WASHINGTON, May 21, 2008
Senate Alarmed Over "Failed" Oil Markets
Tells Oil Executives Laws Of Supply And Demand Do Not Explain Record Prices
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Play CBS Video Video Why Is Oil So Expensive? A new group of investors are buying at least 850 million more gallons of oil than they did five years ago. Their collective actions may be behind rising gas prices. Anthony Mason reports.
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Video MoneyWatch Alexis Christoforous reports on another record day for crude prices oil execs in the hot seat on Capitol Hill; and American Airlines' announcement that it will charge passengers for checked bags.
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Oil executives, from left, BP America Chairman Robert Malone; Shell Oil President John Hofmeister; and Chevron Vice Chairman Peter Robertson, testify on Capitol Hill in Washington, Wednesday, May 21,2008, before the Senate Judiciary Committee hearing on oil prices. (AP Photo/Evan Vucci)
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Top executives of the five largest oil companies tried to shift anger over high prices to a debate over supplies Wednesday, leading a senator to accuse them of acting like "hapless victims" while racking up record profits.
Patrick Leahy, D-Vt., told the executives there's "a disconnect" between normal supply and demand and the skyrocketing price of oil - surpassing $130 a barrel even as the oil leaders testified - that the industry has yet to explain.
"We need to get prices under control.... We can only conclude that the oil markets have failed," said Sen. Herbert Kohl, D-Wis.
"My question is where does this end?" Sen. Sheldon Whitehouse, D-RI, asked Chevron Vice Chairman Peter Robertson.
Chevron made $18 billion last year, as gas prices soared.
"We have to explain to our family and friends what is going on," Robertson answered.
"How do you explain your profits?" asked Sen. Richard Durbin, D-Ill.
"I explain my profits by saying we invest it all," said Robertson.
"Oh, really?" Durbin said incredulously.
Exxonmobil made a $40 billion profit last year. But an executive claimed the company was only making 4 cents on the dollar.
"The point is its not profitability that's driving the price higher," said J. Stephen Simon, senior vice president of Exxonmobil.
Leahy asked Simon what his total compensation was at Exxon. Simon replied it was $12.5 million annually.
Two other executives, John Lowe, executive vice president of ConocoPhillips Co., said he didn't recall his total compensations as did Peter Robertson, vice chairman of Chevron Corp. John Hofmeister, president of Shell Oil Co., said his was "about $2.2 million" but was not among the top five salaries at his company's international parent. Robert Malone, chairman of BP America Inc., put his compensation at "in excess of $2 million."
Sen. Arlen Specter, R-Pa., said there was no explanation for "why profits have gone up so high when the consumer is suffering so much."
The five companies earned $36 billion in the first quarter of this year.
The executives, appearing under oath before the Senate Judiciary Committee, said they know high prices are hurting people, but they said the cause is not company profits but global supply and demand. And they sought to use their appearance before Congress to argue against new taxes on their industry
"I urge you to resist these punitive policies," said Hofmeister.
Senate Democrats recently announced an energy package that would tax "windfall" profits of the five companies. That might have public appeal, Lowe told the senators, but oil companies should not be viewed as "a scapegoat" for high prices.
That was not what many senators wanted to hear.
You have "just a litany of complaints that you're all just hapless victims of a system," Sen. Dianne Feinstein, D-Calif., told the executives. "Yet you rack up record profits ... quarter after quarter after quarter."
"I'm sorry to sound like a victim. I don't feel like a victim at all," replied Robertson of Chevron, saying that he was proud of his company's investments in future supply.
Sen. Richard Durbin, D-Ill, accused the corporate executives of ignoring the plight of people suffering because of high energy prices. "Where is your corporate conscience?" he asked them.
"The issue is simple," said Leahy. "People we represent are hurting, the companies you represent are profiting."
But some experts say big oil isn't entirely responsible for rising gas prices.
"The issue is: who's driving up the price? And it's not the oil companies," said Michael Masters, a hedge fund manager.
Masters blames it on a new class of speculators led by pension funds and university endowments, which are buying up huge amounts of oil, nearly 850 million barrels more a year than they did just 5 years ago. That nearly matches the growth in Chinese demand, which is often blamed for rising crude prices.
"We really feel like the price would be $50 or $60 lower if it wasn't for these investors' collective actions," Masters said.
The Saudis agreed last week to pump 300,000 more barrels a day.
"It will make no difference," says oil trader Ray Carbone.
Carbone says nothing is stopping the momentum.
"In your view we're only going higher?" asked Mason.
"Short of a global recession, there is not much to make the price of oil go back to the old time levels," Carbone said.
Oil prices are still so hot that one analyst has even forecast that crude could reach $200 a barrel within two years.
Two hundred dollar oil would push that price at the pump to more than seven dollars a gallon.
If that happens we're all going to need to drive an armored truck - full of cash, just for a fill up.
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See all 356 CommentsBut so does the government. The additional tax revenue the government is raking in is staggering as well. What are they doing with it? Hillary say she''ll tax the heck out of the oil companies and use it to fund alternative energy research. Well the government is raking in Billions in taxes now from oil companies and they are not using it for alternative research.
The government pocketed Billions from lawsuits related to smoking. Did the typical US taxpayer see a benefit? no. Not on your life.
Regardless of your despiction for oil companies, the government stepping in and taxing them will do nothing for you.
And it you just want someone else to feel pain because you are then shame on you.
Posted by dittomom1
THATS because just like no one wants a nuclear power plant in their town, a metal smelter or auto recycler in their neighborhood- NO ONE wants an industrial oil rig drilling/oil refinery in THEIR back yard- blame the eco-freaks like Earth-First and the NIMBY''s for the laws and lawsuits.
Ever drive past an oil refinery? I remember New Jersey''s industrial complex near where the tunnel is to get into Manhattan- dirty, smoky, fumes, dust, who wants any part of THAT in their neighborhood?
They cant drill in the AWR or offshore because the industry has proven they cant prevent massive spills, the eco-freaks block it in lawsuits too. If you take all the alleged oil under the AWR it would only amount to about one week''s worth of oil consumption for the country if all oil import stopped cold.
People have NO CLUE what a million barrels of oil looks like, in 2004 we used almost 21 million barrels A DAY! Take one million pennies- $10,000 worth, or 20,000 rolls and pile them up on the floor, that represents one day''s worth of oil with each penny being one barrel of 50 gallons. Its a staggering number that keeps growing with no end in sight.
Its a good energy source, not easy to find at every station, and one issue is leaks, your entire tank can go empty fast if any leak develops- would be mighty inconvenient on a trip and you cant just full up a jerry can if you get stuck somewhere out of fuel.
Another issue is the engine has to be modified, some may or may not do well on it due to the compression ratio v/s efficiency, v/s knock-ping etc, a tank and regulators have to be added too.
Thats another reason why gas engines dont convert to diesel (when diesel was cheap) the compression ratio for diesel needs to be much higher and gas engines are not built for that.
Mr Diesel''s first diesel engine exploded during running and almost killed him, that is why diesel engines are substantially much heavier built castings and as a result much heavier as well.
Posted by rudy654
Yes, and thats called free enterprise unfortunately, every company has the right to charge for their products any amount they like and any price the market will bear. There is no law that says we are to be furnished with CHEAP gas.
If your pants maker decided to double the price of pants you either pay it or come up with alternatives, the pants maker doesnt owe you $5 pants they can charge $100 or $1000 if they like.
If the oil cos are windfall profits taxed, all they will do is raise the price higher to compensate- thats a business-wide type of thing- ALL costs bourn by a business are passed onto consumers
What people fail to remember is, there IS increased demand- we burn more gas now than in the early 70''s when most cars driven by working people got around 12 mpg- the ones built in the mid 60''s
We import more because there is more PEOPLE and more cars. In 1950 we had 150 million now its over 305 million- thats where the DEMAND has all but doubled
The costs for the solar panels for electric is also high, about $30,000 for a house to sheath the roof with panels and add the associated equipment
The homeowner has to deal with storage batteries, maintaining and replacing those, voltage regulator and other associated parts. If lead-acid deep cycle batteries are used there is explosive hydrogen fumes given off during the charging, and the batteries need to be replaced in about 5 years- aging in the battery pack does nasty things as one dying battery can drag down the voltages and create drains in others.
Same with wind- the batteries are the drawback again.
Most people dont stay in their homes 30 years any more, they move every few years because of career/job changes usually.
My electric bill runs around $50/mo $600/yr, it would take 30+ years to break even on a $30,000 solar system. Like many of these things, they sound nice on paper in theory but in actual practice they come up very short.
I could say; invest that $30,000 in commodities or stocks and probably see $50/ mo in interest- which in my case would make my electric bill free by making that money WORK if dedicated for that account.
I had a friend build a home 20 some years ago. He put in a heating system that ran off a solar system.
I bought a 200 F-150 ford pickup with 6 cylinder engine and love it but i am concerned about the gas it will take to run it. I have hear of a system called gas4water.com that is supposed to double your mileage. I am checking into it. If i could find gas stations that sell natural gas in enough lovations i would consider converting my truck to natural gas.
Posted by ranger1948
I assume you mean a passive solar system, works, you can heat a house with home made plywood or metal insulated boxes with glass fronts, painted black inside, and having air circulation fan piping the air thru it into the house. Set up a row of them at the right angle and number and you got heat like the inside of your closed car on a sunny day in the parking lot, but theres some down side issues with it of course
Pass the gas4water scam, all of those devices, magnets on fuel lines, and additives to ''boost'' or double mileage are scams, as is ''premium'' gas.
Sample;
Do "Octane Boosters" work? - Automotive Message Forums
Mar 14, 2006 ... Commercial octane boosters are a scam. ... and it actually reduce the gas mileage for that tank of gas with booster. what I mean is: ...
www.automotivehelper.com/topic458390.htm
They tell congress and congress just excepts it and does nothing as usual. We need someoine in congress with the balls t represent the American people.
We freed the slavs and sent two ship loads to Nigeria. They promptkly enslaved the people ther and have been having civil wars ever since. We should invade Nigeria and nationalize it.
You keep believing the oil companies while their CEO''s keep drawing multimillion dollar salaries each year and also multi million dollar bonuses.
When the Vietnam war was coming to an end the oil companies relaizede they would lose their big govt contracts for selling oil and wanted the profit margins to remain the sa,e. They got the govt to let them spread the story there was an oil shortage and prices shot up. We had cases where tankers would arrive with gas and oil and we had no tanks to store it it so they would be told to dump it inot the ocean. We also had written orders to use as much fuel and oil as we could in Vietnam. Oil has always been a sham and the working class has always been the victims of the oil companies.
I had a friend build a home 20 some years ago. He put in a heating system that ran off a solar system. His house was always warm and he always had hot water and no bill for heating other than the electric fan to circulate the warm air from the system. There are alternatives. I bought a 200 F-150 ford pickup with 6 cylinder engine and love it but i am concerned about the gas it will take to run it. I have hear of a system called gas4water.com that is supposed to double your mileage. I am checking into it. If i could find gas stations that sell natural gas in enough lovations i would consider converting my truck to natural gas. A lot of the taxi''s use it here in Thailand because it is so much cheaper than gas. I am always looking for new ways to save money and energy.
The oil companies are just victims of their excessive profits, right?
I believe that the Arabs will find that this will backfire on them as people will just find other sources of fuel for their homes and cars thus doing away with the Arab oil. But in the mean time it would cost my husband $240 a fortnight in petrol to go to work so if he didn''t have gas in his car he would have to give up work... I feel that we will see many people giving up work, causing unemployment in a massive way, some will be lucky enough to find work closer to home..
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