Big Oil bears brunt of anger over gas prices

By Deepa Babington

NEW YORK (Reuters) – Like many Americans, Douglas Meltzer
says he has little doubt about who is to blame for his pain at
the gas pump.

It’s not Katrina or Rita, but Big Oil.

“For them, this is all about how big their profits are
going to be,” the New York cinematographer said as he filled up
his sport-utility vehicle at a Manhattan pump. The fuel that
would have cost him about $40 a few months ago has jumped to
more than $60.

With gasoline prices up one-third from a year ago after two
powerful hurricanes disrupted energy production, Big Oil has
returned to the forefront of consumer consciousness as the
latest corporate villain.

Large oil companies like Exxon Mobil Corp. and Chevron
Corp. were never the most popular corporate denizens in
consumers’ minds, but the sticker shock of $3-plus gas prices
as the nation struggled in Hurricane Katrina’s aftermath has
unleashed a new fury among drivers.

As stunned Americans watched rampant looting on the streets
of New Orleans after Katrina flooded the city, one Boston Globe
writer opined that Big Oil was the biggest looter of them all.

Others have expressed similar sentiments.

“People feel that they were making large profits
beforehand, but now they’re making it off consumers at a time
when the country is on its knees,” said Pam Solo, president of
the Civil Society Institute.

A survey by the nonprofit advocacy group found that nine
out of 10 Americans felt big oil companies were gouging
consumers at the gas pump and four out of five supported a
windfall profit tax on them.

Oil companies say they have shown restraint in gasoline
pricing in the aftermath of the hurricanes — and analysts say
their poor margins from retail gasoline operations support
those statements.

But Wall Street still expects the oil majors to post
sharply higher quarterly profits this week because of jumps in
crude prices and refining margins — and analysts fear that may
be enough to deepen consumer anger and add to a growing
political backlash.

Alarm bells have already gone off in Washington, with howls
of protest at profiteering and calls by Democrats for windfall
taxes and price caps on gasoline.

Senator Byron Dorgan of North Dakota, for example, has
introduced legislation for a special tax on Big Oil’s profits.

“Everyone expects American businesses to make a profit and
I don’t begrudge them that,” Dorgan said last month. “But the
big oil companies are now reaping an unbelievable windfall, and
it’s time for Congress to help consumers.”

State regulators have also sprung into action, with New
Jersey slapping three major oil companies with a lawsuit
alleging gasoline overpricing.

WHO’S TO BLAME?

But some analysts suggest the consumer outburst may be
misplaced. Contrary to popular belief, they say, sky-high
prices at the pump don’t automatically mean Big Oil is
overpricing or raking in money.

Mid-quarter updates from oil majors like Chevron and
ConocoPhillips show they actually refrained from passing on the
full impact of high energy costs to gasoline consumers
immediately after the hurricanes, analysts say.

“They ate a lot of the costs of the gasoline price
increases and took that as losses to avoid passing through
really ridiculous price volatility,” Paul Sankey of Deutsche
Bank said.

As a result, margins from retail gasoline operations are
likely to be substantially lower in the third quarter than in
previous periods, Wall Street and the companies say.

Still, Big Oil has clearly benefited from the surge in
crude oil prices, which account for about half the cost of
gasoline, and refining margins following the hurricanes.

That drove the roughly 30 percent rise in third-quarter
profit for the five largest oil companies as a group, Credit
Suisse First Boston estimated.

Chevron and ConocoPhillips both pointed to sharply lower
retail gasoline margins in their interim updates, but declined
to elaborate.

Global market leader Exxon, which plans to report earnings
next week, would not say how its retail margins have fared in
the hurricanes’ aftermath. In the past, it has said it makes a
profit of a nickel on a gallon of gas.

Chief Executive Lee Raymond has also been quick to strike
back against efforts to penalize oil companies, saying most of
Exxon’s profits come from overseas operations. In any case, no
one called to help when oil prices fell precipitously to $10 a
barrel in the late 1990s, he said.

“The question of how much money we should make — profit is
not a dirty word,” Raymond told Fox News recently. “The reason
we make the money we make is, number one, we sell in enormous
volume.”