Gasoline at two dollars a gallon used to be highway robbery. Now we tell our friends about the bargain station we found that trumpets $2.19.
Prices at the pump, which topped out at over three dollars per gallon, have seemed more tolerable recently. Congressional investigations, and rumblings of a windfall profits tax on the oil companies, will do that. Not surprisingly, those prices, which shot up like a rocket, floated down like a parachute. Gently, and slooooowly. There are still large disparities, even in the same neighborhoods.
As the hurricane season mercifully blows over, and we count the human, and economic, losses in Louisiana, Mississippi, and Florida, those same oil companies are doing their own counting. Their profits. Remember, they were hit hard by the closing of refineries and drilling rigs in the Gulf of Mexico. Production was slashed. Gas shortages plagued the entire country. That's why prices went through the roof, right?
It is only natural that we expected lower sales, and reduced profits, for the summer months. But the joke is on us. While we paid record prices for our gasoline, and the costs of heating oil and natural gas are expected to soar this winter, the black gold barons are awash in green.
The numbers are absolutely staggering. Exxon Mobil Corp. and Royal Dutch Shell made a combined profit of $19 billion in only three months , their highest quarterly profits ever. Exxon became the first U.S. company in history to achieve quarterly sales of $100.72 billion, and set a record for U.S. companies with profits of $9.92 billion in that time. That is 75 percent higher than in the same quarter last year. At Shell, third-quarter net income grew 68 percent to $9.03 billion.
Analysts predict that the five largest privately-owned oil companies will together turn a profit of nearly $107 billion this year.
Meanwhile, President Bush is proposing to cut $50 billion from Medicare, food stamps and social security. Virtually everyone in this country will be suffering from Katrina's devastation: increased costs of petroleum, building products, seafood, citrus and other crops, insurance, shipping, and travel. Poverty-stricken hurricane victims wonder how they will ever recover.
Wouldn't it be nice if each of those five companies gave just two billion dollars to the relief funds? Less than ten percent of their profits. But the federal government has done nothing about the biggest price gouging in history. Investigation?? Company officials didn't even have to testify under oath! Our president's family made its money in oil. The Big Five have us over their barrels.
And this scenario can - and probably will - happen again. Petroleum prices will be on a yo-yo for years to come. You can say thank-you to our Washington politicians:
From 1998-2001, the Federal Trade Commission allowed eleven large oil and natural gas companies to merge into what is now referred to as the Big Five: Exxon Mobil, Shell, Chevron, Total S.A., and BP. And those companies took full advantage of the law of supply and demand.
Five years ago, the world's oil companies were producing five million more barrels per day than we used. We had a cushion for times of emergency. That number is now about one million. Supply barely keeps up with demand. Factor in a hurricane or two, political unrest in Venezuela, the Middle East muddle, and an oil-thirsty China, and you can understand the potential for gasoline prices changing by the hour.
The days of ninety-nine cent gas are gone with the exhaust. We have depleted the reserves that, for twenty years, kept us insulated from big price bounces. No new refineries have been built in this country since 1976, because of environmental protests, bureaucratic regulations, and local opposition.
Even if they wanted to, the oil companies can no longer keep prices stable by flooding the market. They don't have the product. It takes years to find the oil, build the refineries, and construct the pipelines that will create the surpluses, which in turn lead to low prices. There is no quick relief in sight, as industrial newbies like China drive up demand.
And the main culprits here are the same oil companies which are now getting rich at our expense. In the late 1990s, with the economic crisis in Asia, lots of competition, and production costs low, prices fell to about ten dollars per barrel. Drowning in oil, U.S. companies drastically reduced exploration, equipment purchases, and skilled production staff. Instead of planning for the future, they ignored drilling for new oil and convinced a very willing government to allow them to participate in the merger-mania sweeping other industries. They needed to be larger, they said, to compete with the nationally-owned oil companies in other countries.
And, in 2001, they were even permitted private input into Vice-President Cheney's energy task force, which recommended opening up the Arctic National Wildlife Refuge to development. Oil producers were also granted huge tax breaks.
And this all worked. Not for the American consumer, who saw prices rise through less competition. But for the companies themselves, short term. Future stability was sacrificed for current profit. And now, when they need the drilling engineers, the refinery workers, and the riggers, that trained workforce just isn't there.
And new petroleum is harder to find. The great oil fields of the world are already discovered. Companies now are replacing their depleted resources with new supplies from more remote, less politically stable, and less accessible geographic areas. The cost of finding new reserves has almost doubled since 2000. And the new fields are not producing what the old ones did. In fact, the output of old fields is drying up much faster than new ones are growing.
Sorry, folks, it won't be getting any better.