Gas Profit Guzzlers
Sunday, September 25, 2005
When the average price of a gallon of regular gasoline peaked at $3.07 recently, it was partly because the nation's refineries were getting an estimated 99 cents on each gallon sold. That was more than three times the amount they earned a year ago when regular unleaded was selling for $1.87.
The companies that pump oil from the ground swept in an additional 47 cents on each gallon, a 46 percent jump over the same period.
If motorists are the big losers in the spectacular run-up in gas prices, the companies that produce the oil and turn it into gasoline are the clear winners. By contrast, the truckers who transport gasoline, the companies that operate pipelines and the gas station owners have profited far less.
The spikes caused by Hurricane Katrina -- which heavily damaged oil production and refining in the Gulf region -- accentuated gains the refiners and producers already were enjoying over the past year. Exxon Mobil Corp., the Irving, Tex., behemoththat produces and refines oil, reported in July that its second-quarter profit was up 32 percent, to $7.64 billion. Analysts expect Exxon's profit to soar again this quarter.
The rapid run-up in prices at the pump when Katrina hit -- and their slow decline -- has infuriated drivers, many of whom complain that oil companies used the storm as a pretext for boosting prices and profits. Politicians echoed that sentiment and are calling for investigations of the oil industry.
But interviews with analysts, consumer advocates and participants in the oil markets indicate that typical market forces were at work in the price run-up. Commodities markets that determine prices for gasoline moved dramatically higher after Katrina struck the Gulf region and damaged refineries and oil production. (The effect of Hurricane Rita on refiners' profits remains to be seen.)
Rising pump prices and company profits have caused lawmakers on Capitol Hill to seek legislative changes. Sen. Byron L. Dorgan (D-N.D.) has introduced a measure that would tax some oil company profits that are not devoted to exploration and development of new production.
"They obviously are experiencing windfall or excess profits," Dorgan said of the big oil companies. "They are . . . profiting in an extraordinary way at the expense of the American consumer."
Some environmental and consumer advocates are urging the government to lower oil company profits in another way. They want to reduce demand for gasoline, which has been growing in recent years, by requiring vehicles to get better mileage.
Others have called on the government to set gasoline prices, as it did several decades ago.
Officials representing some oil-importing countries complain that oil companies, including those controlled by foreign governments, have not spent enough money on new exploration and development, leading to tight supplies of oil. Consumer advocates say mergers in the refining business have diminished competition and made it easier for the companies to limit supplies of gasoline and extract higher prices.
Refiners say they are spending heavily to expand and that their industry should not face new taxes or other penalties. "Refinery capacity is being added, but the problem is that demand has outpaced capacity," said Mary Rose Brown, a spokeswoman for Valero Energy Corp., a San Antonio-based refining company.