IPS-Inter Press Service
WASHINGTON, D.C. — Dozens of U.S. industryÂ leaders say rising oil prices have dimmed the economic forecast andÂ made their firms vulnerable, at a time when international oilÂ companies are earning record profits.
A survey released Monday by PricewaterhouseCoopers LLP says thatÂ chief financial officers and managing directors of prominent U.S.Â companies with offices around the world have grown gloomier aboutÂ the prospects for the U.S. economy and their own profits in theÂ next year, largely because of rising oil prices.
Some 36 percent of 150 executives interviewed said that theirÂ companies are scaling back expectations for revenue growth, newÂ jobs and investments. Fifty-two percent said that higher oil pricesÂ were eroding profits, with 23 percent saying the impact is stronglyÂ negative and 29 percent describing it as moderate.
On Monday, U.S. oil prices retreated slightly to 66.25 dollarsÂ a barrel after crossing the 67-dollar record on Aug. 12. But fuelÂ prices remained at an all-time high, having risen 63 cents, or 34Â percent, in the last year.
“In the second quarter, business leaders saw oil prices crossÂ the 60-dollar-a-barrel marker for the first time,” said JohnÂ O’Connor, vice chairman of PricewaterhouseCoopers LLP. “It remainsÂ to be seen whether their reduced growth estimates, capitalÂ spending, and hiring plans represent a temporary case of theÂ jitters, or a signal of something more.”
The number of executives expressing optimism about the U.S.Â economy in general dropped to 62 percent — 15 points less than theÂ prior quarter. One-third are now uncertain about the economy, aÂ 13-point increase.
Many have cited rising oil prices as a reason for reducingÂ growth targets. The survey also shows just 47 percent of executivesÂ planning large new investments, 12 percent less than the priorÂ quarter. Only 46 percent plan net new hiring, down 11 points.
O’Connor said that the U.S. economy has been resilient, clearingÂ hurdles like the tripling of short-term interest rates, andÂ enjoying a rallying dollar that now makes U.S. exports more costlyÂ abroad.
“Escalating oil prices have the potential to slow futureÂ economic expansion through their impact on profit margins, revenueÂ growth, new hiring, and capital investments,” said O’Connor. “TheÂ challenge now, in this increasingly uncertain period, is to adjustÂ to 60-dollar oil, and regain momentum.”
Meanwhile, analysts note that oil companies are making aÂ killing. ExxonMobil’s second quarter earnings jumped 35 percentÂ over last year, while Royal Dutch Shell‘s rose 34 percent andÂ ConocoPhillips shot up 51 percent.
On Monday, the Foundation for Taxpayer and Consumer RightsÂ (FTCR), a Santa Monica-based consumer group, said that profiteeringÂ by the oil industry is to blame for a 20-cent increase at the pumpÂ over the last three weeks.
The Congressional Research Service, which provides informationÂ at lawmakers’ requests, issued a report earlier this month showingÂ that high prices for crude oil in 2004 and into 2005 raised costsÂ for most businesses but steered billions of dollars to the oilÂ industry.
The report says the profits of virtually all firms in allÂ segments of the oil industry have increased, and that the greatestÂ hikes have been in the so-called “downstream,” or refining andÂ marketing, segments of the industry.
“The relatively high profit levels earned in refining andÂ marketing suggest that conditions in the petroleum productsÂ markets, including the gasoline, diesel, and jet fuel segments,Â contributed to earned profits above and beyond the effect of higherÂ crude oil prices,” says the Congressional Research Service report.
This view was corroborated by FTCR’s research on Monday, whichÂ blamed “manipulation of domestic refining capacity and inventoriesÂ by American oil companies” as the reason for gasoline price spikes,Â not the traditional scapegoats of Middle Eastern oil-producingÂ cartels like OPEC, government regulation, litigation, orÂ environmental standards.
“In a commodities market, domestic oil companies know that theÂ lower the inventories they keep, the higher the profits, becauseÂ perceived shortages mean a speculative run-up in prices,” saidÂ Jamie Court, president of FTCR.
“Big Oil rigs summertime driving season for big profits byÂ keeping inventories low… Every summer should not be open seasonÂ for oil companies to gouge American motorists.”