THE BLOG

Big Oil's Gain is Our Pain

07/26/2011 12:24 pm ET

Back in the spring, before President Obama got bin Laden, his poll numbers were falling. The people who analyze these numbers claimed that the drop could be tied directly to people's anxiety about the economy, and what made people the most anxious was the rising cost of gasoline at the pump. While Obama's numbers dropped, the price of gas was rising. On top of that, the major American oil companies released their profits for the first quarter of the year, and their profits were astronomical.

I mean it when I say astronomical. If you annualize the quarterly profits of these mega-companies, we are talking about profits in the neighborhood of $100 billion. You may remember that earlier in the year $100 billion was the amount of money that Tea Party Republicans wanted to cut from the entire Federal government in order to make a bold statement. The profits of a handful of companies equaled, in one three month period what our most conservative lawmakers believed should be cut from the Federal government.

For those companies, it was the best of both worlds: their profits were massive, and they were causing great political pain to their least favorite government official, President Obama. What could be better?

How were they getting this super result for themselves? Marketing. Every time you turn on the cable talk stations and the network news, you see that nice blond lady telling us that oil companies create jobs and could create a whole lot more if the government would just leave them be. The small print at the end of the commercials show they are being presented by the American Petroleum Institute, the mouthpiece of Big Oil.

The API puts out information on its website that go into greater detail so that all of us can understand in simple terms what the problem is. One recent document is called "The State of American Energy", and it asks the question, "Why are Gasoline Prices Rising?" Another pamphlet-type document has a picture of an attactive African-American housewife pumping gas into her an SUV, with a big smile on her face for some reason, below the title, "What's up with fuel prices?"

Through these publications, Big Oil wants us to understand that it's not their fault. According to the API, "more expensive crude is driving up oil prices," and "global economic recovery is increasing demand for oil." But they are doing what they can. "U.S. refiners are producing at or near record levels... U.S. producers are pumping more oil, but" -- and I mean BUT -- "the rate of future growth is in question". The API warns us that there are "delays" in new projects, because of "drilling moratoria and changes in expected lease sales" that "increase uncertainty". You see, it's Obama's fault.

The API tells us that we can address the problem "with more supply and greater efficiency". "Government should grant access to more public lands on a timelier basis... waiting until economic recovery kicks in and energy demand rises puts consumers at risk".

But how is it that consumers are getting squeezed, and yet our major oil companies are making bigger profits? Not their fault, the API explains. They are just making the same old profits they always have, just like other industries. According to the API, "over the last five years, industry earnings have been in line with U.S. manufacturing industries, averaging just 7 cents for every dollar of sales." Remember those words. For every dollar of sales.

The truth is that Big Oil has been selling this same nonsense for years. The truth is that Big Oil likes the price of crude high, because the higher it is, the higher its profits are, because the companies don't compete with each other. I explained this in a June 30, 2008 post, back when John McCain was telling us to "drill, baby drill", and Big Oil was warning us that an Obama presidency would destroy domestic production necessary to keep prices "low":

Two years ago, Red Cavaney, the President of the American Petroleum Institute, gave his "State of the U.S. and Natural Gas Industry 2006" address. He claimed, as the industry often does, that "contrary to a widely held perception, the industry's earnings are very much in line with other industries". He said that for the previous five years, the oil and natural gas industry's earnings averaged "5.8 cents per dollar of sales", and that for the third quarter of 2005, the industry averaged "8.2 cents for every dollar of sales", and that other industries earned more "per dollar of sales".

A few weeks ago on the Today Show, the CEO of Exxon made the "profit per dollar of sales number" argument to Matt Lauer, but said that the profit number was now about ten cents "per dollar". It still might sound reasonable until you really think about what these fellows are saying. They're not talking about cents per gallon. They're talking about cents per dollar. So, using the industry's own figures, one can see the profiteering. A few years ago, when gas was selling at about two dollars a gallon, Exxon and its "competitors" were making about 11 cents for delivering to you a gallon of gasoline. (5.8 cents times two dollars), or about $1.65 for your 15 gallon fillup. Now, for delivering that same gallon of gasoline to you at $4.20 per gallon, Exxon and its "competitors" are making about 42 cents per gallon, (10 cents times four dollars) or about $6.30 for your 15 gallon fill-up. Repeat this a few million times a day and you begin to understand how Exxon had over $30 billion in annual profits. They can do this because there's no one around to undercut them.


So, now API message is clear: we're just making the same kind of profit "per dollar" as everybody else. Never mind our profits for creating the same gallon of gas are doubling even though we're doing the same work as before.

In the last few weeks, Big Oil has added another element to their message: Now Obama wants to tax us -- the job creators! The "tax", of course, isn't really a new tax -- it's just a proposal to take away tax loopholes that keep Big Oil from paying corporate taxes like companies in other industries -- the ones they want to be compared to when they talk about "profits per dollar of sales". With the tax loopholes in place, are they out there "creating jobs"? No; in fact they, like most of corporate America, are sitting on hoardes of cash.

American corporations, including Big Oil, don't need more tax breaks to "create jobs." There will be more jobs when there is more demand for goods and services from people with jobs who can afford to buy things that people need, like refrigerators and cars. Our tax system is increasingly weighed in favor of people and companies who need cash the least. We need to stop listening to this nonsense about the "job creators".

It's time we call Big Oil and the Republican Tea Party on their nonsense. Even average Republicans seem to understand that it's time for everyone to share in some sacrifice, even the profiteers at Big Oil and the other "job creators."