The recent bull run in the oil prices has surely benefited the oil companies a lot, but at the expense of the economy and the consumers. Due to the rising oil prices, cost of inputs rise for numerous products including the essential ones, thereby raising the monthly budget for consumers. Rising oil prices is a matter of prime concern for the government and economies around the world.

As suggested by Bush in one of his speeches, the oil companies who have made billions of dollars in profits due to rising oil prices at the expense of the consumers, should invest such extra profits and cash flows in developing alternative fuel sources and new technologies in order to avoid such a situation from happening again. In this way, they will be able to enhance the energy security in the economy and pay back some of the gains back to the society. Such new projects and investments could include new pipelines, expansion of refineries and more exploration and investment in renewable sources of energy.

source: http://www.cnn.com/2006/POLITICS/04/28/congress.oil/index.html

Thus, rather than pocketing all the gains made during this bull run in oil prices, companies should reinvest those gains for benefiting the economy, society and consumers. This will offset some of the negative image associated with the windfall gains made by oil companies.

Such investments will also make it sure that the economy would not be as badly hit as it had been in the last few months due to rising oil prices because alternative energy sources will offset some of the negative effects of the rising oil prices.

Another possible course of action which oil companies can resort to is voluntarily cut the retail prices of gasoline to ease the burden on consumers and in the process, make less than anticipated profits for the benefit of the consumers. This will enhance their corporate image and ease the burden on the economy as well.

Government can also induce taxation on the windfall profits made by oil companies, thereby increasing the revenue of the government.

However, oil industry have their own arguments in favor of their windfall gains. They claim that the people arguing against the windfall gains forget the fact that the earnings of the oil companies are highly cyclical in nature, making them just as prone to "busts" as to "booms." This argument is indeed strong in the sense that sharp downturn in prices, such as the recent downturn of prices from $78 per barrel to recent lows of $56 or so have certainly hit the pockets of oil companies, who will not make as much profit as before. Thus, from the perspective of oil companies, they are also right in their argument.

source: http://taxprof.typepad.com/taxprof_blog/2005/10/gas_taxes_excee.html

At the end of the day, it is an accepted fact that rising oil prices have a detrimental effect on the economy, people and society and thus, efforts need to be made to mitigate the impact of such rising oil prices by resorting to alternative sources of energy such as renewable sources or investing in better technology, R&D and exploration of new energy sources. Oil companies should join hands with government and participate in mitigating the negative impact of high oil prices.