Big Oil Provides Little Hope About Gas Prices

In the week leading up to Memorial Day —the start of the so-called “summer driving season” —Congress took the opportunity to air America’s grievances over high gas prices with executives from Exxon Mobil, Chevron, Shell, BP, and ConocoPhillips. On Wednesday, as oil prices hit the low $130 range, Senate Democrats grilled the five major oil companies about rising prices and record profits. On Thursday, it was the House’s turn.

The latest hearings represent the 45th time in two years that Congress has brought representatives from the oil industry in for testimony on the issue. Sen. Patrick Leahy of Vermont echoed a popular sentiment of late, questioning the disconnect between relatively stable levels of supply, and doubling crude prices:

“I would like to know, and I am sure American families and small businesses would like to know, why prices are so disconnected from what normal supply and demand would indicate.”

Congress supposedly convened the hearings to weigh several proposals for alleviating the effects that rising gas prices are having on the economy, but as with previous hearings on the subject, political theater ended up winning the day. Republicans used the hearings as a platform to once again insist that the Arctic National Wildlife Refuge be opened to drilling—a move that most analysts expect would lower crude prices by less than one percent. Democrats dragged out enlarged photographs of President Bush holding hands with Saudi Arabia’s King Abdullah and asked each executive how much money they earned last year.

As the nationwide average cost of gallon of gasoline closes in on four dollars, it’s extremely unlikely that any of the proposed legislation designed to make things easier on consumers will pass, and even more unlikely that any measure would significantly bring down prices. Ultimately, American drivers and consumers will have to adapt to higher gas prices just as Europeans adapted to $5 gas years ago. In the meantime, politicians will feel the pressure to make it seem like they have some control over the global markets and international speculation that has caused oil prices to rise so dramatically.

“If you feel a little bit beaten up on, we all feel beaten up on, so just share the pain,” said Rep. Maxine Waters of California. “We get our behinds kicked every day in our districts about what is going on.”


  • George Dickle

    An excuse to continue ripping off the American Consumer. The American people as a whole need too get a huge set of balls and stand up for themselves. The American consumer should consider boycotting the gas stations by driving less, walking more, riding a bicycle, planning trips in a vehicle more effectively. If you can walk a mile to buy a loaf of bread instead of driving five miles too the nearest Wal-mart “Just Do It”.

  • mdensch

    The comic strip Pogo said it best: We have met the enemy and he is us.

    We have it within our grasp to reduce our consumption and do our wallets and the environment a big favor, yet our gluttonous appetite for oil continues. For all the bipartisan posturing, not a single elected official seems willing to point this out.

    If it take $4 a gallon prices — or $7 — to finally make us wake up and curb our demand for oil, I say bring it on.

  • Andy

    High prices are the only thing that will alter systemic societal behavior and reduce our impact on global warming. Everything else is just lip service. Money is how a nearly infinitely complex society manages to sort out the total value of something.

    If we value the envrionment, then it needs to be made to cost a lot to damage it. So either we can charge for the exhaust going out or for the fuel going in. (No one yet has the political will power to tax exhaust, so here’s our chance.)

    And now you will find out who cares about the planet: Anyone complaining that gas prices are too high wants the environment to cost less to destroy.

    Gas prices high -> Reduction in greenhouse gasses
    Gas prices low -> Increase in greehouse gasses

    It’s just that simple, either/or, hand in hand. Make your choice!

  • max savage

    Here is my simple idea to put the fire to the US (and other) automakers, big oil, and Congress….. Keep you money in your wallet and vow to not buy any NEW car until the automakers (especially detroit) come up with plug in cars, and suv’s that rely more on the electric grid and not oil. As sales of new vehicles countinue to plummet, the fire will be lit under the feet of Congress, big oil, and the automakers. The only thing that he forementioned pains in our sides care about is money. This will force change to all three. Mind you I said no NEW cars. We can of course still meet our driving needs and lifestyles (and save money) by purchasing used cars. Save yourself and clamp your wallet shut until then.

    Max Savage

  • DD

    A few tips i have for reducing the amount of oil you consume..

    Walk more (Yes fatties, instead of getting into your car and driving somewhere close by, walk there.. youll feel more accomplished)

    Downsize your cars, 4cyl car with forced induction gives you the power of your precious V6/8′s with the fuel consumption of a 4 cyl car.

    Buy produce from local farmers. The amount of distance the produce traveled is considerably less then buying produce from a far off country. Plus its more nutritious than produce from far off lands.

    Get a Hybrid, or when sitting at a long light, turn off your car.

    Dont punch the gas, accelerate slowly, when punching the gas all youre doing is getting to the next red light faster, while consuming more gas.

    Buy reusable grocery bags made of recycled fibers. Dont take plastic bags next time you shop, we are wasting valuable petroleum resources (to carry out your groceries in and then throwing them away) instead whenever you can dont accept plastic bags or bring your own reusable grocery bags (not made from plastic)

    Turn down your home temperature at least 1 degree. Youll save alot of natural gas/heating oil over the years. If youre chilly wear a sweater.

    Combine your chores into one trip.

    Travel when there are less cars on the road.

    Durn down your water heater. The water does not need to be at a scalding temperature (youll extend the life of your boiler as well)

    Insulate your house, watch out for heat escaping through crevices by your windows and doors, it adds up in waste over time.

    Change those old Edison light bulbs for more efficient bulbs…

    For more ideas, visit and spread this website to your colleagues and friends.. Education is power.

    http://www.50waystohelp.com/

    PS. I work for a major international oil company, were actually not as bad as some make us out to be, we also care about the environment… Visit the website pasted above.

    Trace the origin of the gas in your gas tank.
    http://www.chicagotribune.com/news/specials/broadband/chi-oilsafari-html,0,7894741.htmlstory

  • Need2Change

    The election is near. Congress is trying to look tough. Don’t want the public to blame out elected officials.

    But in the end, Congress will take their campaign funding from the oil companies and not pass any meaningful legislation.

    And don’t “only” blame the republicans. We now have a Democratic Congress, and I don’t see any meaningful legislation.

  • odarren

    First, I loved the suggestion to only buy used cars until the automakers change their ways. Fantastic!

    Second, I just read about the Bakken formation, estimated to have roughly 3.65 billion barrels of extractable barrels of oil. See

    http://en.wikipedia.org/wiki/Bakken_Formation

    Given that we are letting our U.S. oil companies drill on public lands, why not require they sell anything extracted here only to those in the U.S. And, oh yeah, let’s stop giving them access to our lands AND giving them tax rebates for taking our national treasure.

  • Need2Change

    I agree. Giving tax credits to the oil industry is crazy.

    I understand that on the surface it sounds good: give me a tax break and I’ll find more oil or alternative sources of energy.

    Well, it we didn’t give oil companies these tax breaks, do you actually believe that will stop looking for oil and just go out of business? And that includes alternative energy. Just read about a solar facility in Arizona that an oil company wants a tax credit to build.

    This industry is getting too many handouts for too long.

    While we’re on the subject, I see no need to give incentives to buy hybrids from Japanese companies. Toyota and Honda don’t need U.S. government help to sell cars.

  • Need2Change

    I also agree that more people should buy used cars. If a Prius meets your needs, well then buy it.

    But if you want a plush and/or faster car (e.g. BMW, Chrysler 300, Mustang, Acura, Accord, etc.) or large SUV or truck, I recommend buying used.

    Many of these automobiles depreciate a lot in the first two years, and as more fuel efficient models are released in the coming years, the 2008 – 2009 models will depreciate at a faster rate.

    In five years, no one will want 20 mpg 2008 -2009 cars.

  • RandalH

    I love to see congress make a fool of itself as much as anybody, but it’s naive to point the finger at “big oil”. They are in business to maximize profits like any business, but they don’t set the price of oil; the commodities markets do. That price is set by such things as (remember Econ 101?) supply, demand, global political stability, and speculation. The finger should be pointed at us for allowing ourselves get into the situation we find ourselves in. It’s not that the price of oil is high, it’s that we use too much of it. We’ve created a society that has too little density to support public transportation, or we are too lazy to use it. Hybrid cars are going to have to be part of the solution, but there are many other things that will be more important, such as forgetting subdivisions and remembering towns, increasing public transportation, telecommuting, etc. Politicians at all levels and of all political parties have failed to understand, let alone lead in this issue.

  • cyberpop

    All of the above suggestions are good but will take years to have any impact on oil prices. The fastest way to lower gas prices is to hit the oil companies where it hurts: in their pocketbooks. Americans today have forgotten how the generation in the 1960s effectively used boycotts to achieve their goals. But that does not mean we have to stop buying gas — after all, we still need to drive. I propose that we choose one Big Oil company (say ExxonMobil) and EVERYONE not buy gas from them for one month. You can go to the next Gulf or BP or Shell station to fill up. After one month, ExxonMobil’s profits will begin to fall. At that point, EVERYONE should boycott Shell also. The oil companies will begin to fear the power of the people and will have no choice but to lower their prices. We can do this, but we need to find a way to organize effectively.

  • Giant

    Way to go DD!

  • Indigo

    You’ve gotta love Bush. Only he can (with a straight face) give billions of dollars in tax credits to Big Oil while at the same time phase out thee credits for hybrid cars. Oh, amd the reason why he and his ilk don’t care about the environment is because he’s a Christofascist who thinks Jesus is coming back “any day now”. as a Wiccan, I can tell you that this planet is a precious gift and unlike any other and it is a sacred duty to safeguard its health. Fundamentalist Christianity is a cop-out in so many ways, but their blatand disregard for the environment is merely the most obvious facet.

  • Thin guy

    “If it take $4 a gallon prices — or $7 — to finally make us wake up and curb our demand for oil, I say bring it on.”

    What an idiot! I’m going to say something just as stupid, as a thin guy I hate looking at all the fat people, I hope the cost of food at least doubles — If it takes higher food costs to finally make us wake up and curb our demand for food, I say bring it on.

  • RandalH

    Indigo: Certainly not be confused with your fellow pagan and REAL fascist, Adolf Hitler.

  • MTR

    Hey, I’m as frustrated by high gas prices and the fact that there are no viable alternatives as anyone, but blaming “BIG OIL” is pretty much conspiracy theory.

    Its not big oil. Its not shortening supply (in the ground). Its not big evil auto makers.

    Gas prices are incredibly high and gas mileage remains low because of:
    1. Environmental restrictions cause high priced and difficult to refine gasoline
    2. Safety restrictions in cars: they are much heavier than in the 1970s.
    3. Environmentalists are not letting us drill for oil in the US.
    4. Environmentalists are not letting us build more refineries.
    5. High taxes. Here in Illinois we pay over 70 cents per gallon in taxes on gas.

  • DD

    4. Environmentalists are not letting us build more refineries.

    Bingo! There is heavy push against building refineries at home (Canada & US) as a result. Most of the refineries that are being designed and built in the world today are for the Middle East (makes sense logistically). Saying that, there are heavy political & economic consequences that we in the west must pay.

    We dont need more crude on the market there is enough being produced to cover the demand. When Bush is begging the Sudi Prince to up the production he is merely putting a show to make it seem as though he is doing something.

    What we desperately lack is REFINED crude, that is why ladies and gentlemen we are paying such high prices on transportation. When that happens Spot traders open a pandora’s box due to the very easily misconstrued notion that there is less Crude on the market.

  • Brandon

    MTR got it right nobody takes those thing into account. I still think the big oil companies are sticking it to us though, and if they aren’t then please explain the record breaking profits they are all reporting. but yeah dude u definitely hit the nail on the head with your reasons.

  • RandalH

    Brandon, I can explain it like this: If you decide to sell your house in a strong housing market you will stand to make a large profit. If you sell it in a weak market, you will likely have a small profit or lose money. I has nothing to do with you sticking it to the buyer, it’s that the buyer pays the market value and you benefit with a higher profit. That strong housing market was likely created by high demand and a small supply of houses. It’s the same today with oil, because we are using it at a faster rate than it is being pumped out of the ground.

    Profits tend to by cyclical. For example, a few years ago, when gasoline was less than $2.00 a gallon, the oil companies were not making profits at all. People were dumping energy stocks right and left. Also, I’m sure that you know the difference between a profit and a profit margin, which in the case of the oil companies is a rather modest amount compared to other industries.

  • DD

    People also have to realize that exploring for, testing, developing, producing and ultimately transporting oil & gas is a huge endeavor that is not cheap nor easy to do. It takes literally billions of dollars to develop one field. There is a very high risk of failure < 10% success rate and that's with today's advanced geophysical/geotechnical technology.

    Also we are not running out of oil. We are running out of cheap oil. Going back to the economic cost and logistical problems that i mentioned at the beginning that we face in the industry. Keeping in mind that we have to go to more unconventional, inaccessible reaches of the globe to extract the resource and bring it to market. The cost will ultimately go up for us.

    So when we make a huge profit, you have to keep this in mind. I will use an example of Chevron Corporation (2nd biggest publicly traded oil and gas company in the world).

    (In Millions of Dollars) Jan 1 – Mar 31, 2008
    REVENUES AND OTHER INCOME 2008 2007
    Sales and other operating revenues * $ 64,659 $ 46,302
    Income from equity affiliates 1,244 937
    Other income 43 988
    Total Revenues and Other Income 65,946 48,227 < -- Wow a huge revenue!

    COSTS AND OTHER DEDUCTIONS
    Purchased crude oil and products,
    operating and other expenses 48,583 33,177
    Depreciation, depletion and amortization 2,215 1,963
    Taxes other than on income * 5,443 5,425
    Interest and debt expense – 74
    Minority interests 28 28
    Total Costs and Other Deductions 56,269 40,667 < -- This looks like an expensive endevour
    Income Before Income Tax Expense 9,677 7,560
    Income tax expense 4,509 2,845
    NET INCOME $ 5,168 $ 4,715 < --- 7.8% is the profit margin that goes into shareholders pockets (for 2008). Thats lower profit margin than most other companies on S&P 500, the Dow or TSX.

    Remember… oil companies are spending 80-90% of their total revenue in reinvesting into exploration, more efficient development, transportation and alternative energy research.

    I hope that my post puts it a little more in perspective. In the end remember that we are subject to market cycles like Brandon mentioned. (i hope the formatting works out)

  • MTR

    Indigo: What kind of Christians have you been around? All the Christians I know (and I am one) care deeply about the environment.

  • My Name

    It seems that it wouldn’t be all that hard to bring down the gas prices. All we have to do is band together by boycotting the oil company that made the most profit.

    We did a pretty good job of sending a message to the oil companies a few years ago when we had a boycott on purchasing all gas. The problem with that approach is that it is not very realistic and cannot sustain a long term stand-off because at some point most of us must buy gas.

    But, if we just picked the company that made the most profit and stopped buying their gas until they dropped the price, we could still send a clear message that consumers are the ones in control while still enabling us to get the gas we need. We may not be able to buy it from our normal gas station, but at least we could still keep going while making our point.

  • ex-EV1 driver

    If you want to get the price of gas down. Quit using it.
    We have to quit buying hybrids and demand that the automakers build pure electric automobiles or Plug-In Hybrids that can operate WITHOUT gasoline – again. Otherwise, you MUST buy gas because our lifestyle requires it.
    If you can afford an expensive car, you should buy a Tesla Roadster. This will send a message. If you can’t afford it, don’t buy a new car and save your money until Tesla or someone else comes up with a plug-in car that you can afford. If you wait long enough and keep saving your money, eventually, you’ll even be able to afford a Tesla Roadster.
    Go Tesla!

  • Heavy Duty

    The last meeting betweenCongress and the major oil companies has produced two major suggestions to try and reduce our cost of fuel, neither of which have much chance of putting even a dent in gasoline prices.

    Their first suggestion, drill more domestic oil. This may slitely reduce the world market price by adding more oil to the world supply but will more likely be washed away by the growing market in other countries like China, Japan, etc. If we are in any way tied to the world market, then all of our oil will be sold at world market prices. That’s capitalism at its finest. The reality is that it cost the oil producers about $20 a barrel to extract oil from the earth. That’s an all-in cost including exploration, drilling, dry holes ect. They sell that oil, sometimes to their own refineries, at world market prices (now around $130/ per barrel) That’s how Exxon makes $68 bill. a year in profit. On the other hand, the refining end of the business is a very capital intensive and competitive endevor. A very small percentive of big oil’s prifit is from refining. They would rather sell all of their refineries to independents and just keep the production (drilling) bussiness for themselves if they could find buyers. That’s just good management.

    That gets us to the second suggestion, build more refineries. The U S uses “X” amount of gosoline per day. We have existing refining capacity to produce that amout of gasoline plus a comfortable margin of excess if needed. If we didn’t , we would frequently pull up to our local gas station and find it out of gasoline. It follows that if we can refine more than we use, then why build more refineries? They are expensive to build and don’t really make much botton line prifit. Additional refineries will not help our gasoline price situation period.

    What America needs to do is reduce our dependance on oil all together. The use of alternate sources of energy such as solar, wind, water, geothermal, hydorgen, etc are good places to start but are many years away from putting a dent in our need for oil. We should start now reducing the amount of fuel each of us uses by any means possible. The options are limitless in our homes, business, and travel, but we will all have to give up a little to make a difference.

    I wonder why no one on this site has mentioned this before but one easy way to put a major dent in our oil consumption NOW is to reinstate the 55MPH speed limit. Almost every car and truck on the highway will get at least 10% better milage at 55MPH than it will get at 70MPH. That could start tomorrow. WOW 10% reduction in one day! Let’s say 5% because all of our driving is not on the highway, but 5% of “X” is a major step to make in one day.

    I think that someone should explain the oil business to our congressmen so they can make suggestions that at least have a chance of making a difference.

  • slappy

    I applaud you all your inovation and encouraging comments that lead me to believe Americans actually do care… However, a number of flaws exist in some of the proposed ideas.

    Not buying a new car – vehicle MPG consistently decreases as cars age and as new technologies in fuel efficency increase new cars will in the long run be more efficent.

    The size of the engine has less influence on MPG than the curb weight of the car. IN FACT an under powered car will use more gas than a properly powered car. Think of your Physics, there is a section on this Web site about it. What bothers me are the commuters driving the SUV’s and Utility trucks for “Coolness” factor instead of Function.

    Plug-in cars – I think this is the worst idea to date. 50-70% of current electricity is produced by Coal. Coal burning power plants contribute to more pollution than all the cars and trucks in the U.S. combined.

    Additional fuel consumption – Gas Lawn mowers, recreational vehicles (RVs, 4-wheelers, personal water craft, Race entertainment, etc…) all traditionally are less fuel efficent than Cars and Trucks.

    Rising gas prices have less to do with availability of oil and more to do with decreased sales and recent natual disasters. Hybrids currently use about 50% less gas than convential cars. The oil companies are reacting, simple as that. Filtering through all the numbers DD mentioned is Profit Margin. That number is the most consitent. Regardless of cost to drill, transport, refine, etc… Profit margin rarely takes the big hit. A company will layoff workers, raise prices, cut processing corners, BEFORE lowing profit margin. THAT, is Capitalism.
    Our best option is to make the oil business less lucrative by regulating profits. For example force big oil to decrease their profits by half OR force half of there profits into eco-charities. Regulate Land owners, drillers, transporters and refinery companies to share the cost load and profit. Obviously this is only an option for US control companies… Unfortunately anyone who has any serious wealth, shareholders and Congressmen alike, has a hand in oil and will be unwilling to let something like this fly.