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NEW YORK -- The bad news continued for the oil industry yesterday, as three major oil companies -- ExxonMobil Corp., Tesoro Corp. and Sunoco Inc. -- all reported steep declines in profits for the third quarter, as a result of higher crude oil prices, which lowered refining margins.
ExxonMobil missed analysts' expectations as third-quarter earnings fell 10 percent, due to declining profits from the production of gasoline and lower natural gas prices, Reuters reported.
Net income for the company slipped to $9.41 billion, from $10.49 billion seen a year earlier, the report stated. Profits from ExxonMobil's refining and marketing segment dropped 27 percent to $2 billion on lower margins, according to the report.
Refining margins fell up to 90 percent from the record highs reached in May, caused by the end of the summer driving season, while oil prices surged and gasoline prices could not keep up with the oil price increases, Reuters reported.
"There's a real blood bath in refining margins right now and that will largely offset the higher upstream earnings," John S. Herold, analyst Lysle Brinker, told Reuters.
Meanwhile, San Antonio-based Tesoro saw net income plunge to $47 million in the third quarter, compared to $274 million seen in the comparable quarter of 2006. The company attributed the fall to refining margins dropping in the West Coast and Pacific Northwest regions by 28 percent and 34 percent respectively, compared to a year ago, the company stated.
"The industry experienced a significant increase in crude prices in the third quarter, while product prices rose at a much slower rate," Bruce Smith, Tesoro's chairman, president and CEO, said in a statement. "These market fundamentals were the single biggest impact to our quarterly earnings vs. last year. The lower margin environment and rapid rise in crude price also negatively impacted other segments of our business, including marketing and our long haul crude hedge program."
In addition, retail operating income for the third quarter was $4 million, which included a $6 million impairment for certain retail sites, the company stated.
"We have high expectations for the USA brand, and to meet our company's long-term strategy around retail, we need to make additional investments," said Smith. "Our retail strategy is a selective process aimed at matching each refinery's production with its distribution needs. The addition of the acquired retail assets has allowed us to achieve a more optimum channel of trade balance."
Sunoco could not escape the pressure of lower refining margins, as the company's net income for the third quarter was $216 million, down 38 percent from $351 million earned in the comparable period, the Philadelphia Inquirer reported.
Quarterly revenue for the company was $11.5 billion, a 9.5 percent increase compared to the $10.5 billion seen last year, the report stated.
The company's chairman and CEO, John G. Drosdick, called the results solid in the "very volatile market," the report stated.