There's no question that the drain on the average American's pocketbook has been a gusher for the big oil companies. Just look at the financial statements issued at the end of July. Exxon Mobil Corp.'s second quarter earnings climbed 35 percent from the second quarter of 2004 (after excluding special items) to $7.64 billion. BP PLC, the world's second-largest publicly traded oil company, said its net income increased 29 percent, to $5.59 billion. At Royal Dutch Shell PLC, second-quarter profits rose 34 percent to $5.24 billion. ConocoPhillips, the third-largest U.S. oil company, did even better; it reported an eye-popping 51 percent jump in earnings, to $3.14 billion.

Exxon Mobil Corp.'s second quarter earnings show how these dynamics work. More than half of the company's profit surge came from bigger earnings on the 2.5 million barrels a day of oil and 8.7 billion cubic feet of natural gas that Exxon Mobil produces itself, the so-called "upstream earnings." More surprising was Exxon Mobil's ability to pass along those increases to consumers. Exxon Mobil (like other oil companies) was actually able to boost margins for what the industry calls "downstream" operations of retailing and refining. Profits in those operations, after excluding a special charge for the settlement of a lawsuit, were $2.2 billion, up 47 percent from 2004, even though the amount of petroleum products the company sold rose less than 3 percent.