Who Profits From High Oil Prices?
In recent months, the fluctuating prices of petroleum have been as high as $128 per barrel of Brent (North Sea) crude. That was higher than during the summer of 2008 when a barrel of oil cost as much as $147. In February, the price of gasoline climbed accordingly by 30 cents. It hit motor vehicle and airline transportation hardest because fuel accounts for about 40 percent of their operating costs.
Rising oil prices were partially caused by political turmoil and declining output in oil-producing countries. Iran’s leaders could potentially block access to the Strait of Hormuz, the gateway for some 35 percent of seaborne oil and 20 percent of seaborne liquefied natural gas.
There is already evidence of reduced gasoline consumption in the U.S. due to price increases and the use of more fuel efficient vehicles. The Energy Department reported the demand for gas falling to its lowest level since April 1997.
For several years there have been calls for Congress and the President to take measures to reduce gasoline prices. So last summer the Energy Department tapped into the Strategic Petroleum Reserve and sold 30 million barrels of oil. Yet, gas prices dropped only eight cents per gallon and then quickly rose again.
The Internet publication Think Progress reported that last year British Petroleum, Chevron, ConocoPhillips, ExxonMobil, and Royal Dutch Shell produced 4 percent less oil than in 2010. Yet, these five companies combined made a record-high $137 billion in profits in 2011, up 75 percent from 2010. “They spent a total of $38 billion, or 28 percent, of their profits to repurchase their own stock. They spent $1.6 million on campaign contributions and $65.7 million on lobbying efforts. For every $1 spent on lobbying in Washington, the big five received $30 worth of tax breaks.”
Among all industries in 2010, the chairmen of the boards of oil and gas companies received the highest median value of total direct compensation at $13.7 million, up 17 percent from the year before. (Total direct compensation is the sum of salary, bonuses, stocks, stock options, and other financial incentives.) ExxonMobil’s chairman Rex Tillerson ranked at the top of the category with $21 million in total annual compensation. It is obvious that nobody gains more from higher gasoline prices than the big oil and gas producers whom it costs only no more than $4 per barrel to pump oil out of land-based wells.
President Obama suggested to Congress that the oil industry’s profits justify abolishing the $4 billion in annual oil and natural gas subsidies and shifting those savings to research on clean-energy fuels. “It’s not like these are companies that can’t stand on their own,” Obama observed.
The oil companies have been getting those subsidies since 1916 and apparently convinced Congress and a majority of Americans that subsidies are necessary to keep their prices lower than they otherwise would be. Such thinking also explains why the U.S. Senate recently rejected a Democratic bill to repeal about $24 billion in tax breaks to oil companies and use the money to pay for clean energy development and deficit reduction.
Oil and gas producers, refiners, natural gas pipeline companies, gasoline service stations and fuel oil dealers have long enjoyed strong influence in Washington. According to the Center for Responsive Politics, individuals and political action committees affiliated with oil and gas companies have donated $238.7 million to political candidates and parties since the 1990 election cycle, 75 percent of which has gone to Republicans.
So it is hardly surprising that in 2008 Congress voted to lift a ban on offshore drilling. Democrat Obama also received $884,000 from the oil and gas industry during his 2008 campaign, more than any other lawmaker except his Republican opponent, Senator John McCain.Khalid al-Falih, the Saudi President of Aramco Oil Company, recently expressed his concern about the increases in oil prices because he saw no shortage of oil in the world market. He stressed that his company not only has a surplus of oil but also the capacity to produce more than 9 million barrels of oil per day.