• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Oil Profits Play but One Role in Gas Price Drama

Posted on: Thursday, 27 April 2006, 21:00 CDT

By Ted Evanoff, The Indianapolis Star

Apr. 27--DAYTON, Ind. -- Desma Blessing steered her gray Dodge minivan past the $2.889 sign and into the parking lot of Super Pantry, an outpost of Texas oil giant ExxonMobil.

When gas prices rise, reducing taxes at the pump is popular with voters. But Gov. Mitch Daniels doesn't think it's a good idea.

The Republican governor said Wednesday he's not in favor of suspending the state's 6-cent sales tax on each dollar motorists spend on gasoline because doing so wouldn't provide much relief to Hoosiers. He said there was no way to target Hoosiers who would most need such a break. Also, Daniels said he opposes any move that would threaten state finances.

On June 20, 2000, then-Gov. Frank O'Bannon suspended the state gasoline sales tax after the price per gallon hit $2 for premium grades. In doing so, O'Bannon invoked for the first time a law passed in 1981 that permits the governor to declare an emergency for up to 60 days and renew the emergency for an additional 60 days.

"It's actually 7 cents cheaper here than it is down the road," said Blessing, Lafayette. "It's all the same gasoline, but if you go a couple of blocks, the price is a lot different. Tell me that's not price gouging."

President Bush raised the possibility of gouging Tuesday when he ordered federal agencies to investigate. And Exxon, the nation's largest oil company, likely will add fuel to that fire today when it announces first-quarter profits that are expected to be substantial.

That news will come on the heels of Exxon providing a $404 million compensation package to its retiring CEO.

Experts say that while the timing is bad for Exxon, big profits don't necessarily signal price gouging.

"I welcome the investigation to hopefully put the issue to rest once and for all, but it doesn't seem likely that something will be found," said David Dismukes, associate director of Louisiana State University's center for energy studies.

Gas prices nationally have climbed to $2.96 a gallon on average recently from $1.47 in April 2000, a 100 percent gain, shifting more than $100 billion out of the pockets of American consumers over those years.

Most of that money has flowed to oil field and oil company owners, industry analysts say. But they note that any windfall will be hard to pin on some kind of conspiracy among oil moguls, Arab sheiks or energy traders.

"It's hard to manipulate these big markets," Dismukes said.

Back in Indiana, Blessing was less worried by oil geopolitics than she was about local economics.

"I think 95 percent of the people around here are struggling day to day trying to carry through, " said Blessing, 27, co-owner of a pizza franchise.

High gas prices may be upsetting many Americans, but Dismukes points out that prices climbed with America's unbridled demand for gasoline. Drivers are racking up more miles, but U.S. refineries haven't added capacity, forcing motorists to depend on expensive gasoline imports.

"It's the uncertainty in the markets," Dismukes said. "That's what really is motivating this."

Also driving up gas prices: India and China, which have begun industrializing and buying shiploads of crude oil. Their rising needs are pushing up the price of the basic commodity used to make gasoline. Hurricanes battered refineries on the U.S. Gulf Coast. And political turbulence in oil-rich Iraq, Iran, Nigeria and Venezuela has worried energy traders, who have been bidding up prices out of concern that oil supplies could soon run short.

Blessing's not buying that. "They use issues like the Middle East as an excuse to higher our prices," Blessing said, noting gas prices posted at local stations rise and fall daily for no apparent reason. "If the Congress doesn't do something, gas is going to continue going up."

Because gas prices have risen nationally, and because Indiana's laws against gouging tend to focus on retailers, Indiana's top watchdogs stop short of accusing merchants of unfair prices.

"Since 9/11, we have been monitoring gas prices," said Steve Carter, Indiana's attorney general. Fifty-eight Indiana stations were caught with excessive gas prices shortly after the attacks.

"We have not seen anything like the situation then," Carter said. "That was a case where you had a few stations out of 3,000 retailers in the state engaged in that . . . . Prices are high everywhere (today)."

High enough, analysts say, that Bush must call for a probe to show the government is doing something at a time when Exxon can afford a compensation package worth $404 million for just-retired Chairman Lee Raymond. "Is a $400 million income excessive? Absolutely," said Matt Will, University of Indianapolis finance professor, noting that Exxon isn't being run better than most other companies. "That's a lot of money in an industry that has a lower profit margin than Eli Lilly, but you don't see Sydney Taurel making $400 million." Taurel heads the Indianapolis drug maker.

Raymond's nest egg includes a $49 million salary for 2005, his last year at Exxon, a $98 million pension payout and $257 million in stock and stock options. A Hoosier making the state's average wage of $36,000 a year could match this if she saved every cent earned in 112 centuries of labor.

Exxon officials have posted a note on the company Web site defending Raymond's income as fairly earned using benchmarks set up long ago. When profits and stock price surged, it increased the exec's payout. He has earned a reported $686 million in the past 10 years.

Exxon says Raymond, 67, deserves the payout because the company progressed under his reign. The chief executive for 12 years, he masterminded the Mobil merger and oversaw vast deals with Russia that boosted Exxon's oil supply by 2.3 billion barrels.

The Russian oil, along with rising U.S. gas prices, helped boost Exxon's stock. It closed Tuesday at $63.10 a share, which is a doubling in value since 2001.

"There are problems associated with market capitalism, but this is the system we have. If we tried to do something else, you'd end up with the government setting prices, and people would trade in the black market. I just don't think we have a choice," said University of San Diego law Professor Frank Partnoy, a former derivatives trader and author of the book "Infectious Greed: How Deceit and Risk Corrupted the Financial Markets."

Raymond's income, said Will of UIndy, has been earned legally. But Will contends big oil firms can stifle competition, thereby leading to higher gas prices and more dependence on imports.

Gasoline priced at $3 a gallon includes about 5 cents in distribution costs, 45 cents in taxes and 69 cents in refining costs, or $1.19 in basic costs, a level relatively unchanged for years, Will said. That currently leaves $1.81 for owners of oil fields and oil companies, Will estimated.

Exxon owners include shareholders such as popular Merrill Lynch mutual funds as well as the Public Employees Retirement Fund of Indiana, which reports owning 1.65 million shares.

Alternate fuel sources such as ethanol and biodiesel could ease U.S. gasoline imports, but Will said he doubts supplies will soon become abundantly available.

"Why in the world would an oil company carry a fuel with a 100 percent grain base unless the government forced them to?" Will said. "As long as major oil companies control the distribution of energy, you will not have an alternative fuel source like biodiesel. No one will buy a car running on biodiesel if they can't fill it up."

-----

To see more of The Indianapolis Star, or to subscribe to the newspaper, go to http://www.IndyStar.com.

Copyright (c) 2006, The Indianapolis Star

Distributed by Knight Ridder/Tribune Business News.

For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com.

XOM, MER, DCX,

Source: The Indianapolis Star

More News in this Category