10-30-09 by dugan
Why is it that media reports on oil company profits only compare them to the previous quarter and the previous year? This week’s third-quarter profit reports for Exxon, Shell, Chevron and friends showed profits down by half or more from last year’s pigs-at-the-trough delirium. Less than $5 billion for Exxon! Less than $4 billion for Chevron! Should the jobless be contributing to Big Oil from their unemployment checks?
Yet the profits reported this week are mostly above profits for the comparable period during the first five years of this decade (pdf), before a speculative orgy more than doubled oil prices and crashed the economy. Is that what we want to return to?
The analysts quoted in a number of media stories seem to think it’s not a bad thing. Here’s a quote from a Bloomberg story:
"If you look at the whole picture for all the Big Oils, the only thing that’s really helped them is that the oil price has come off the floor," said John Parry, an analyst with IHS Herold in Norwalk, Connecticut. "You’re still a long way from catching up to where the industry was back in ’07 and ’08."
"Catching up" sounds like a good thing, until you recall that gasoline hit $4.50 a gallon last year before the crash, and has crawled back up to $3.00 in California, even though demand is still in the tank and refineries continue cutting back gasoline production. The price of oil now is up about 20% from last quarter’s average, and is up 150% or more from its low of under $30 a barrel at the end of last year. Oil companies were economic goliaths in 2000-2005. In 2007-08 they were Godzilla, crumbling the economy, driving consumers into debt and pushing energy-dependent companies such as airlines near or into bankruptcy.
Not all of the pricing was directly the fault of the oil business. Government had removed any semblance of control from energy and commodity markets and turned them into a casino. But the oil companies didn’t complain, and they are now ferociously opposing efforts by the Obama administration to regulate the speculative markets that killed the economy. The American Petroleum Institute is demanding that commodity trading details stay secret from regulators and the public, with no limits. It still argues that free markets will somehow "self-regulate," despite the tsunami of loss they created last year.
If oil and gasoline prices continue to "catch up," the rest of us will just be driven over the cliff, again. Doesn’t the financial press get that?