NEWS RELEASE:
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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