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Conoco's Profit = Higher Gas $ | Oil Watchdog

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Conoco's Profit = Higher Gas $


Thu, Apr 24, 2008 at 12:07 pm

    Conoco's Profit = Higher Gas $



    Consumer Group Sees Warning in Oil Profit Report that Refining Profits Set to Rise, Spiking Gasoline Prices Further 


    April 24, 2008

    Conoco Phillips’ CEO all but apologized for his company’s 1st quarter
    profits today, even though the $3.29 billion total was a record for the
    quarter, and the company’s profit on oil exploration and production
    alone reached an all-time quarterly high of $2.55 billion. Consumer
    Watchdog called this mindset in the oil business evidence of an
    industry responding to the expectations of speculative markets, not the
    needs of a sagging economy or the long-term health of the industry.
    “Conoco is the starter McMansion of oil companies, compared to the
    lavish estate of Exxon,” Judy Dugan, research director of the nonprofit
    Consumer Watchdog (formerly The Foundation for Taxpayer and Consumer
    Rights. “But for its CEO to say that record profits are merely ‘solid
    financial results… [negatively] impacted by unplanned downtime’ shows
    an industry operating in an economic bubble with no connection to the
    pain its prices are causing in the rest of the economy.”
    CEO Jim Mulva pointed to a drop in refining profits, which at $520
    million were less than one-fourth of Conoco’s quarterly record, $2.36
    billion in the 2nd quarter of 2007. Yet the drop was largely a result
    of the high oil prices that Conoco was charging to its own refineries,
    noted Consumer Watchdog. If refinery margins this year had reached the
    2007 record levels of nearly $1.00 on each gallon of gas, at Conoco and
    other companies, drivers would be paying $4.50 to nearly $5.00 a gallon
    at the pump today.
    “Refiners are now curbing production of gasoline even more than
    consumers have cut back on driving, so gasoline prices are now rising
    faster than oil prices,” said Dugan. “What drivers and the economy as a
    whole can’t afford is an industry bent on having it both ways.”
    Conoco, which like its larger brethren is awash in cash, noted in its
    investor presentation that it would spend the largest single portion of
    its 2008 profits to buy back company stock, rather than on exploration
    or updating and expanding its refineries.
    (For extensive, accurate comparison data on oil company profits back to 2000, see the extensive Consumer Watchdog/OilWatchdog “Profits Monster” database.)
    Conoco is just the first drop in the oil barrel this quarter, said
    Consumer Watchdog, and larger giants like Exxon and Chevron are
    expected to hit even larger percentage records.
    Conoco’s profits also showed how diesel fuel, the backbone of food and goods transportation, rose even higher than gasoline.
    Independent oil analyst Tim Hamilton analyzed the Conoco profit data
    for Consumer Watchdog and noted that the wholesale price of diesel rose
    95 cents a gallon from the 1st quarter last year, or 27 cents more than
    the wholesale gasoline price in the same period.
    “Even though gasoline and diesel come out of the same barrel of oil, farmers, truckers, and other users of diesel got hit first and hardest,” said Hamilton.
    Since diesel demand begins in early spring and gasoline demand comes in
    late spring through summer, Hamilton expects gasoline to catch up with
    and even pass diesel by the end of the 2nd quarter.
    "It’s a given that we will see $4 at the pump. The  question is, will
    we see $5?  If we have so much as a big burp at any refinery in the
    West  this summer,” said Hamilton, “$5 per gallon is likely, at least
    in California."  
    To quell the prices of oil and gasoline, Consumer Watchdog has called for:
    – White House action to stop using taxpayer funds to add to the
    Strategic Petroleum Reserve, which is still growing at a rate of 1.5
    million gallons a month and is at near-record highs above 700 million
    gallons total. President Bush should also release oil from the reserve
    into the market, to help quell speculative price spikes.
    – Closing the Enron Loophole in commodity trading regulation. A
    regulatory measure in the federal farm bill (S.2058 by Sens. Dianne
    Feinstein and Carl Levin) would help stop speculative oil pricing. This
    measure is stuck in a fight over other subsidies in the House-Senate
    conference committee. (See more on Enron Loophole and farm bill amendment.)
    – Increasing the amount of margin funds that traders must put up in energy markets to help suppress speculation.
    – Senate approval of an alternative fuels bill funded by withdrawing
    $1.8 billion a year in unjustified taxpayer subsidies to oil companies.
    This measure, passed by the House, has not been taken up in the Senate,
    where opponents are using a filibuster tactic to require 60 votes for
    passage. A similar House measure was removed from the federal energy
    bill by the Senate last year under pressure from the oil lobby. (Find text of HR 5351 here.)

    – Oversight of refinery operations, including regulation of national
    gasoline supplies. In the last decade, the average on-hand supply of
    gasoline has dropped from 30 days’ worth to about 22 days. This makes
    prices increasingly sensitive to any cuts in production. Only
    government regulation to control the supply of gasoline, nationally and
    regionally, will keep supplies adequate to control prices.

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