Oil company execs defend profits to Senate
Man, it must suck to be the CEO of a major oil company these days. Sure, your stockholders are loving you because of the record profits you’re scoring, but when gas prices at the pump are hovering between $2.50 and $3.00 a gallon, you’re also making a lot of consumers very unhappy. And when large numbers of people are unhappy, you can be certain that there are politicians close behind, looking to score some points with their constituents by looking as if they’re asking the tough questions of Big Oil.
Yesterday’s Senate hearing was a chance for Senators from both parties to look as if they’re on top of the issue and for Big Oil to claim that it’s merely the victim of it’s own success. Republicans AND Democrats can claim to be ahead of the curve, but in the end, nothing will change. Same as it ever was….
WASHINGTON (AP) — Oil executives sought to justify their huge profits under tough questioning Wednesday, but they found little sympathy from senators who said their constituents are suffering from high energy prices.
“Your sacrifice appears to be nothing,” Sen. Barbara Boxer, D-Calif., told the executives, citing multimillion-dollar bonuses the officials are receiving amid soaring prices at gasoline pumps and predictions of more of the same for winter heating bills.
There is a “growing suspicion that oil companies are taking unfair advantage,” said Sen. Pete Domenici, R-N.M. “The oil companies owe the American people an explanation.”
The executives represented five major companies that, along with their global parent corporations, earned more than $32.8 billion during the July-September quarter. Consumers, meanwhile, saw gasoline prices soar beyond $3 a gallon in the aftermath of supply disruptions caused by Hurricanes Katrina and Rita.
Sure, I understand market forces and how supply and demand can affect prices of good and services. The problem with this scenario, though, is that, if we were talking about most goods and/or services, a rise in price would have the predictable effect of forcing people to change their behavior- either by finding a more affordable alternative, or by reducing their consumption. That’s all well and good if you’re talking about milk or chocolate chip cookies. Alternatives are plentiful, and they’re the sorts of things that we can reduce our consumption of or eliminate altogether. Their is no alternative to gasoline for most automobiles, and most of us can only reduce our consumption around the margins. Gasoline is not an elective commodity for the vast majority of us, and that’s why higher prices are such a hot political topic. Besides, no politician can go wrong beating on Big Oil, right?
Lee Raymond, chairman of ExxonMobil Corp., the world’s largest publicly traded oil company, acknowledged the high gasoline and home heating prices “have put a strain on Americans’ household budgets,” but he defended his company’s profits. Petroleum earnings “go up and down” from year to year and are in line with other industries when compared with the industry’s enormous revenues.
It would be a mistake, said Raymond, for the government to impose “punitive measures hastily crafted in response to short-term market fluctuations.” They would probably result in less investment by the industry in refineries and other oil projects, he said.
ExxonMobil earned nearly $10 billion in the third quarter. Raymond was joined at the witness table by the chief executives of Chevron Corp., ConocoPhillips Co., BP America Inc. and Shell Oil Co.
But senators pressed the executives to explain why gasoline prices jumped so sharply in the aftermath of Hurricane Katrina, when prices at the pump in some areas soared by $1 a gallon or more overnight.
Given the number of refineries in and around the Texas and Louisiana coastlines, and the damage that was done by Hurricanes Katrina and Rita, it would stand to reason that a drop in production and static demand would drive prices up. That’s simple macroeconomics. Nonetheless, given the non-elective nature of gasoline demand, one could infer that oil companies were garnering significant profits off the suffering of everyday Americans. After all, this is the same industry that saw it’s way clear to freeze prices in the wake of 9.11. No one in the oil industry had to worry about where their next Big Mac was coming from then, so why not do the same thing now? Good question.
I don’t know what the answer is here. I’m a History major, not an Economics Ph.D., so I can’t very well offer a realistic solution. A windfall profits tax has a fair amount of emotional appeal, but what would become of the money collected? Some suggestions I’ve heard have dealt with assisting those in the North and Northeast with higher-than-normal heating bills this winter. This is a laudable idea. to be certain, but can we trust the federal government to move the proceeds from a windfall profits tax to those who need assistance quickly and efficiently? And who decides who qualifies for assistance? Remember, this is the same federal government that gave us FEMA- no one’s model of efficiency and speedy compassion.
It would be nice to see the politicians do more than posture in front of the cameras for their constituents back home. It would be nice to think that something positive will come out the Senate’s dog-and-pony show. You’ll have to pardon me if I don’t hold my breath on this one, because I can tell you what will happen when all of this is said and done- nothing. The CEOs will enjoy the adulation of their stockholders, their year-end bonus packages will be roughly equivalent to the GNP of a Third World country, and the Senate will move on to the next crisis du jour. Perhaps gas prices will return to their previous levels. Perhaps they won’t. Either way, the moral watchdogs in the Senate aren’t going to be the ones to save us.
