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    Big Oil Expects Mixed Quarter Results

    Crude oil prices fall; meanwhile, refining margins rise.

    NEW YORK -- The large U.S. integrated oil companies are expected to post varied results for the first quarter of 2007, due to lower crude oil prices and higher refining margins compared to last year, reported Reuters.

    As oil prices slipped during the beginning off the quarter, geopolitical tensions eased. However, renewed tensions with Iran and stress over gasoline supplies pushed prices up, the report stated. The average price of U.S. crude oil centered around $58 for the quarter, 8 percent lower than the year prior.

    "Clearly, upstream earnings are going to be down 7 to 10 percent," Gene Pisasale, an analyst at Mercantile Capital Advisors, a unit of PNC Wealth Management, told Reuters. "The big story is the downstream -- refining and marketing. Refining is extremely strong right now. I think it's actually surprised analysts how strong the first quarter refining margins are going to be."

    In addition, raised refining margins could elevate earnings for oil companies, the report stated.

    For ExxonMobil Corp., analysts expect first quarter earnings to rise 7 percent, according to Reuters estimates, as refinery improvements balanced modest declines in production.

    At Chevron Corp., profit will reflect growth due to a refinery sale during the quarter, but operating results will be affected by lower refinery usage, the report stated.

    Lower profits are predicted for ConocoPhillips, Occidental Petroleum and Hess Corp., according to Reuters estimates.

    Refining margin indicators were wide across the board compared to the year-ago period, as gasoline and distillate process strengthened against crude oil.

    Individual companies' performance will vary due to structural differences, such as refineries' location and the price paid for the oil processed at the facilities, according to Mark Gilman, analyst at the Benchmark Co. He added that West Coast refining margins were higher than those in the Gulf Coast.

    Some oil companies, including Chevron and Marathon, warned investors of underperforming indicators on refining margins, due to refinery outages and pipeline constraints, the report stated. ConocoPhillips also mentioned margin problems at some of its U.S. refineries.

    However, first-quarter indicators for refining margins and crude oil can be misleading, said Deutsche Bank analyst Paul Sankey. He noted that the unplanned closure of Valero Energy Corp.'s McKee refinery because of a fire drove down demand for a grade of Texas crude oil that is used as a benchmark, Reuters reported.

    "Therefore real crude prices are higher than your screen suggests; by extension, real refining margins are lower," he wrote in a research note. Sankey predicted better-than-expected crude realizations and worse-than-expected refining realizations to be the theme for the first quarter.

    That theme seems to be reflected with BP's first quarter, as it reported yesterday a 17-percent profit decline due to lowered production at a lower price, along with higher costs than a year prior, according to MarketWatch.

    Profit fell to $4.66 billion for the company, compared to the $5.62 billion seen in the first quarter. After adjusting for the impact of energy price fluctuations on unsold inventory and a nonoperating gain of $363 million, earnings would reach $4 billion. A research note from Citigroup stated that was 2 percent under its earnings forecast.

    Production dropped 3 percent to 3.91 million barrels of oil equivalent per day, after the company sold some oil fields. In addition, oil prices fell 4 percent, and natural gas prices lost 12 percent, according to the company.

    The company's declining profits are being attributed to rising costs. Industry-wide cost inflation and ramping up safety spending added to costs paid by the company.

    Meanwhile, BP's refining and marketing unit saw adjusted profit before tax and interest almost halved, to $838 million, due to a $229 million charge. A $564 million gain was seen in the year prior.

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