An Oily Favor
Oil profits "go up and down," Exxon Mobil Chairman Lee Raymond told the Senate the other day, explaining why the oil giants' huge post-Katrina profits were not profiteering.
Thus the $32.8 billion in profits that America's five biggest petroleum corporations reported for the July-September quarter were more like a natural occurrence -- that darned "invisible hand"! -- than a calculated effort to take advantage of a national emergency. Profits just "go up and down."
But even the facile Raymond couldn't explain why record profits and record gasoline prices just happened to occur at the same time. You know the sequence: Hurricane Katrina ravages the Gulf Coast, and a week later two other things hit: Gasoline prices reached an all-time-high average of $3.06 a gallon, and Exxon Mobil became the first U.S. company to rack up more than $100 billion in quarterly sales. (It wasn't all Exxon, of course. BP, Shell Oil, Chevron and ConocoPhillips also did very well.) Here's how Raymond explains it (and I pick on Raymond only because he says things so clearly): Katrina damaged important refineries, reducing their capacity. That naturally made it more expensive to meet demand, so they had to raise prices. Chevron Chairman David O'Reilly put it more simply: "We had to respond to the market."
But if prices were raised to cover additional costs, whence the record profits?
Well, Raymond had a secondary explanation: Three-dollar-a-gallon gasoline reduced demand and helped to regulate the market. That's why you didn't see those long lines at gas stations. Reducing consumption also reduces reliance on oil imports and, though he didn't say it, probably reduces hydrocarbon emissions and slows global warming -- all good stuff.
In other words, what you thought was profiteering was only Big Oil doing the world a favor.
There is another way of looking at what happened last quarter. Katrina and the flooding that followed amounted to a national tragedy and a national emergency. Companies sometimes benefit from such situations. A bakery that somehow managed to stay open would certainly sell out of bread; if the owner could bake more bread, he could sell that, too. If the ingredients became more expensive, he would take that into account in setting the price of bread. But if he started charging $8 a loaf just because he could , you wouldn't be in the mood for cheery songs about the beauty of the free market.
There is also another way to respond to a national disaster, and lots of individuals, organizations -- even entire towns -- found it. I mean the response of sacrifice. Americans opened their hearts, their wallets and their homes to Katrina's victims. Where is the record of Big Oil's selfless largess? As Sen. Barbara Boxer (D-Calif.) told the oil executives: "Your sacrifice, gentlemen, appears to be nothing."
Maybe the notion of corporate sacrifice -- the very idea of the corporate citizen -- is dying, giving way to the bottom line as the only thing worthy of serious attention.
The only thing in Raymond's testimony that sounded even remotely like sacrifice was his reference to reinvested profits. But the profits are reinvested into more exploration and more refining -- which is to say, more sales and more profits for the stockholders.
Meanwhile, the executives were full of dire warnings against legislating anything smacking of price controls, mandatory givebacks or excess-profits taxes. They probably shouldn't worry. There doesn't appear to be much taste for real action in the Senate, and given the Jimmy Carter experiment with taxing excess profits, few want to try that road now.
It's a lot easier to believe the American people have been ripped off than to figure out how to make them whole now.
I just wish the Big Oilers wouldn't stop trying to convince me that the noxious liquid splashing in my face is autumn rain. Listen once again to Raymond:
"Prices for products did increase, of course, but there was no panic and no widespread shortages. Retailers responded to the short-term supply disruption, consumption decreased, and imports increased to make up the shortfall. In a word, markets worked."
For a few of us, anyway.