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WASHINGTON, D.C. — Dozens of U.S. industry leaders say rising oil prices have dimmed the economic forecast and made their firms vulnerable, at a time when international oil companies are earning record profits.

A survey released Monday by PricewaterhouseCoopers LLP says that chief financial officers and managing directors of prominent U.S. companies with offices around the world have grown gloomier about the prospects for the U.S. economy and their own profits in the next year, largely because of rising oil prices.

Some 36 percent of 150 executives interviewed said that their companies are scaling back expectations for revenue growth, new jobs and investments. Fifty-two percent said that higher oil prices were eroding profits, with 23 percent saying the impact is strongly negative and 29 percent describing it as moderate.

On Monday, U.S. oil prices retreated slightly to 66.25 dollars a barrel after crossing the 67-dollar record on Aug. 12. But fuel prices remained at an all-time high, having risen 63 cents, or 34 percent, in the last year.

“In the second quarter, business leaders saw oil prices cross the 60-dollar-a-barrel marker for the first time,” said John O’Connor, vice chairman of PricewaterhouseCoopers LLP. “It remains to be seen whether their reduced growth estimates, capital spending, and hiring plans represent a temporary case of the jitters, or a signal of something more.”

The number of executives expressing optimism about the U.S. economy in general dropped to 62 percent — 15 points less than the prior quarter. One-third are now uncertain about the economy, a 13-point increase.

Many have cited rising oil prices as a reason for reducing growth targets. The survey also shows just 47 percent of executives planning large new investments, 12 percent less than the prior quarter. Only 46 percent plan net new hiring, down 11 points.

O’Connor said that the U.S. economy has been resilient, clearing hurdles like the tripling of short-term interest rates, and enjoying a rallying dollar that now makes U.S. exports more costly abroad.

“Escalating oil prices have the potential to slow future economic expansion through their impact on profit margins, revenue growth, new hiring, and capital investments,” said O’Connor. “The challenge now, in this increasingly uncertain period, is to adjust to 60-dollar oil, and regain momentum.”

Meanwhile, analysts note that oil companies are making a killing. ExxonMobil’s second quarter earnings jumped 35 percent over last year, while Royal Dutch Shell‘s rose 34 percent and ConocoPhillips shot up 51 percent.

On Monday, the Foundation for Taxpayer and Consumer Rights (FTCR), a Santa Monica-based consumer group, said that profiteering by the oil industry is to blame for a 20-cent increase at the pump over the last three weeks.

The Congressional Research Service, which provides information at lawmakers’ requests, issued a report earlier this month showing that high prices for crude oil in 2004 and into 2005 raised costs for most businesses but steered billions of dollars to the oil industry.

The report says the profits of virtually all firms in all segments of the oil industry have increased, and that the greatest hikes have been in the so-called “downstream,” or refining and marketing, segments of the industry.

“The relatively high profit levels earned in refining and marketing suggest that conditions in the petroleum products markets, including the gasoline, diesel, and jet fuel segments, contributed to earned profits above and beyond the effect of higher crude oil prices,” says the Congressional Research Service report.

This view was corroborated by FTCR’s research on Monday, which blamed “manipulation of domestic refining capacity and inventories by American oil companies” as the reason for gasoline price spikes, not the traditional scapegoats of Middle Eastern oil-producing cartels like OPEC, government regulation, litigation, or environmental standards.

“In a commodities market, domestic oil companies know that the lower the inventories they keep, the higher the profits, because perceived shortages mean a speculative run-up in prices,” said Jamie Court, president of FTCR.

“Big Oil rigs summertime driving season for big profits by keeping inventories low… Every summer should not be open season for oil companies to gouge American motorists.”

Consumer Watchdog
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