As Gas Prices Soar, Oil Companies Rake in First-Quarter Profits As Much As 500 Percent Higher Than Last Year
June 14, 2000
As Gas Prices Soar, Oil Companies Rake in First-Quarter Profits As Much As 500 Percent Higher Than Last Year
Senate to Vote This Week on Whether to Let Government Raise
Fuel Economy Standards
WASHINGTON, D.C. — High prices at the gas pump have translated to windfalls for oil companies, which saw first-quarter profits in 2000 rise nearly 500 percent over the same period in 1999, a Public Citizen report shows.
Texaco’s first-quarter profits jumped 473 percent over 1999, while Conoco’s profits skyrocketed 371 percent and Phillips saw its rise 257 percent. The numbers, which were compiled for 10 major oil companies, were based on company data. ExxonMobil, Conoco, BP Amoco, Coastal and Shell saw record first-quarter profits, according to their own press releases.
Oil companies likely will continue to rake in high profits as oil prices that dipped in April begin to rise again.
“Oil companies are ripping off the public and picking consumers’ pocketbooks clean,” Public Citizen President Joan Claybrook said. “It’s daylight robbery, and it’s threatening the economy.”
Imported crude oil cost just under $28 per barrel in March, dropped to $24 in April and is back to $28 barrel this month.
One thing that could help conserve oil is to boost the fuel efficiency of vehicles, but Congress has been loathe to do so. For years, fuel economy standards have remained virtually unchanged for light trucks (which include sport utility vehicles (SUVs)). This is in part because of a rider attached annually to the federal DOT appropriations bill that bars the government from even studying the idea of raising fuel economy standards for these vehicles.
The rider applies to the Corporate Average Fuel Economy (CAFE) standards, passed in 1975 to conserve oil and improve the nation’s gas mileage. The standards for cars increased to 27.5 miles per gallon (mpg) by 1985, doubling the fuel economy of the fleet. The standards have helped cut pollution, improve air quality and enable polluted regions to achieve the goals of the Clean Air Act.
Today or Thursday, the Senate, led by Sens. Slade Gorton (R-Wash.), Dianne Feinstein (D-Calif.) and Richard Bryan (D-Nev.), is scheduled to decide whether to reject the rider contained in the House bill. If the rider is kept off the final bill, it would give the government a green light to raise fuel economy standards and therefore help make cars and light trucks go further on a gallon of gas.
Current fuel efficiency standards are 20.7 mpg for light trucks and 27.5 mpg for cars. If light trucks got the same gas mileage as cars, we would save 1 million barrels of oil per day, according to Sierra Club estimates. If standards were raised to 45 mph for cars and 34 mpg for light trucks, we would save 3 million barrels of oil daily, the Sierra Club calculates. That’s more oil than we import daily from the Persian Gulf (1.8 million barrels) and far more than would be generated by proposed Arctic refuge drilling (.3 million barrels daily) and California coastal drilling (.25 million barrels daily).
“The House leaders should stop kowtowing to the auto industry and blocking technological changes essential to protecting society,” Claybrook said. “If vehicles got better gas mileage, we would not be as dependent on foreign oil and would not be victims of collusive pricing and high gas prices. The balance of payments would be reduced with fewer imports, the environment would be cleaner, consumers would save money, and we would not even be discussing drilling in valuable habitats to find more oil.”
Public Citizen’s report notes that oil company political action committee (PACs) contributed $859,000 to Republicans and Democrats in 1999 and 2000. Oil companies spent $1.9 million in soft money contributions to both parties during the same time period and in 1998 spent $31 million lobbying Congress.
Oil prices climbed in 1999 after historic 1998 lows because OPEC and other oil producers collusively cut back on supplies in an attempt to raise prices. That prompted oil companies to buy less crude oil and make less gasoline.
Meanwhile, Americans used more gasoline and oil products such as diesel fuel during 1999 than ever before, according to the Energy Information Administration, a branch of the U.S. Department of Energy.
In March, OPEC agreed to boost crude oil production, but the added oil was not enough to meet an ever-growing demand. OPEC members are scheduled to meet June 21 to discuss the possibility of a further production boost, but with summer travel creating a higher demand for gasoline, the federal government expects crude oil and gas prices to continue to rise and not level off until late summer. The government already is predicting there may be shortages of diesel fuel and heating oil next winter.
“The oil industry is generating these gargantuan profits by creating artificial shortages,” said Wenonah Hauter, director of Public Citizen s Critical Mass Energy and Environment Program. “Unfortunately, consumers are the big losers.”
Further exacerbating the situation is that new standards for reformulated gasoline, which helps reduce smog, took effect in January. Low inventories of gasoline, plus low inventories of the chemicals needed to make reformulated gasoline, are leading to higher gas prices in some areas of the country. This is particularly the case in Chicago and Milwaukee, where shortages of gas and those chemicals are acute.
Solutions exist, Hauter said. They include:
* Increasing the efficiency of cars (not increased for a decade) and light trucks (barely increased for two decades);
* Increasing investment in mass transit, including subways, light rail and trains;
* Forcing oil companies to create adequate reserves of gas, diesel fuel and heating fuels; and
* Imposing an excess profits tax to remove any incentive for the oil industry to make windfall profits.
Some politicians have suggested cutting the federal gas tax, which would be counterproductive because that money is used to maintain roads and support mass transit. Others have suggested opening the Arctic National Wildlife Refuge and increasing coastal drilling, both of which would threaten the environment, and providing tax subsidies to domestic oil producers, a bad idea because it would be a gift to the oil industry at consumers expense, Hauter said.
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