BP (NYSE: BP) and Royal Dutch Shell (NYSE: RDS) posted record earnings once again after rising oil prices bolstered profits at the two large gas companies. BP reported a 63% jump in its first quarter net income while Shell announced a 25% increase in its profits. Both companies attributed the better-than-expected profits to higher oil prices that beat expectations across the board. And the news only gets better as oil continues to head higher.

Companies like BP and Shell make money by selling gasoline and crude oil to consumers and companies. Since their profit margins remain the same as a percentage of sales, their net income has increased along with the higher dollar volume spent at the pump. For example, assuming the company makes 20% profit on its sales, a consumer will pay $0.20 for $1/gallon prices but $1 for $5/gallon prices. As you can see, the sharp rise in gas prices sparked a sharp rise in net income.

Oil prices set a new record $119.93 in New York yesterday before profit-taking ensued today. These prices have remained pressured amid an uptick in militant attacks in Nigeria, however. The Movement for the Emancipation of the Niger Delta has stepped up its attacks on pipelines recently in an attempt to reduce the nation's crude exports. However, overall output came in higher-than-expected at 3.52 million barrels a day compared to analyst estimates of 3.37 million per day. This news sent oil prices lower on the day, but prices are still expected to remain high.

ConocoPhilips and Cheveron are also expected to report better earnings this quarter on May 1st and 2nd, respectively.

Related Companies
Exxon Mobil Coproration (XOM)
Chevron Corporation (CVX)
China Petroleum & Chemical Corp. (SNP)