State of the Union Vow to Double Strategic Oil Reserve Will Help Keep Oil, Gasoline Prices High, Says Group
Santa Monica, CA — Two days after President Bush promised this week to double the size of the U.S. Strategic Petroleum Reserve, sending oil prices shooting upward, ConocoPhillips was the first of the Big Five oil companies to report its widely expected drop in fourth-quarter profits. The Foundation for Taxpayer and Consumer Rights said it appeared Bush could have been pumping up oil prices in payback to oil companies that dropped gasoline prices–and apparently their refinery profit margins — in the runup to the election.
Conoco‘s fourth-quarter profit drop, from $3.8 billion in 2005 to $3.2 billion in 2006, followed a big October dive in gasoline prices that exceeded the fall in the price of crude oil. That pricing was widely suspected to be deliberate, said the Foundation for Taxpayer and Consumer Rights, taking consumers’ gasoline-price anger off the table during the election campaign. (See FTCR’s analysis and charts on that profit drop)
The nonprofit, nonpartisan FTCR compared Bush’s oil reserve announcement to an “oil price support plan,” akin to buying wheat from farmers and burying it in the ground.
“The increase in the strategic reserve will be a gift that keeps on giving to oil companies,” said Judy Dugan, research director of FTCR. “The government will buy the oil at market rates for the next 20 years, both adding directly to companies’ bottom lines and giving them an excuse to refine less gasoline at higher prices.” The 20-year purchase could take an average of about 10 million barrels of oil per quarter off the market, said FTCR.
Until Bush mentioned it, there had been no broad outcry for doubling the reserve.
The 4th-quarter drop didn’t stop Conoco from posting another yearly profit record, $15.5 billion, a pattern that ExxonMobil, Chevron, Shell and BP are expected to follow in their reports next week and the week after. Given these continuing yearly profit records, the oil companies hardly need the boost they got from Bush’s promise in his State of the Union speech Tuesday night, said FTCR.
“The nearly 800-million-barrel total oil purchase would do consumers far more harm through higher gasoline prices than could be offset by any increase in ‘oil security,’ ” said Dugan. “Robust encouragement of conservation and renewable fuels will do far more for energy security, with benefits instead of penalties to consumers.”
As Bloomberg news noted Wednesday, the Bush announcement gave the price of oil its biggest boost since Hurricane Katrina. Spot prices settled today to just below $55 a barrel, after jumping to more than $55 since Tuesday, when they wavered just above $50.
“Bush’s oil purchases will enhance the effect of OPEC’s current restrictions on oil production,” said independent oil industry analyst Tim Hamilton. “While reducing supplies and increasing prices of crude will obviously benefit oil producers around the world, it’s the American motorist who will end up on the short end by paying higher prices at the pump.”
FTCR noted that the government has been reluctant and stingy in using the reserve to help ease gasoline price spikes, as when pump prices climbing toward $3 a gallon pushed up the national inflation rate last spring and summer. Bush, only under strong pressure from Congress, announced a brief suspension of purchases for the reserve late last April — too little and too late, in the estimation of his own Energy Department, to have much price effect. At the time, he called the oil reserve “sufficiently large enough to guard against any major supply disruption.”
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