Gas Price Spike Called 'Early Christmas Present' for Big Oil

July 7, 2008 - 7:23 PM

(CNSNews.com) - The price for a gallon of gas across the nation jumped an average of 14 cents in the past week, turning the Thanksgiving season into "a lucrative early Christmas present for oil companies," a liberal-leaning consumer group charged on Tuesday.

"Oil companies are reaping profits of up to $75 a barrel on $95-a-barrel oil, and now they're taking the leash off of gasoline prices as well," said Judy Dugan, research director of the Foundation for Taxpayer and Consumer Rights (FTCR), in a news release.

"With the U.S. economy at a tipping point, a 14-cent jump in gasoline over a single week signals a spike that will empty consumers' pockets during the holiday season," she said. "It's not hard to imagine $4 a gallon early next year."

Dugan pointed to statistics from the federal Energy Information Administration, which on Monday recorded a weekly national price average of $3.013 per gallon for regular gas, up from $2.872 the previous week.

The price increase comes after several of the largest oil companies saw declines in their third-quarter profits when compared to the same period in 2006.

Last Thursday, ExxonMobil, the world's largest integrated oil company, reported a 10 percent drop in profits from a year ago. While revenues set a quarterly record at $102.34 billion, lower profit margins in refining and marketing operations resulted in a drop in net income of more than $1 billion.

On Oct. 24, ConocoPhillips, the third-biggest U.S. oil corporation, stated that its third-quarter profit fell 5 percent. Chevron's profits for the same period dropped by $1.3 billion or 26 percent, and Sunoco's profit plummeted 38 percent from 2006 levels.

But on Tuesday, Dugan dismissed the declines as "profit dips" and "an anomaly" for the oil companies caused by "congressional threats to cut their subsidies and cap their profits."

"An unexpected dip in summer gasoline usage, linked to record pump prices, also increased supply and put downward pressure on outlandish refinery profits," the FTCR analyst stated.

"Now, with energy bills stalled in Congress and excess supply wrung out of the system, oil companies are back on track to profit not just from record crude oil prices, but from newly rising refinery margins," Dugan said.

"At the same time, Big Oil will keep receiving billions of dollars in federal subsidies and faces no threat of rising royalty payments," she said. "As the U.S. economy struggles even to keep moving forward, Big Oil's foot is flat on the accelerator again."

However, Rayola Dougher, senior economic adviser for the American Petroleum Institute, told Cybercast News Service that the jump in the price of gasoline is not an "early Christmas present" but is instead a result of changes in the marketplace over the past two months.

"The price of crude oil has gone up over $20 a barrel since early September, from about $75 a barrel then to $94 per barrel on Monday," Dougher said, which is an increase of approximately 50 cents a gallon at the pump.

During that time, "refinery margins became very squeezed because we got to the end of the summer driving season, and demand was off, so the companies were not able to pass along some of the higher crude oil prices," she said. "We're only just now seeing some of that increase get through."

Dougher noted that oil companies' profits are "off somewhat," averaging 7.3 cents on every dollar of sales, which is less than the 10 cents per dollar the corporations made at this time last year.

"The story that's often not told is the tremendous cost associated with getting each new barrel of oil to the market," she said, "but otherwise, it has everything to do with supply and demand in the global market."

Regarding the FTCR's claims, Dougher said that "they don't bear any resemblance to what's really happening in the marketplace."

Ben Lieberman, senior policy analyst for energy and the environment at the conservative Heritage Foundation, agreed that market forces are the reason for the spike in gas prices even though "when people hear of something getting that much more expensive that quickly, they figure there's something wrong."

Nevertheless, "you can throw cold water on any suggestion that it's price gouging or collusion by stating if these big oil companies could create $95-a-barrel oil, that's all we would ever see," he told Cybercast News Service. "In fact, we see prices going up and down."

"These are extremely good times for those in the oil industry, there's no question about that," Lieberman said. "But 80 percent of the world's oil is owned by governments, not oil companies. If there's any pressure on prices, it's through OPEC" and not Big Oil.

The analyst also attributed some of the concern over oil prices to what he called "hypocrisy on the left."

"At the same time you have consumer advocates on the left complaining about high prices, you have politicians pushing global warming bills to manufacture high prices," Lieberman said.

"Do they want high or low prices?" he asked. "They need to get their story straight."

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