Big Oil's Profit Margins Trail Tech, Pharma Despite Recent Gains

On the morning of April 6, 2022, the House Energy Committee posted a message on Twitter: "Oil companies are #RippingOffAmericans." The hearing that followed featured six energy CEOs facing accusations that they were hoarding record profits instead of pumping more oil to bring down gas prices at the pump. The logic seemed straightforward—gas was approaching $4 a gallon, families were hurting, and someone had to pay. The committee's target was clear: Big Oil.

But the numbers tell a different story. In 2021, U.S. energy companies ranked 10th in profitability out of 11 major economic sectors. Their profit margin that year was 8.3 percent. The median across all sectors was 10.6 percent. Financials led the pack at 25.3 percent. Technology came second at 23.2 percent. Pharmaceuticals posted 23.1 percent. Only consumer staples—the groceries and household goods that fill shopping carts—performed worse than oil, at 6.6 percent.

The individual companies politicians were singling out for punishment looked even less impressive in isolation. Exxon's margin in 2021 was 8.3 percent, with forecasts for 2022 at 10 percent. Chevron managed 10 percent, expected to rise to 11.8 percent. ConocoPhillips, the most profitable of the three, posted 17.3 percent in 2021 and was forecast to reach 22.6 percent in 2022. Apple, meanwhile, posted a 26.6 percent margin. Pfizer hit 27 percent. Citigroup reached 29.3 percent. None of these companies faced calls for a windfall profits tax, despite being among the most consistently profitable firms in America year after year.

The reason oil became the punching bag is not mysterious. When crude prices rise, gas prices rise with them, and the pain is immediate and visible at every filling station. Oil companies, by the nature of their business, make more money when the raw material they extract becomes more valuable. This creates a perverse optics problem: they prosper when consumers suffer. Other industries can absorb some cost increases and smooth them out over time. Oil cannot. When the barrel price jumps, the pump price jumps. When it falls, it falls just as fast. The inverse relationship between oil company profits and consumer welfare makes them perpetual villains in the political imagination.

What the political moment obscured was the decade that came before. From 2012 to 2021, energy stocks delivered the worst average annual return of any sector—just 0.85 percent per year. Utilities, the next worst performer, managed 7.6 percent. Technology returned 23.3 percent annually. Over the full decade, tech stocks gained 472.2 percent. Energy gained 11.1 percent, and that figure includes the 2021 rebound. Without 2021's 58.5 percent gain, the energy sector's 10-year performance would have been negative. Exxon's $23.6 billion profit in 2021 came after a catastrophic $22.4 billion loss in 2020, when oil prices crashed so violently they briefly turned negative. Apple, by contrast, earned $94.7 billion in 2021—more than three times Exxon's profit—and had done so consistently for more than a decade.

The fracking revolution of the previous decade had flooded the market with cheap American oil and natural gas, depressing prices and crushing returns for drillers. Now, with oil prices up 60 percent in the past year and approaching $100 a barrel, energy companies were returning to profitability. They were raising dividends and buying back stock. Nonprofit groups analyzing the financial statements of 20 large energy firms found widespread evidence that companies were returning profits to shareholders rather than investing in new production capacity. One analyst called the performance "a master class in war profiteering," referring to Russia's invasion of Ukraine. Proposals circulated for a windfall tax that could rebate up to $45 billion to consumers, paired with a new 1 percent tax on stock buybacks.

But calling for punitive measures against an industry that had just endured a decade of losses and was now experiencing a brief profitable moment began to look less like economic policy and more like theater. High inflation was affecting cars, food, appliances, and rent. No one was proposing windfall taxes on General Motors, Walmart, or Maytag. Those companies could absorb some costs and maintain margins. Oil companies could not. The question hanging over the April 6 hearing was whether punishing the one industry that had finally stopped bleeding would encourage it to invest more in production, or whether it would do the opposite—making it harder to attract capital and depressing the supply that might eventually bring prices down.