This report was produced by the Consumers Union, publisher of Consumer Reports magazine. It was release in May 2004. Consumer Federation of America (CFA) is a non-profit association of almost 300 pro-consumer groups, with a combined membership of 50 million, which was founded in 1968 to advance the consumer interest through advocacy and education.
An increase in world demand on crude oil aside, the facts of this report are difficult to deny. The Consumer's Union has no reason to withhold the truth of this report nor do they have any interest in manipulating the facts.
RECORD PRICES, RECORD OIL INDUSTRY PROFITS
Consumers Gouged, Oil Industry Enriched, As Gasoline And Natural Gas Prices Increase By $250 Billion Since January 2000 (Source)
(Washington, D.C.) – Domestic petroleum companies have stuck U.S. gasoline and natural gas consumers with about $250 billion in price hikes since January 2000, resulting in an increase in after-tax windfall profits of $50 to $80 billion to the industry, a report released today by the Consumer Federation of America and Consumers Union concluded. The groups are calling on federal and state authorities to investigate oil company price manipulation as one way to bring prices down to more reasonable levels in the near terms and a strong commitment to increased fuel efficiency in the automobile fleet for the long term.
The report, entitled Fueling Profits: Industry Consolidation, Excess Profits & Federal Neglect, Domestic Causes of Recent Gasoline and Natural Gas Price Shocks, shows While OPEC has taken a bite out of consumer’ pocketbooks, domestic companies have taken about three quarters of the price increases since January 2000. The report attributes about half of the price increases to changes in domestic pricing behavior that was created by a wave of mergers that swept through the industry in the past decade.
“The industry became concentrated in the hands of a few vertically integrated companies and allowed domestic oil companies shut down refineries, reduce stocks, and exploit markets when they become tight,” said Mark Cooper, CFA’s Director of Research. “Since these price increases were about padding the corporate bottom line, not about responding to increased costs, petroleum industry profits have risen to record highs over the period.
“Based on results from the first quarter of this year, domestic petroleum industry profits are headed for another record with refining and marketing profits up about 50 percent compared to the first quarter of 2003, Cooper added.”
The report shows a dramatic increase in household energy bills for petroleum products:
Taken together and averaged across all households, expenditures for gasoline, heating oil and natural gas in 1999 accounted for about $1,400 per year of total household expenditures. Price increases over the past four years for these residential items added about $350 per household per year, meaning that domestic energy price shocks have increased household energy bills by 25 percent.
A comparison between 1999 and 2003 is even more dramatic – a $500 increase in average annual household expenditures for these petroleum products, which represents a jump of over 35 percent.
“Consumers have paid the price for increasing the profitability of the domestic oil industry,” said Adam Goldberg, a policy analyst in Consumers Union’s Washington office. “It’s time for the Bush Administration to step up and take some action to help out consumers at the pump and at home.”
In response, the groups called for :
Federal and state law enforcement agencies to investigate and prosecute domestic oil companies that violate the law. Such investigations will likely modify the companies’ behavior when it comes to pricing.
Congress to consider instituting a windfall profits tax, thus taking the incentive out of manipulating supplies to increase profits. In addition, policymakers should increase market flexibility by expanding fuel stocks through tax incentives to hold and draw down supplies in the face of price increases, mandatory stock requirements as a percentage of sales, and/or government owned/privately operated supplies.
Congress to increase automobile fuel efficiency standards at the rate achieved in the 1980s, and increase refinery capacity through expansion at existing refineries or redevelopment of the refineries closed in the past decade.
Promote a more competitive industry by preventing further consolidation through vigorous enforcement of the Department of Justice Merger Guidelines. Also, expose those companies that withhold supplies up to intense public and governmental scrutiny through a joint federal state task force of attorney’s general, and prevent manipulation of commodity markets.
“These policies would build a much more competitive and consumer-friendly energy market in this country for a lot less than the $250 billion consumers already have handed over to the oil companies,” Cooper concluded. “The $20 billion that the energy bill would give to the oil industry would be better spent as a down payment on a long- term commitment to reduce demand and increase domestic market flexibility.”
Click here to view a copy of the report.
An increase in world demand on crude oil aside, the facts of this report are difficult to deny. The Consumer's Union has no reason to withhold the truth of this report nor do they have any interest in manipulating the facts.
RECORD PRICES, RECORD OIL INDUSTRY PROFITS
Consumers Gouged, Oil Industry Enriched, As Gasoline And Natural Gas Prices Increase By $250 Billion Since January 2000 (Source)
(Washington, D.C.) – Domestic petroleum companies have stuck U.S. gasoline and natural gas consumers with about $250 billion in price hikes since January 2000, resulting in an increase in after-tax windfall profits of $50 to $80 billion to the industry, a report released today by the Consumer Federation of America and Consumers Union concluded. The groups are calling on federal and state authorities to investigate oil company price manipulation as one way to bring prices down to more reasonable levels in the near terms and a strong commitment to increased fuel efficiency in the automobile fleet for the long term.
The report, entitled Fueling Profits: Industry Consolidation, Excess Profits & Federal Neglect, Domestic Causes of Recent Gasoline and Natural Gas Price Shocks, shows While OPEC has taken a bite out of consumer’ pocketbooks, domestic companies have taken about three quarters of the price increases since January 2000. The report attributes about half of the price increases to changes in domestic pricing behavior that was created by a wave of mergers that swept through the industry in the past decade.
“The industry became concentrated in the hands of a few vertically integrated companies and allowed domestic oil companies shut down refineries, reduce stocks, and exploit markets when they become tight,” said Mark Cooper, CFA’s Director of Research. “Since these price increases were about padding the corporate bottom line, not about responding to increased costs, petroleum industry profits have risen to record highs over the period.
“Based on results from the first quarter of this year, domestic petroleum industry profits are headed for another record with refining and marketing profits up about 50 percent compared to the first quarter of 2003, Cooper added.”
The report shows a dramatic increase in household energy bills for petroleum products:
Taken together and averaged across all households, expenditures for gasoline, heating oil and natural gas in 1999 accounted for about $1,400 per year of total household expenditures. Price increases over the past four years for these residential items added about $350 per household per year, meaning that domestic energy price shocks have increased household energy bills by 25 percent.
A comparison between 1999 and 2003 is even more dramatic – a $500 increase in average annual household expenditures for these petroleum products, which represents a jump of over 35 percent.
“Consumers have paid the price for increasing the profitability of the domestic oil industry,” said Adam Goldberg, a policy analyst in Consumers Union’s Washington office. “It’s time for the Bush Administration to step up and take some action to help out consumers at the pump and at home.”
In response, the groups called for :
Federal and state law enforcement agencies to investigate and prosecute domestic oil companies that violate the law. Such investigations will likely modify the companies’ behavior when it comes to pricing.
Congress to consider instituting a windfall profits tax, thus taking the incentive out of manipulating supplies to increase profits. In addition, policymakers should increase market flexibility by expanding fuel stocks through tax incentives to hold and draw down supplies in the face of price increases, mandatory stock requirements as a percentage of sales, and/or government owned/privately operated supplies.
Congress to increase automobile fuel efficiency standards at the rate achieved in the 1980s, and increase refinery capacity through expansion at existing refineries or redevelopment of the refineries closed in the past decade.
Promote a more competitive industry by preventing further consolidation through vigorous enforcement of the Department of Justice Merger Guidelines. Also, expose those companies that withhold supplies up to intense public and governmental scrutiny through a joint federal state task force of attorney’s general, and prevent manipulation of commodity markets.
“These policies would build a much more competitive and consumer-friendly energy market in this country for a lot less than the $250 billion consumers already have handed over to the oil companies,” Cooper concluded. “The $20 billion that the energy bill would give to the oil industry would be better spent as a down payment on a long- term commitment to reduce demand and increase domestic market flexibility.”
Click here to view a copy of the report.
posted by Van at 11:57 AM
13 Comments:
and from Washington?
SILENCE
The price rise in GASOLINE, especially in the wake of Katrina, was certainly due to the loss of refiniery capacity, the skyrocketing cost of oil is, of course, NOT a local phenomenon, it IS a global one, with the largest cause being the incredible increase in demand from both India and China.
The opposition, ANY opposition to the demands of the major energy producers, be it nuclear power plants, bigger and better electrical power stations in urban areas and both more domestic drilling and new & bigger refineries, is foolhardy.
Who knows better than those inside the energy industry, what's needed for our future energy needs?
Politicians, enviro activists?
Hell, what qualifications are required of politicians anyway? Carolyn McCarthy won a Congressional seat from LI,NY after her husband was killed and her son seriously wounded in the 1996 LIRR Massacre - from housewife to Congresswoman overnight and many, if not most of the rest of her esteemed colleagues are equally credential-free.
And environmental activists?
Hell, almost all the major environmental groups are on the payroll of these energy companies - paid to instill fears about fossil fuels, so taxpayers will beg government sto funnel billions into the pockets of these energy comapnies to find the solution.
A part of the problem, can be chalked up to a protectionist government that has regulated many upstart alternative fuels producers out of the market, of course the major auto makers, in bed with the big energy companies helped a lot, BUT if we'd done what Brazil did over the past deacade, transitioned from gasoline to ethanol, we'd probably be, as Brazil now is, oil independent by the end of this year and an oil exporter by 2010.
Really, so red-tape and NIMBY nuts have nothing to do with the lack of energy construction. Nothing?
Bryan -- Thanks for stoping by
- according to Consumer Reports, you're correct.
Let's remember, Consumer Reports is non partican. They are on the side of the consumer, and since it is their intgrity that we trust, it is not in their best interest to lie.
Have they ever been caught misleading the public? I couldn't find any evidence to confirm yay or nay.
Eaprez - Washington held hearings, largly based on the Consumer Reports findings. But the hearings had no traction. The Oil exec's didn't even have to swear under oath to tell the truth.
As I remember, it was Arlen Spector -- a Repubican -- who initiated the hearings. I'm willing to bet though that Senator Spector was under a lot of pressure to make it easy on the Oil industry since Congress and the White House receive so much money from that industry.
I predict that there will be hearings again. This time, hopefully with more teeth.
JMK - good points as usual
You wrote:
"The price rise in GASOLINE, especially in the wake of Katrina, was certainly due to the loss of refinery capacity, the skyrocketing cost of oil is, of course, NOT a local phenomenon, it IS a global one, with the largest cause being the incredible increase in demand from both India and China."
I don't think that anyone is in denial of that. The global oil demand is a large factor. However, the report is looking at the behavior of the industry within our borders.
The report - "The industry became concentrated in the hands of a few vertically integrated companies and allowed domestic oil companies shut down refineries, reduce stocks, and exploit markets when they become tight,” said Mark Cooper, CFA’s Director of Research. “Since these price increases were about padding the corporate bottom line, not about responding to increased costs, petroleum industry profits have risen to record highs over the period"
Again, for the record, I'm not a Marxist and I believe that corporations should make as much profit as legally possible with harming our communities, families, workers, etc. In this case it looks like the industry giants took advantage of a bad situation and made it benefit their bottom line at the expense of consumers.
The fact that this report is written by Consumer Reports and not, say, The Economic Policy Institute speaks volumes to me. Consumer Reports has no reason to lie or make things up.
I think that these allegations should be investigated - seriously this time.
You wrote:
"Hell, almost all the major environmental groups are on the payroll of these energy companies - paid to instill fears about fossil fuels, so taxpayers will beg government sto funnel billions into the pockets of these energy comapnies to find the solution."
You are so right about this fact, and most do not know, but Exxon spends millions on "pro-environment think tanks" -- seems like a conflict of interest to me. Sort of like Video News Releases (VNR's) - fake news stories created and packaged like the real news, but they push a product or an issue not a true story; in other words – propaganda.
I think that we would all agree that we need to wean ourselves off of fossil fuels. Some sort of Marshall Plan or Apollo Project initiative to reduce our dependence -- who knows, it may save GM and Ford if they innovate again by creating cars that actually save fuel and the environment.
MD - thanks for stopping by - hope you had a good weekend at your summer house. I spent most of mine fixing my sprinkler system---arrrg!
You wrote:
"Really, so red-tape and NIMBY nuts have nothing to do with the lack of energy construction. Nothing? "
I'm sure that this is a valid point, but again, the report is looking at domestic behavior. As JMK mentioned the price rose due to market pressures.
What Consumer Reports is suggesting is that the industry leaders took advantage of this natural increase in cost.
I am not too sure of what is actually going on behind closed doors. I am not saying it is all the fault of the Govt. or enviro-nuts. But I do strongly disagree with the notion that it is the sole responsibility of the oil companies that no new construction has taken place.
Here's the funny thing, the last EIGHTEEN years have been an unbroken chain of administrations with strong ties to the oil industry.
In fact, the previous administration did some terrible things for energy consumers in America, first, it allowed the Mobil-Exxon merger, that reunited the two largest pieces of John D. Rockefeller's Standard Oil back on December 1st, 1998 and allowed the Amocco-BP merger the same year!
But perhaps the most blatant thing that administration did was to sell off the Elk Hills federally owned oil fields in CA to Occidental Petroleum, a company the Gore's had ties to going back to 1970.
See:
Sale of federal oil field boosts Gore fortune
By Bill Sammon
THE WASHINGTON TIMES
Vice President Al Gore's push to privatize a federal oil field added tens of thousands of dollars to the value of oil stock owned by the Gore family, which has been further enriched by skyrocketing gasoline prices.
Shares of Occidental Petroleum jumped 10 percent after the company purchased the Elk Hills oil field in California from the federal government in 1998. Mr. Gore, whose family owns at least $500,000 in Occidental stock, recommended the sale as part of his "reinventing government" reform package.
The sale, which constituted the largest privatization of federal land in U.S. history, transformed Occidental from a lackluster financial performer into a dynamic, profit-spewing, oil giant. Having instantly tripled its U.S. oil reserves, the company began pumping out vast sums of crude at low cost.
As the months went by, Occidental was able to sell the oil, which ends up at gasoline retail outlets like Union 76, for more profit. Rising oil prices have significantly improved Occidental's bottom line, said analyst Christopher Stavros of Paine Webber.
This year, the company posted first quarter revenues of $2.5 billion, or 87 percent higher than a year earlier. That's a bigger increase than at nine of 10 other oil companies listed in a survey that Mr. Gore cited last week as evidence of price gouging.
The rise in Occidental oil prices, coupled with the acquisition of the Elk Hills field, has paid handsome dividends for the Gore family.
The vice president recently updated his financial disclosure form to put the value of his family's Occidental stock at between $500,000 and $1 million. Prior to the Elk Hills sale and gasoline price spike, Mr. Gore had listed the value of the stock at between $250,000 and $500,000.
Gore aides insist the vice president's push to sell Elk Hills does not constitute a conflict of interest. They point out the family's Occidental shares were originally owned by Mr. Gore's father, who died in 1998, leaving the stock in an estate for which the vice president serves as executor.
Although Mr. Gore continues to list the stock on his financial disclosure forms, aides said the shares are in a trust for the vice president's mother, Pauline.
"He doesn't own stock because he's trying to avoid conflicts of interest," said Gore spokesman Doug Hattaway. "He's the executor of the estate, but he's not the trustee of the trust. It's a separate thing."
Still, Mr. Gore's recommendation to privatize Elk Hills ended up enriching his mother, who is expected to eventually bequeath the stock to the vice president, her sole heir.
Last week, Mr. Gore began a concerted effort to blame skyrocketing gasoline prices not only on "big oil," but also on Texas Gov. George W. Bush. Gore aides have emphasized that Mr. Bush once ran several oil-exploration firms and has accepted more campaign contributions from oil companies than the vice president.
The Texas governor has dismissed the attacks as an attempt to divert attention away from Mr. Gore's energy and environmental policies, which have driven up gasoline prices. Political analysts say the spiraling gas prices could imperil Mr. Gore's presidential bid because they are highest in the Midwest, which he must carry in order to win the White House.
The political and financial fortunes of the Gore family were established largely with oil money from Occidental's founder, Armand Hammer. Part capitalist and part Communist, Mr. Hammer became the elder Gore's patron more than half a century ago, showering him with riches and nurturing his political career through the House and Senate.
The elder Gore enthusiastically returned the favors. In the early 1960s, Sen. Gore took to the Senate floor to defend Mr. Hammer against FBI Director J. Edgar Hoover, who wanted to investigate Mr. Hammer's Soviet ties.
In 1965, the elder Gore helped Mr. Hammer obtain a visa to Libya, where he opened oil fields that turned Occidental into a multinational powerhouse.
When the elder Mr. Gore lost his re-election bid in 1970, Mr. Hammer installed him as head of an Occidental subsidiary and gave him a $500,000 annual salary. The man who had begun his career as a struggling schoolteacher in rural Tennessee ended it as a millionaire oil tycoon.
The younger Gore also benefited from Mr. Hammer's generosity. He was paid hundreds of thousands of dollars in annual payments of $20,000 for mineral rights to a parcel of land near the family's homestead in Tennessee that Occidental never bothered mining.
When the younger Gore first ran for president in 1988, Mr. Hammer promised former Sen. Paul Simon "any Cabinet spot I wanted" if he would withdraw from the primary, according to a 1989 book by the Illinois Democrat.
Mr. Gore and his wife, Tipper, once flew in Mr. Hammer's private jet across the Atlantic Ocean. They hosted Mr. Hammer at several presidential inaugurations and remained close to the oilman until his death in 1990.
In 1992, when Arkansas Gov. Bill Clinton was considering Mr. Gore as his running mate, the elder Gore wrote a memo describing his son's ties to Mr. Hammer. The document was designed to provide Mr. Clinton with answers to possible questions from reporters, most of whom did not focus on the connections after all.
Mr. Hammer's successor at Occidental, Ray Irani, has continued to funnel hundreds of thousands of dollars into the campaigns of Mr. Gore and the Democratic Party. For example, two days after spending the night in the Lincoln Bedroom in 1996, he cut a check for $100,000 to the Democratic Party.
Meanwhile, the vice president has reciprocated in much the same way his father did decades ago. In 1995, Mr. Gore recommended the sale of the Elk Hills field, which had been zealously guarded by the U.S. Navy as a strategic oil supply since 1912.
When the $3.5 billion sale to Occidental went through in 1998, the Energy Department dispensed with its customary assessment of environmental impact. Instead, it allowed the assessment to be handled by a private firm that was run in part by Tony Coelho, who served as Mr. Gore's campaign chairman until this month.
The privatization of Elk Hills, which covers 74 square miles near Bakersfield, Calif., was a dramatic departure for the Clinton-Gore administration, which has used federal funds to purchase vast tracts of private land in order to block development.
What folks like Lee Raymond have done over the past ten years is to look at demand trends and saw that with India and China engaged in massive modernization programs, with more cars coming on the road every day in those places, world oil demand would skyrocket, relative to accessible supply.
They simply bet on oil demand going up and thus raising the world price of oil.
It'd take ten years to transition over to an alterrnative fuel like ethanol, the way Brazil has, AGAIN, that problem didn't just suddenly appear.
If Lee Raymond knew it was a sure bet that world demand would raise world oil prices, so did those serving in Congress going back to the mid-1990s and those in both the Bush & Clinton White Houses.
A switch to an alternative fuel like ethanol needed to get started ten years ago, if it was going to be of use now...so every administration over the last EIGHTEEN years has let America down, at least in that regard.
JMK - thanks for the article. I'm certainly not opposed to asigning blame where necessary.
I'm a big supporter of Clean Elections, for this very reason.
Government is too cosy with business, it's not just the other way around.
Clean elections will break the ties to business and allow politicians to get to the business of serving the common good again, not just their bottom line or re-election campaign.
Here's the problem Van, or at least a major part of it, it's NOT votes that win elections, but money. Money doesn't only literally buy votes, it buys influence. Huge donors, HUGE monied interests get to direct the Party they give to's behind-the-scenes picks of who gets to run!
Republican speical interests have guided that Party's choices of who gets the Party's backing and the Democrat's special interests have guided that Party's picks...and far too many of those, have been picks of candidates that are hardly the "best of America."
That's the terrible thing.
Gore's ties to the oil industry where in fact deeper than GW Bush's, though both are happily beholden.
Real leadership, in anything close to "the people's interest," would've seen what Lee Raymond saw, back in the mid-1990s, and decided to embark upon a Marshall Plan for energy with a focus on alternative fuels like ethanol and bio-deisel.
Lee Raymond did exactly what was best for Exxon-Mobil and the Exxon-Mobil investors and was paid to do just that, but the President, VP and 535 members of Congress were NOT paid to do that...and yet they did.
In the early nineties I complained that the Democrats were offering Pepsi to the GOP's Coke. In fact, Bill Clinton ran to the Right of both George Bush Sr (a moderate a/k/a Liberal Republican) and Bob Dole (another Moderate a/k/a Liberal Republican).
The real decisions are made behind the scenes in the Party meetings where "WHO GETS TO RUN" decisions get made.
The picks are generally "safe picks," no one who'll rock the boat all that much. It's like in NYC, the Mayor and the City Council don't set up a budget on their own and just go with it, they're held in check by their over-seers - the FIRE industries (Finance, Insurance and Real Estate).
If a Socialist took power in NYC and sought out-and-out redistribution, high tax rates, etc, the FIRE industries would simply drop the City's bond rating and plunge it toward bankruptcy...and all the Corporate media organs would do as instructed, blast this "reckless, incompetent of a Mayor."
See? Even if Socialism COULD work (I am virtually certain that it could NOT under any circumstances), no one's ever going to get the chance to try it, or anything else that'd damage the FIRE industries in NYC.
It's much the same on the national level, only with slightly different, along with some of the same players.
JMK - you wrote:
"Here's the problem Van, or at least a major part of it, it's NOT votes that win elections, but money. Money doesn't only literally buy votes, it buys influence. Huge donors, HUGE monied interests get to direct the Party they give to's behind-the-scenes picks of who gets to run!"
Your point is well taken. This is why we should support Clean Elections - publicly funded elections.
It will take the monied interests out of our political arena - at least to a large extent.
Here's the problem with publically funded elections from my perspective - those public funds will be controlled by government, which is controlled by the two entrenched political Parties.
Do we expect that they would disperse that money evenly across the political spectrum from the Worker's World Party to the American Fascist Party, or would we expect them to keep the lion's share going to the two major Parties?
I'd expect the latter...and why not? Why should the Green Party or the Communist Party USA, or the American Nazi Party get the same amount of taxpayer financing/government funding as the Democratic and Republican Parties?
Moreover, would such public financing eliminate individual campaign donations, even those $5, $10 & $25 donations from common folks?
Would Labor Unions, environmentalist groups, consumer's rights groups, and other "public advocacy groups be barred from electioneering and donating?
If they wouldn't, then we'd have to allow the corporate voices in as well, if all those voices aren't allowed in, then we must ask why we're so afraid of MORE INFORMATION.
I don't mind NARAL and handgun control being able to voice their opinions/information and electioneer in favor of their views, so long as the NRA and the Right to Lifers are allowed to electioneer and offer their opinions and information as well.
What about the problem of "information overload?"
Who cares, the voters can sought that all out, at least those who follow things closely can...and the others, well, sad to say, I'd call the others (all those who don't follow the issues closely, or question the facts given out by partisan groups) to be pretty hopeless anyway.
I'd favor restricting large contributions from ANY source, from both corporate donors and from publis advocacy groups, but I wouldn't eradicate all individual donations, nor seek to bar partisan groups from electioneering and seeking to advance their own agendas.
Voting is a huge responsibility and we should neither seek to make that responsibility easier to access (it's way too easy now), or any less complicated to sought through the maze of information we're all inundated with...at least in my opinion.
For those are individual responsibilities.
I could support some form of public financing, so long as (1) it came with restrictions (something like "matching funds," so fringe groups wouldn't get the same financing and access as the more mainstream Parties) and (2) didn't obliterate all individual donation, nor interest group politicking.
JMK - I agree with your restrictions, in fact most other supporters do as well.
It doesn't matter if you are Exxon Mobil or the AFL-CIO, campaign contributions should be equal.
Also, matching funds to race against a non Clean Elections candidate are usually available.
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