WASHINGTON - The country’s three largest oil and gas companies are expected to report combined first-quarter profits this week in excess of $16 billion, a 19 percent surge from last year that is sure to complicate life for the industry in Washington, where elected officials are scrambling for ways to assuage angry consumers and businesses.
“These members of Congress are fit to be tied,” said Paul Cicio, executive director of the Industrial Energy Consumers of America, a trade group concerned about the soaring cost of natural gas.
The combined earnings expected from ConocoPhillips, Exxon Mobil Corp. and Chevron Corp. will be 14 times greater than the combined first-quarter profits of Google Inc., Apple Computer Inc. and Oracle Corp.
“That level of profit is not justifiable,” said Tyson Slocum, a consumer advocate and energy expert at Public Citizen.
But with world oil prices trading around $72 a barrel, analysts say full-year profits for the oil majors are likely to surpass the record-setting earnings of 2005, when Exxon reported a $36.13 billion profit - the highest ever for a U.S. company. In other words, the hand-wringing in Washington isn’t likely to mellow anytime soon. Still, this hasn’t dampened investors’ enthusiasm for energy stocks.
Shares of Exxon Mobil, Chevron and ConocoPhillips are all trading near the upper end of their 52-week range.
Henry Lee, director of the environment and natural resource program at Harvard’s Kennedy School of Government, said Democrats and Republicans alike feel enormous pressure from constituents to take some kind of action to lower fuel prices. At the same time, they recognize their relative powerlessness to have any major short-term impact on oil prices, which are up 33 percent from a year ago because of supply disruptions in Nigeria, the West’s nuclear standoff with Iran and speculative fervor on Wall Street for all commodities.
So, Lee said, they are left with two types of options: punitive actions such as a windfall profits tax and creative measures to help balance energy supply and demand. Rep. Joe Barton, R-Texas, said more hearings are necessary to determine how oil companies invest their profits. Sen. Arlen Specter, R-Pa., said a windfall profits tax may be necessary and that any future consolidation in the industry deserves more scrutiny. Sen. Charles Schumer, D-N.Y., has asked the Federal Trade Commission to monitor refiners this summer.
“These are all bad ideas,” said John Felmy, chief economist for the American Petroleum Institute, the oil industry’s main trade group.
Felmy said taxing oil company profits would be a “disaster,” and asked “how does that help supply?”
The consternation in Washington about persistently high energy prices and soaring industry profits is not simply a matter of looking out for the little guy, analysts said. With mid-term elections coming up in November, members of Congress must also look out for themselves.
“They hear it when they go back home” to their districts, said Richard Semiatin, assistant political science professor at American University. “And they’re getting an earful right now.”
But Andy Weissman, an energy analyst at FTI Consulting in Washington, said members of Congress would be making a mistake if they were to attempt to curry favor with voters by holding public hearings and lashing out at short-term oil industry profits rather than working behind the scenes on genuine solutions to the country’s energy crisis.
“It’s not going to make us better off in any fundamental way five years from now if there is a windfall profits tax on producers, and it could hurt if it discourages production,” Weissman said.
WASHINGTON - The $3 gas sign has become a common sight as the cost of fuel has soared in recent weeks. Why are prices so high? And can President Bush or Congress do anything about it?
Some answers to questions many motorists are asking:
Q: How bad is the recent price increase?
A: Last week, prices for regular grade averaged $2.94 a gallon nationwide, a 23-cent increase in two weeks and 68 cents higher than a year ago. And prices in many areas such as the West Coast and Mid-Atlantic states, including Western New York, exceed $3 a gallon.
Gasoline, however, still costs less in the United States than in many European countries. And taking general inflation into account, it remains slightly cheaper than in March 1981 in the aftermath of the Iran hostage crisis. Then, a gallon of gas cost $1.41, or $3.12 cents in 2005 dollars.
Q: Why have prices been going up lately?
A: Mainly because crude oil costs have soared, briefly reaching $75 a barrel, a third higher than a year ago. More than half of every $1 motorists pay for gas goes to the cost of crude. Gasoline supplies also have been tight because refiners shifted additives under government orders, using more ethanol. Ethanol prices have jumped 77 cents to $2.77 a gallon since December because of increased demand. And refiners are reaping record profits despite the high cost of crude.
Q: What’s behind the jump in crude oil prices?
A: Mainly market jitters about a potential cutoff of oil from Iran over a nuclear standoff and political tensions in the Middle East as well as in Nigeria and Venezuela, both major oil producers. The absence of substantial oil exports from Iraq has added to tight global supplies.
Q: What about the growing demand for oil?
A: The growing economies of India and China are causing a global increase in demand for oil. Also the United States, which consumes a quarter of the world’s oil, has shown little sign of easing demand despite high prices. With the world consuming 85 million barrels of oil a day, analysts put spare production capacity at only 1.5 million barrels a day - almost all in Saudi Arabia.
“It’s sort of Economics 101,” said Al Hubbard, the president’s economic adviser. “The demand for fuel and gasoline has been . . . growing dramatically, and the supply has not been growing as rapidly.”
Q: What can President Bush and Congress do?
A: Very little in the short term. Bush has said the country needs to move away from its addiction to oil. But developing alternatives such as hydrogen fuel cells for transport is decades away. Hybrid gas-electric cars still represent only a small fraction of car sales, and supplies of corn-based ethanol - a substitute for gasoline - is limited. The cost-effective development of cellulostic ethanol is still under research.
Q: Should federal and state taxes on gasoline be reduced or temporarily repealed to east the cost to consumers?
A: Democrats called Tuesday for a 60-day “holiday” from the 18.4-cent federal gasoline tax, saying it would provide $100 million a day in immediate relief from high gasoline costs. It also would increase the federal deficit by $6 billion, unless the lost revenue is made up by imposing new taxes on oil companies. The White House has shown little interest in such a move, although Bush called Tuesday for rolling back some tax breaks for the petroleum industry.
Q: Bush on Tuesday directed the Environmental Protection Agency to temporarily waive environmental rules if necessary to ease fuel shortages and dampen prices, and suspended shipments of oil into the government’s emergency reserve. Will that have any impact on prices?
A: The EPA action is expected to have marginal impact, although it could make available more imported gasoline that doesn’t meet the U.S. clean air standards. But most of the summer-blend, cleaner gasoline already has been produced. The amount of crude going into the federal Strategic Petroleum Reserve is so small the suspension of shipments will have no impact, analysts believe.
Q: Congress enacted broad energy legislation last year. Why hasn’t it had an impact?
A: Most of the measures in that law are aimed at the long term. In fact, some provisions have added to the recent jump in gas prices. It required the use of more ethanol, which made gas more expensive to produce, and it timed the lifting of an oxygenate requirement in gasoline to May 5, prompting refiners to stop using MTBE as an additive, just as they also were shifting to summer-blend fuel. The move away from MTBE, which has been found to contaminate water supplies, to ethanol as a substitute has added anywhere from 3 cents to 8 cents a gallon to prices at the pump.
Q: Is there price gouging?
A: At congressional hearings, both Republicans and Democrats have said they believe there is gouging, but it’s hard to prove. There is no federal anti-gouging law, and only about half the states have price gouging statutes, some of them extremely weak.
Bush called Tuesday for the Federal Trade Commission and Justice Department to aggressively enforce federal antitrust laws on oil companies and help states pursue price gouging cases.