Current Oil Price Breather Is Right Time for Action to Prevent Next Speculative Bubble, Says Group
Santa Monica, CA — The oil industry’s third-quarter reports ended today with Chevron Corp, which more than doubled its profits to $7.9 billion while the U.S. and world economies slid toward recession, said Consumer Watchdog. Nearly $1.5 billion of the increase came from higher profits on the sale of refined fuels even as drivers cut their consumption sharply—the opposite of what would happen if the laws of supply and demand applied to the oil industry.
“These profits show the extent of the oil industry’s vampire attack on a weakened economy,” said Judy Dugan, research director of the nonprofit, nonpartisan Consumer Watchdog. “Fuel and energy prices bled away the reserves of family budgets and corporate treasuries. Energy inflation deepened the effect of the financial markets’ meltdown. We shouldn’t be lulled into thinking it won’t happen again.”
Chevron’s third-quarter profit nearly equals its $8.2 billion profit for all of 2003, the year in which the major oil companies began their steady march of new record profits, said Consumer Watchdog. Its profit over the first three quarters of 2008, $19 billion, already exceeds 2007’s record full-year profit of $18.7 billion.
Even Chevron’s cash on hand rose more than $3 billion from last year to $10 billion—well above its $2 billion increase in “capital and exploratory expenditures” to increase production. The company also continued a three-year, $15-billion stock buyback program.
“As with all of the major oil companies, the cash pile-up and stock buybacks are symptoms of corporate bloat,” said Dugan. “Instead of actively developing new oil sources or putting real investment into renewable energy, Chevron and others are unproductively putting the money under the corporate mattress. Yet even if oil goes to $40 a barrel, they’ll still turn a profit.”
Consumer Watchdog said Congress and the White House must not be lulled by oil prices that have dropped to near $60 a barrel into inaction on needed oversight and regulation of oil futures markets and the oil business itself.
“If government puts energy policy and market reforms on the back burner, we’ll be headed right back to $145 oil and $4.50 gasoline, or worse,” said Dugan. “Chevron’s high refining profits in the last quarter show how the oil business will make up for lower oil prices with bigger profits at the pump, even though consumers keep cutting back.”
Regulation and Reforms Needed
Consumer Watchdog urges that Congress, regulators and the White House enact the following reforms:
– Oversee and regulate oil refining, to prevent production cutbacks that would keep the price of fuel artificially high;
– Remove taxpayer subsidies to oil companies, including revisions of so-called royalty relief, with proceeds to fund renewable energy development and tax rebates to low-income consumers;
– Plug the loophole that allows Exxon and friends to sell oil to their own overseas subsidiaries, driving up the price on paper before bringing the oil to the U.S. This allows the company to evade U.S. taxes;
– Oversee and regulate energy futures markets to quell speculative bubbles like the one this year that drove crude oil prices to over $145 a barrel. Such regulation should require financial speculators to pay higher margins–put more money upfront on trades—and bar exotically constructed trades that encourage manipulation; and
Despite dropping energy prices, demand steady support for green energy, including transportation fuels and vehicles, energy conservation and wind and solar energy.
For detailed data and charts on oil company profits since 2000, click here to see Oilwatchdog.org’s “Monster Oil Profits Database,” a downloadable Excel chart organized by company and accompanied by quarterly profit charts.
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