Oil Cos. Disaster Profiteering & Price Controls

Not long after news of the destructive force of Hurricane Katrina spread across the U.S., so too did skyrocketing gas prices. Many Americans saw prices climb well over $3 a gallon. While big oil companies tied the steep price hikes to the Hurricane's effect on reducing oil production and refining in the Gulf states, some observers charge these corporations with price gouging and disaster profiteering.

A Washington Post - ABC News poll conducted on Sept. 2nd found that 72 percent of respondents believe that oil companies and gas suppliers have taken advantage of the storm emergency by raising prices. While eighty percent say that the federal government has mishandled the rising price of oil and gas.

President Bush has thus far only responded by ordering the U.S. Environmental Protection Agency to waive national standards for clean gasoline blends. But Hawaii, with some of the highest gas prices in the nation, took action by placing controls on the price of gasoline sold in that state effective Sept. 1. Public Citizen has joined other consumer groups in calling for the enactment of temporary, adjustable price controls at the federal level to prevent speculation and price gouging on gasoline and home heating oil. Between The Lines' Scott Harris spoke with Tyson Slocum, research director with Public Citizen's Energy Program. He explains how he believes big oil has gouged the public and why his group advocates price controls.

TYSON SLOCUM: Well, first of all, it's important for folks to remember that oil and gas prices were well on their way to approaching record highs long before Hurricane Katrina. Hurricane Katrina merely sparked a more recent run-up in prices. And so, as a result it's clear there is a direct correlation between the record profits being enjoyed by oil companies and the record prices being paid by consumers. Remember that America's largest oil companies are enjoying some of the largest profits not only in the history of the oil industry but in the history of any corporation in the United States. Exxon Mobil, alone has enjoyed profits of $89 billion since George Bush became president. So, these oil companies are not only profiting off of high gas prices but off of high crude oil prices because they are monopolies.

We've allowed so many recent mergers in the oil industry where former competitors like Exxon and Mobil, say, or Chevron and Texaco have merged into a single company that has not only oil production facilities in the United States, but around the world. Exxon Mobil produces oil in the Middle East, Africa, Asia, and South America. They own oil refineries where crude oil is turned into gasoline. They even own branded retail gas stations on your street corner. As a result, we need to think more of this corporate oil cartel rather than the nationalistic OPEC oil cartel.

BETWEEN THE LINES: Tyson Slocum, the big oil companies in news reports talk about a disruption both in the supply of crude oil out of the Gulf of Mexico, and the refining capacity in the Gulf states -- Mississippi and Louisiana. Does that not justify some price increase because of a scarcer commodity?

TYSON SLOCUM: Well, first of all, there is no question that Katrina severely disrupted some operations of the U.S. oil industry. For example, the Gulf of Mexico provides about 28.5 percent of all the U.S. oil production. The Gulf of Mexico is one of the largest oil producing fields in the world. It alone provides about 2 percent of global oil supplies. But the United States has something called the Strategic Petroleum Reserve. That is almost 800 million barrels of oil that are stored in Texas and other parts of the country that the president can order released when there is any disruption in oil supply, either from disruptions in oil production or from oil imports. So although some of the oil producing capabilities of the Gulf of Mexico were knocked out, the oil companies knew that the United States would be able to instantaneously match whatever oil supplies were lost. And the Strategic Petroleum Reserve can last us months, which is far longer than it will take for those disrupted oil platforms in the Gulf of Mexico to come back online. So, there was zero justification for any price run-up, because crude oil supplies were never threatened because of the Strategic Petroleum Reserve.

Now, there's a second component here, and that is the oil refineries, and there it is clear where the production of refined products like gasoline was indeed disrupted. And so, a short run-up in prices because of constrained supplies was somewhat justified. But remember immediately upon word of this disruption, the international group, the International Energy Agency announced the release of 30 million barrels of refined products like jet fuel and motor gasoline would be released to the U.S. market. So again, the United States was not in danger of having shortages of refined products.

BETWEEN TH E LINES: Tell us a little bit about Public Citizen's call for price controls in the wake of Hurricane Katrina?

TYSON SLOCUM: First of all, price controls are not a solution to every problem. But they are a good short-term tool when you have dysfunctional markets. For example, during the California electricity crisis of 2000 and 2001, you had a dysfunctional market, you had a handful of companies led by Enron that were literally manipulating that market. They were charging extremely high prices. They were arbitrarily shutting down power plants to create false shortages. And the only thing that ended the California energy crisis was when the Federal Energy Regulatory Commission stepped in, in June of 2001 and enacted price controls. Those price controls were a remedy to a dysfunctional uncompetitive market. And I think there's a lot of similarities in today's oil and gas markets to the California energy market of 2001.

We think that enacting temporary price controls where the prices charged to consumers will be directly tied to the costs, will immediately reduce prices until we can get longer term fixes to this dysfunctional market. And I think that's going to come from reducing the size and scope of these large oil companies.

And remember, it's not just Public Citizen that has made these allegations of market manipulation on the part of these oil companies, the federal government has come to that conclusion. In March of 2001, the United States Federal Trade Commission enacted an investigation of high gas prices back then. And the U.S. Federal Trade Commission concluded that oil companies were intentionally withholding supplies of gasoline from the market in order to drive prices up. In fact, they quoted one unnamed oil company executive who said that he would rather produce less gasoline and earn a higher profit margin on each gallon sold than flood the market with more gasoline and therefore earn a lower profit margin on each gallon sold. So, that's exactly what the oil industry has been doing. They have been intentionally keeping supplies tight in order to justify increasing prices.

Contact Public Citizen at (202) 588-1000 or visit their website at http://www.citizen.org

Related links on our website at http://www.btlonline.org/btl091605.html#3hed

Scott Harris is executive producer of Between The Lines, which can be heard on more than 35 radio stations and in RealAudio and MP3 on our website at http://www.btlonline.org. This interview excerpt was featured on the award-winning, syndicated weekly radio newsmagazine, Between The Lines for the week ending Sept. 16, 2005. This Between The Lines Q&A was compiled by Scott Harris and Anna Manzo.

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