HOUSTON, TX — Historic oil prices and $3-a-gallon gasoline have
been contributing to fears of a recession, but they’ve yet to cause the
hue and cry that some might expect. Americans may simply be growing
more accustomed to high fuel costs, analysts say.

All that may change beginning Friday, when oilfield services
giant Schlumberger Ltd. kicks off earnings season for the oil sector.
Companies may not post record profits, but certainly may report big
enough earnings to raise some eyebrows.

Given the weakening economy and prospects for $4-a-gallon
gasoline, hefty oil profits are almost sure to renew debate over
whether Big Oil is profiting at the expense of most Americans.

"This wouldn’t matter if we were talking about shoes," said
Judy Dugan, research director at the Foundation for Taxpayer and
Consumer Rights, which advocates more government oversight of the
industry.

"But oil is like water. It’s a necessity," she said. "And (oil
producers) don’t want to give up these profits even though they know
what it’s doing to the economy."

In 2005, when the price for a gallon of gas first hit $3, top
oil executives were hauled before federal lawmakers to explain profits
and assure customers they weren’t being gouged.

Whether similar grillings or protestations take place this year
could hinge on what occurs in the next couple of weeks, when oil majors
such as Exxon Mobil Corp., Chevron Corp. and ConocoPhillips report
fourth-quarter and 2007 earnings in the wake of $100-a-barrel oil.

Already, Chevron, the second-largest U.S. oil company, has
predicted it will earn a bigger profit in the fourth quarter than it
did in the third, when it earned $3.72 billion, because of higher
energy prices. Last February, Chevron reported its third consecutive
year of record profits: $17.1 billion for 2006.

ConocoPhillips, meanwhile, has said it produced more oil in the
final three months of 2007 than in the third quarter, but likely made
less money refining it into gasoline and other products.

Refining margins, which hurt many oil companies’ earnings in
the third quarter, are the difference between what refiners pay for oil
and what they are paid for the products they make from it. Those
margins have been squeezed as spiking oil prices outpaced increases in
gasoline prices and other refined products.

Exxon Mobil, the world’s largest publicly traded oil company,
has offered no guidance for its upcoming report, expected Feb. 1. But
Wall Street analysts surveyed by Thomson Financial predict the company
to top its year-ago result and post quarterly revenue of $112.7
billion, a 25 percent jump from the fourth quarter of 2006.

Exxon Mobil’s $39.5 billion profit for all of 2006 was the largest annual profit by a U.S. company.

John Felmy, chief economist at the American Petroleum Institute,
the industry’s top trade group, acknowledged the staggering profits in
recent years but said some of the criticism has come from people who
simply don’t understand how oil markets operate.

He said part of the blame belongs to the industry itself, which
is trying to do a better job of explaining to the public how it works.

"Buyers and sellers set the price of oil," Felmy said. "It’s a
function of what’s being produced around the globe. So it really is a
world price."

Felmy said it’s also important to note that oil companies
invest large portions of their profits back into the business.
ConocoPhillips, for example, earned $15.5 billion in 2006, its
best-ever result. This year, it says, its capital-spending budget is
forecast to be $15.3 billion.

While Exxon Mobil often grabs headlines for its enormous
earnings, most people don’t realize it produces only 3 percent of the
world’s oil, Felmy and others note. National oil companies, like those
in Saudi Arabia and Venezuela, control almost 90 percent of global oil
reserves.

"Exxon, frankly, is pretty small potatoes in the world oil
market," said John Moroney, a Texas A&M economics professor who
just finished a book on energy production and consumption. "It’s a huge
company, but that doesn’t mean it has a stranglehold on oil prices."

Dugan said one way to help keep prices in check is greater
regulation of energy trading markets, but Congressional efforts to do
so have been blocked by the industry’s powerful lobby.

Many analysts believe speculative investors played a major role
in driving oil prices over $100 earlier this month. The falling dollar
fueled the speculative frenzy because crude futures offer a hedge
against a weak dollar, and oil futures bought and sold in dollars are
more attractive to foreign investors when the greenback is falling.

"If Congress and the Bush administration don’t act now to
regulate energy markets," she said, "they’re throwing ordinary
consumers and the national economy to the speculative wolves."