REFILE-UPDATE 3-Exxon profit disappoints despite high oil prices

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By Michael Erman

NEW YORK, May 1 (Reuters) - Exxon Mobil Corp (XOM.N: Quote, Profile, Research, Stock Buzz) posted a $10.89 billion first-quarter profit on Thursday, but still managed to disappoint investors as weak production volumes and low refining margins blunted the impact of the record-high crude prices.

The company's quarterly earnings rose 17 percent year over year and were the second-highest in U.S. history, but the results fell short of Wall Street expectations and the its shares dropped more than 4 percent.

Exxon's near-record profits sharpened scrutiny of the company from politicians and consumer groups, who are upset about sky-high gasoline prices at the pump.

Benchmark U.S. oil prices averaged a record of nearly $98 a barrel during the quarter, up about 70 percent from a year earlier.

Exxon posted record earnings of $40.6 billion in 2007, with revenue higher than the gross domestic product of Turkey, the world's 17th-largest economy. If oil prices stay above or around $100 for the remainder of 2008, the company could beat that mark.

A steep drop in profit margins for gasoline cut into Exxon's earnings as the company, such as other refiners, struggled to pass on higher crude costs to customers. First-quarter gasoline prices rose 33 percent year over year in the United States -- less than half crude's rise.

Exxon's oil and gas production also fell 5.6 percent in the quarter.