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Senate Alarmed Over "Failed" Oil Markets

As the price of crude set another record in the trading pits, executives of the major oil companies were raked over the coals again in Congress, reports CBS News Business correspondent Anthony Mason.

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.