Social media posts shout the news: “Major oil companies are making record profits because of gas prices.”
Yes, it’s true that major oil companies had high net income last year, in some cases the highest in eight years. But it’s because of oil prices, not gas prices.
Here is the net income in 2021 for the five major oil companies that drill for oil, refine it and sell refined products like gasoline and other fuels:
| Company |
2021 net income (crude oil averaged $71) |
| Exxon Mobil Corp. |
$23 billion |
| Shell Oil Co./Motiva Enterprises LLC |
$19 billion |
| Chevron Corp. |
$16 billion |
| BP North America |
$13 billion |
| ConocoPhillips/Phillips 66 |
$8 billion |
| TOTAL |
$79 billion |
(Information is from published earnings reports, rounded to the nearest billion).
How much of these profits are from gas sales? Let’s look at the numbers, using only U.S. demand. The United States is the largest consumer of energy, responsible for one-fifth of world demand.
U.S. drivers consume approximately 9 million barrels of gasoline a day. Multiply that by 365 days in a year and by 42 gallons of crude oil in a barrel at an approximate retail net profit (before taxes) of 10 cents per gallon, that adds up to $14 billion in estimated annual profits from selling gasoline in the country—for all 145,000 retailers selling fuel in the U.S.
However, only about 39% of the country’s 145,000 fueling outlets carry branded fuel of one of the five major oil companies. In these contractual arrangements, the station promises to buy a certain amount of fuel in exchange for the right to use the brand’s name. These stores are not owned by the oil company . In fact, only about 0.1% of the fueling outlets in the country are owned by a major oil company.
| Company |
Branded Stations |
Company-Owned |
| Exxon Mobil Corp. |
11,000 |
0 |
| Shell Oil Co./Motiva Enterprises LLC |
25,000 |
211 |
| Chevron Corp. |
8,000 |
0 |
| BP North America |
7,000 |
0 |
| ConocoPhillips/Phillips 66 |
6,000 |
0 |
| TOTAL |
57,000 |
211 |
(The branded station count is to the nearest 1,000 stores; the company-owned count is from NielsenIQ as of December 2021.)
So, when you see announcements about profits or earnings reports of oil companies, don’t confuse them with your local/neighborhood convenience store that’s competing for your business every day to fuel your vehicle. Net margins at c-stores and gas stations are only 1 to 3% before taxes. Fuel retailers know that their customers are price sensitive.
If oil companies don’t make much money in “downstream” operations, where do oil companies make their money? It’s in their name: from oil, whether that means “upstream” operations of drilling for it or “middle stream” operations of refining it. It is important to recognize that oil producers don’t determine the price of oil—it is an international commodity that is traded on the open market, which means that traders set the price based upon their expectations for demand and supply in the future.
Breakeven costs to “produce” oil vary wildly, depending on how easily it flows to the surface via wells. It readily flows from Saudi Arabian fields, but the costs are higher for offshore drilling and on many U.S. oil fields. A survey of oil producers by the Dallas Fed found that oil prices needed to be above $56 a barrel to profitably drill new wells, with breakeven costs lower for existing wells.
When prices are elevated, it is tempting to evaluate profitability at that moment in time—but to fully understand profitability in the fuels sector (from oil companies to convenience retailers selling fuel) requires looking at a longer period. For example, in 2021, oil prices averaged $71 a barrel, meaning oil producers could expect a profit of at least $15 a barrel, whether that oil was refined into gasoline, jet fuel or home heating oil, among other options. But in 2020, oil prices averaged $42 a barrel for the year, meaning it was difficult to break even producing oil. Most oil companies experienced losses for the year.
| Company |
2020 net income (crude oil averaged $42) |
| Exxon Mobil Corp. |
-$22 billion |
| Shell Oil Co./Motiva Enterprises LLC |
$5 billion |
| Chevron Corp. |
-$6 billion |
| BP North America |
-$6 billion |
| ConocoPhillips/Phillips 66 |
-$3 billion |
| TOTAL |
-$32 billion |
(Information is from published earnings reports, rounded to the nearest billion).
Oil prices are a significant factor, but there are a lot of others factors that translate to profitability in the oil business. Major oil companies are multinational businesses that operate in dozens of countries and have operations that go well beyond drilling for oil and selling retail fuels. Plus, there are plenty of others who produce oil, from the large multinational companies to an estimated 9,000 independent oil producers in the United States alone. And everyone has different costs.
Whether oil prices are high or low, downstream operations—in other words, the costs and profits associated with selling gasoline—play a small role in overall oil company profits as well as determining gas prices, and that’s been true for at least the past decade. The markup on a gallon of gas averages 30 cents and after expenses, especially credit card fees which can be 10 cents or more per gallon, retailers have net profits of around 10 cents a gallon.
Selling gasoline as a convenience store certainly can be a good business model. After all, there is a reason that 145,000 outlets—including 116,00-plus convenience stores—sell fuel.
But it’s important to remember that while the exterior branding makes it look like the store is owned by a major oil company, that’s not the case. More than half of all convenience stores selling gas (54.6%) are one-store operators who may sell a specific brand of fuel or may even be a franchisee. But like with most convenience stores, they derive the bulk of their profits from in-store sales.
Convenience retailers selling fuel prefer lower gas prices because that means their customers will be in a better mood knowing they have extra dollars in their wallets. These customers are also likelier to go inside the store to buy a snack, drink or meal—in-store products with higher margins than gasoline. And, of course, lower prices mean customers can afford more than a costly fill up.