Profit Reports Offer More Proof That Oil Prices Are Disconnected From Actual Petroleum
Santa Monica, CA — On the same day that Exxon Mobil reported a second quarter profit of $3.95 billion dollars, down 66% from last year, the price of oil on speculative markets rose more than $3.00 a barrel, Consumer Watchdog noted. Yet the same forces that cut Exxon’s profit—copious supplies of oil and fuels on world markets–should still be curbing the price of oil.
“The price of oil is still being driven by trading on speculative markets,” said Judy Dugan, research director of Consumer Watchdog. “The same forces that drove oil prices to $147 a barrel a year ago and gasoline prices to $4.00 and above remain at work, even though the economy is showing only small signs of recovery. Consumers are still in the grip of record joblessness and wage stagnation.”
The nonprofit, nonpartisan Consumer Watchdog praised the Obama administration’s recent hearings in the Commodity Futures Trading Commission on the need for broad oversight of energy and commodity trading. The new head of the commodities regulator, Gary Gensler, has signaled support of regulation that would put reasonable limits on the energy and commodity trades by large funds that are simply gambling on price without either selling or buying actual oil.
BP, Shell and Conoco Phillips showed similar profit drops this week for the second quarter, all of them citing steep reductions in oil consumption and a squeeze on refining profits as both gasoline and diesel consumption fell in tandem with the economy.
“The more than $3.00 a barrel jump in oil prices today followed the stock market, not the oil business”, said Dugan. “Yet energy traders operate under much looser rules than stock traders, because commodity markets were developed to let producers hedge their losses—not to provide a gambling opportunity for traders.”
Consumer Watchdog has called for limits in energy markets including aggregate curbs on the size of trades by speculators, including subsidiaries; regulation of electronic markets that are currently exempted; and far greater transparency and public reporting of trading activity.
“The time to act is now, before a new price spike in energy markets can stomp the fragile start of economic recovery,” said Dugan.
Consumer Watchdog has also backed proposals to eliminate taxpayer subsidies for major oil companies, including a White House proposal to tax oil produced in the Gulf of Mexico to compensate for oil royalty relief mistakenly granted in federal contracts in the late 1990s. Today’s temporarily lower profits are no reason to continue those and other subsidies, said Consumer Watchdog.