10-26-08 by dugan
If the oil business were competitive, somebody might feel sorry for BP. The British-based oil giant dropped today to No. 4 among the Big 5 companies, dipping below Chevron in total worth. It was No. 2 after ExxonMobil until 2005, when it fell below Shell because of management neglect, including poor safety practices that killed 15 workers in a Texas refinery explosion. Today’s drop below Chevron is due as much to the cheaper euro and British pound as to BP’s questionable investments in Russia. But really, who cares? The concentration in the oil industry means Shell, Chevron and BP are just Tweedledee, Tweedledum and sibling, sandwiched between Exxon and No. 5 ConocoPhillips.
It’s too late to undo the mergers that have turned the oil business into one giant profit-seeking machine. Even as the price of crude oil plummets, the companies are all taking advantage by boosting their refining and retail profits, as confirmed by a Wall Street Journal story last week. Another WSJ story today says refiners are again cutting output because their profit margins had started to contract. A competitive industry would be fighting tooth and nail for market share as demand falls instead of informally conspiring to keep a floor under gasoline prices, which have fallen less than oil prices.
It’s not as though any of these companies will be threatened by cheaper oil. First, they can all make hefty profits with oil prices as low as $35 a barrel, according to Shell President John Hofmeister. They all have huge reserves of cash and company-owned stock bought with tens of billions of windfall profits over the last five years. Exxon alone has more than $35 billion in cash on hand, and more than $100 billion in piggy-banked stock.
If those treasure chests were turned even in part to renewable energy and to integrating the oil business into a lower-carbon economy, it would speed progress to a greener world and to cheaper and cleaner transportation. Instead, they’re just swapping chairs–maybe on their own version of the Titanic.