according to 2006 data, British Petroleum is making 6.8% while Exxon Mobil 10.7% as a profit margin & I would say that it looks healthy. I believe any Ramly Burger seller could have easily earned more than 20% as a profit margin.

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