The Use of Profit by the Five Major Oil Companies

"The price of crude oil began to increase in the last quarter of 2003, and has led to the high prices observed from 2004 through 2007. The Iraq War, unexpectedly high demand growth in China, India, and the United States, and hurricanes Katrina and Rita, along with a number of other factors, all contributed to the rising price. An important result of these largely unexpected events was that the oil industry, as represented by the five major integrated oil companies doing business in the United States, experienced rapidly expanding revenues and profits. Some observers characterized these profits as "windfall" gains, while others pointed to the increasing scarcity and rising costs observable in the oil industry. Some saw "price gouging" in high gasoline prices, while others saw the market working to avoid physical supply shortages. The larger profits experienced by the oil industry and the five major integrated oil companies can be used in a variety of ways. Profits might be used to expand exploration and development of crude oil resources to expand the supply of oil. Refineries might be constructed, and technology improved at existing refineries, to expand the supply of petroleum products, most notably, gasoline. Profits might also be used to provide increased returns to the owners of the oil companies, the shareholders. This end might be accomplished through dividend payments and share repurchase plans." Source: Congressional Research Service

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