Big oil taking political beating ahead of earnings

HOUSTON (Reuters) - Eye-popping profits earn respect on Wall Street but the billions big oil companies reaped in the fourth quarter are raising the wrath of U.S. presidential candidates trying to cater to voters' pocketbooks.

Large oil companies have long been a target of politicians -- mostly Democrats, who blame them for gouging consumers at the gasoline pump during periods of high crude oil prices.

The rhetoric, which in years past has resonated with middle-class voters, will get louder in coming weeks as the majors publish stellar earnings results during the heart of the primary season for the U.S. presidential election.

Executives from big oil companies "better get very thick brown bags to put on their faces when they go out in public," said Fadel Gheit, analyst with Oppenheimer & Co.

The situation intensified this week as crude oil prices briefly climbed to a record $100 per barrel on the New York Mercantile Exchange. And that jump in crude did not go unnoticed on the campaign trail.

Democratic presidential contender John Edwards waged an attack on soaring oil company profits while campaigning in Iowa on Wednesday.

Exxon Mobil Corp's (XOM.N) "profits last year were at record numbers," he said. "At the same time, all of you know what you are paying for gasoline at the pump, and it's not getting better."

The tactic is familiar to industry experts who see little coming of the headline-grabbing calls for more regulation.

"This is a perennial political strategy," said Jon Cartwright, director of research at BOSC Inc, a division of BOK Financial. "To the best of my recollection, every summer for the last 20 years politicians have complained about the price of gasoline. But when all the smoke clears they've done nothing."

PROFITS SOAR

Exxon, the biggest U.S. company, is expected to post a fourth-quarter profit of $9.66 billion, just below the $9.84 billion it earned a year ago, according to Reuters Estimates. On an annual basis, earnings could reach close to $39 billion.

ConocoPhillips (COP.N) is expected to report a quarterly profit of $3.8 billion and Chevron Corp (CVX.N) is forecast to earn over $4.28 billion, riding the wave of record oil prices.

While the hefty figures are sure to garner the attention of the candidates, the companies point out that crude oil prices are set in the global market. And bottlenecks in U.S. refining capacity can exacerbate jumps in motor fuel prices.

"Vilifying oil is not going to get us to where we need to be," said Rayola Dougher, senior economic adviser with the American Petroleum Institute, the lobbying arm of the energy industry. "It's a challenge politically for the oil industry to make the case to develop more supplies. Our candidates have to be more realistic about energy security."

U.S. Senator Hillary Clinton, who is also seek the Democratic presidential nomination, has been a consistent critic of Exxon. After the company reported a second-quarter profit of more than $10 billion in July, she renewed a call for the elimination of oil company tax breaks.

Still, oil at $100 a barrel can be a double-edged sword for those searching for the commodity and moving it to the market. Refining margins remain razor thin, and the competition for resources has grown fierce as governments, eyeing higher energy prices, tighten their grip on resources.

Those governments -- from the state of Alaska and province of Alberta in Canada to Russia, Venezuela and Kazakhstan -- have moved to increase taxes or control of the energy sector.

"Milking the oil cow is the greatest thing that's ever happened to these countries," Gheit said.

If there is a soft spot in earnings for the coming quarter, it is likely to be in the refining margins, which reached record levels in the first half of 2007 but fell sharply over the subsequent months as crude oil price gains outstripped those of gasoline, heating oil and diesel.

In fact, ConocoPhillips said on Wednesday in a news release that its U.S. refining margins fell by more than 25 percent from the third quarter, but were higher than the year-ago level in most regions.

Still, oil companies point out that they spend tens of billions of dollars each year to find and pump oil from far-flung sites around the globe. Compared to many other sectors, their profit margins are thin.

"If Exxon could generate the same profit margins that Microsoft Corp (MSFT.O) does, then Exxon could rule the world," BOSC's Cartwright said.