Oil companies make record profits as gas prices soar

Photo: Dima Gavysh/Gamma

Gas prices hit record highs in early May. Not surprisingly, so did the profits of the oil companies. A lot of people are angry about the soaring prices, which went up an average of 42 cents per gallon in April alone.

Lee Raymond is not one of them.

Raymond, the outgoing CEO of ExxonMobil—the biggest of the giant oil monopolies—was paid a reported $51 million in 2005. This is roughly $141,000 per day for every day of the year, or around $6,000 per hour—if you include the hours he was asleep.

ExxonMobil could afford Raymond’s exorbitant salary. Last year, it reported profits of over $36 billion—the largest profits for any company in the history of the world. Raymond received a $400 million retirement package this year.

The top three U.S. oil companies—ExxonMobil, ChevronTexaco and ConocoPhillips—reported combined first quarter 2006 profits of more than $14 billion, yet another record. All three are products of recent mergers that have consolidated control of the U.S. oil industry in a handful of huge corporations. These companies have great power to fix and raise prices. Their immense economic, and therefore political power insulates them from having to worry about consequences for their blatantly monopolistic practices.

Last fall, when there was another spike in gas prices following hurricanes Katrina and Rita, Raymond told a Congressional committee, “we’re all in this together.”

In one sense—and only one—Raymond is right. Without the working class to make and buy its products, there would be no record profits for Big Oil and no outlandish salary for Raymond. But the idea that someone making $6,000 an hour is “in this together” with a worker struggling to get by on $8 or $10 or $20 an hour is ludicrous.

Raymond never has to trouble himself about such mundane matters as paying for rent, food or health care. When he worries about transportation, it is about deciding what kind of private jet to buy.

Some corporate media pundits and liberal environmentalists patronizingly counsel the public to consider that “gas is still not nearly as expensive here as in Europe.” What they fail to mention is that most European countries have highly developed public mass transit systems.

Corporations promote energy waste

In much of the United States, by contrast, mass transit is so inadequate that tens of millions of workers—including many making the miserably low minimum wage—have no other way to get to work than by car.

The widespread lack of mass transit is not primarily due to poor planning. Instead, it reflects the deliberate destruction of once-existing bus and rail systems in and between many cities in the interests of enhancing auto and oil company profits. To this day, corporate-controlled federal and state governments heavily favor freeway and road construction over mass transit in transportation appropriations.

These policies explain why the United States, with just 4.5 percent of the world’s population, consumes 25 percent of the world’s petroleum every year. Extreme waste of resources usually translates into extreme profit for the capitalists. For this reason it is promoted and encouraged, despite the fact that the world’s oil supply is being rapidly and permanently depleted.

But the oil capitalists, like their class of corporate owners and bankers as a whole, could not care less about the future. For them, what matters is the bottom line and maximizing profit now, regardless of the cost to people or the planet.

Conservation bad for business

Oil bigwigs justify their huge profits to a servile Senate, March 21, 2006. Photo: Congrs’l Qrtrly/Scott J. Ferrell

One example of this deliberate wastefulness is seen in Congress’s repeated refusal to mandate the auto companies to increase their fuel efficiency. At the same time, SUVs—the biggest profit makers for the auto companies—have not been subject to even the inadequate mileage per gallon requirements imposed on other passenger cars.

The Spring 2006 spike has driven gas prices to the highest levels ever seen in the United States. In northern California, the cheapest gas was $3.30 a gallon in early May. In other words, filling an 18-gallon tank cost around $60.

This year is the sixth consecutive year to see gas price spikes. Every year, the oil monopolies come up with different explanations for the sudden and sharp price hikes. What does not change is the direction of the arrow on their profit charts. For all of Big Oil, it just keeps going up.

The oil monopoly today

Today, five major corporations dominate the U.S. oil and gas industry: ExxonMobil, ChevronTexaco, ConocoPhillips, BP (British Petroleum) and Royal Dutch Shell. There are a number of smaller, though still very rich, companies, but the Big Five dominate. In 2004, these five controlled 48 percent of domestic crude oil production, 50.3 percent of domestic refining capacity and 61.8 percent of the U.S. retail gasoline market. Domestic production accounts for about 36 percent of U.S. petroleum use and foreign imports for the other 64 percent. At the retail level, U.S. companies dominate, controlling over 90 percent of the market.

Monopoly domination is growing. In 1993, the five largest U.S. companies controlled 34.5 percent of refining capacity. In just 11 years they have gone from controlling one-third of refining to one-half.

By 2004, the top ten companies controlled 78.5 percent of all domestic refining capacity, up from 55.6 percent in 1993. (“Mergers, Manipulation and Mirages: How Oil Companies Keep Gasoline Prices High and Why the Energy Bill Doesn’t Help,” Public Citizen, March 2004)

Occupation troops guard oilfields in Southern Iraq, March 23, 2003. Photo: Reuters/Ian Waldie/Pool

The giant oil monopolies are vertically integrated, meaning that they all are involved in the oil and gas industry at every level, including exploration, production, refining and wholesale and retail marketing. This is important to remember when we hear the oil companies’ mouthpieces talking about “supply and demand” determining prices at the pump. Often, what that means is that ExxonMobil’s wholesaler had to pay ExxonMobil’s refinery more, and therefore ExxonMobil’s gas stations have to raise their prices. The increased profits all end up in ExxonMobil’s bank account. It is what used to be called a shell game.

But there is much more to the “supply and demand” story. Over the past 20 years, the Big Five have actively and successfully sought to drive out the smaller refiners and take over their facilities. Why this is so important to the oil giants was shown in a March 29, 2001, Federal Trade Commission report investigating prices spikes in Midwest states during the summer of 2000. Predictably, the pro-industry FTC found the oil monopolies innocent of “collusion or any other antitrust violations.”

Despite the whitewash, the 2001 FTC report contained some highly revealing information about the companies’ manipulation of the market. Due to their takeover of so many U.S. refineries, the biggest corporations were able to easily manipulate supply.

The report states, in part, “A significant part of the supply reduction was caused by the investment decisions of three firms.” The report documents that one of the unnamed firms could have produced more, but that would have “pushed down prices and thereby reduced the profitability of its existing RFG (re-formulated gasoline) sales.

“An executive of this company made clear that he would rather sell less gasoline and earn a higher margin on each gallon sold than sell more gasoline and earn a lower margin. Another employee of this firm raised concerns about oversupplying the market and thereby reducing the high market prices. A decision to limit supply does not violate antitrust laws, absent some agreement among firms. Firms that withheld or delayed shipping additional supplies in the face of a price spike did not violate antitrust laws. In each instance, the firms chose strategies they thought would maximize their profits.”

Here the FTC, which is supposed to be protecting the interest of the public, blandly reports that the biggest oil companies caused gas prices to soar and fleeced the public by artificially creating a supply crisis. The FTC’s ruling indicates that this is okay, nothing illegal. Without monopoly control of the market by a handful of corporations, such market manipulation would be much more difficult.

Although the official “investigation” of this year’s price spike has not taken place, there is absolutely no reason to believe that the oil monopolies are not using the same means to manipulate prices as they have in the past.

Cutbacks for the poor, massive subsidies for the rich

While proclaiming itself to be “of, by and for the people,” there is no government in the world that more shamelessly and blatantly serves the interests of the capitalists than the one based in Washington, D.C.

While engaging in a quarter-century of slashing and burning of every program that serves the tens of millions of people living near or below the poverty line, Congress and the White House have scrambled to give away as much as possible to the corporations. Many of the richest corporations now pay little or no income tax at all on their billions of dollars in profits.

In the case of the oil companies—currently enjoying the biggest profits ever made by anybody—the subsidies and tax breaks are truly amazing. Last year’s federal energy bill gave to the oil and gas industry an additional $2.6 billion.

But that was not enough. When oil company executives complained that they were not getting their fair share, the Interior Department published a budget that included a proposal to allow the oil giants to extract $65 billion in oil from federal lands over the next five years without paying a penny of the required $7 billion in royalties. Previously, the exemption on royalties or taxes to the federal government was implemented for times when crude oil prices fell to $10 or $15 a barrel. Today, crude oil is selling for over $70 a barrel.

And there is more. Now the oil companies are suing the federal government to have an additional “forgiveness” of $21 billion in royalties for oil drilled in the Gulf of Mexico and other federal land.

Working people pay for these subsidies and tax breaks given to Big Oil in the form of increased tax burden or decreased government services.

There is another huge and largely hidden way in which the working class subsidizes the oil industry—the military budget. A central objective of the war in Iraq and the U.S. military occupation of the Persian-Arabian Gulf region is control of the area’s petroleum resources, an estimated 70 percent of the world’s total. U.S. oil monopolies are the prime beneficiaries of this strategy, with their British and Dutch junior partners getting cut in. In other words, it is the same Big Five.

The price of these enormous military operations in human lives is incalculable. The cost in money is now at least $200 billion per year of federal tax money.

While they pretend that their actions are dictated by the energy needs of the population, the oil companies and their partners in the big banks and military-industrial complex are really the biggest enemies and exploiters of the working class here and around the world.

At present, government officials are wringing their hands and declaring that there is little they can do about soaring prices. But that is just another form of deception. There are, in fact, many short-term steps that could be taken, as in the past. During World War II, for example, there were price controls on gasoline and other goods. There could be a real investigation of the crimes of the oil industry, conducted publicly and shown live on television. A special tax could be passed on the windfall profits that the oil companies have wrung out of the people by manipulating the market. The executives could be tried and jailed.

But for even those short-term solutions to be realized, there can be no illusions in those capitalist politicians who call themselves “representatives of the people.” The reality is that the White House, Congress and the state legislatures are all completely beholden to the capitalist class, of which the oil corporations are a powerful part.

Only a powerful workers’ movement, independent of the interests of the tiny billionaire elite, can win a real solution to the deepening energy crisis. That solution will begin with short-term measures—price controls, investigations and taxes and fines on the Big Five oil monopolies. Such measures would immediately pose the broader challenge—the socialist expropriation of the oil and gas industry. Only then will it be possible to assure that the global energy resources are used in a sustainable way to meet the needs of the world’s people.