Gushing Profits

In this year's fitful stock market, oil company shares have been uncommonly buoyant. Last week Gulf, Mobil, Standard of Ohio and Standard of Indiana hit new 1966 highs on the New York Stock Exchange. As a group, domestic oil shares have weathered the market's decline this year and maintained their Jan. 1 prices. During the last quarter, mutual funds--which were net sellers of most stocks--bought petroleum shares more heavily than any other type.

Truce in the Wars. Stock prices are strong because profits are surging. Standard of New Jersey, the world's largest oil company, last week reported record profits of $272 million for the third quarter, up 3% from the same period last year. Mobil, Cities Service and Standard of Ohio also set profit records. Gulf's alltime peak earnings of $122 million for the quarter were 20% higher than last year. Best gain of all the majors was registered by Atlantic-Richfield, whose nine-month profits climbed 32%, to $83 million. For 1966 as a whole, Standard & Poor's estimates that the industry's net will increase 11.4%--more than double the 5.3% average annual gains since 1961.

Why the oil boom? High demand, basically. To the astonishment of industry experts, who had planned for a 31% upswing this year, domestic consumption is 5% ahead of 1965. Because Americans are driving more cars than ever, gasoline sales are up nearly 4%. Kerosene sales have risen 15%, mostly because of the jet-fuel needs of U.S. airlines and military planes in Viet Nam. To keep refineries supplied, such producing states as Texas and Oklahoma time and again have hiked the limits set on crude-oil pumping.

Moreover, the companies have quietly called a truce in the profit-depleting gasoline price wars. After dipping last year, gas prices have returned to their 1964 levels. Overseas markets, long hindered by overproduction and underpricing, have also become healthier. In fast-motorizing Western Europe, gasoline sales are growing 12% a year (TIME, Sept. 16).

Those White House Calls. Brisk demand has given fresh urgency to some projects for new oil sources. Next fall in Alberta, a $240 million plant built by a Sun Oil Co. Canadian subsidiary will begin extracting 45,000 bbl. of oil a day from the Athabasca tar sands, which contain 369 billion bbl. of recoverable oil. Interest is also reviving in Colorado's vast deposits of oil shale. Recently, some producers in Kansas, Oklahoma and Texas raised basic crude-qil prices 80 to $3,08 per bbl.--closer to the point at which extraction of oil from shale could be economical. After that price rise, other producers were telephoned by White House officials, who warned them that anything over $3.05 would displease President Johnson. Since then, none have stepped across the line.

Partly for that reason, earnings are unlikely to expand quite so fast next year. When the full effects of tight money, suspension of the 7% investment tax credit--and possibly a corporate tax increase--appear on the balance sheets, says Humble Oil Economist Kenneth Lay, "pressure on profit margins will become apparent."

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