Raking in Profits at the World's Expense

By Matthew Wheeland, AlterNet. Posted February 6, 2006.

Last week, within days of each other, Chevron and ExxonMobil announced record quarterly and annual profits for the second year running. These are not your average earnings statements. These are profits on an inconceivable scale, profits that dwarf the income levels of most countries.

ExxonMobil announced $36 billion in profits -- in profits -- last year. That's $3 billion every month, which if ExxonMobil were a country would make it the 90th richest country in the world. This astronomical number is a 42 percent increase from last year's record-breaking profits. Chevron also bested its record profits for the second year in a row, raking in $27.4 billion in 2005. This is, once again, the company's highest profit in its 126-year history.

It is no surprise that these announcements come as Americans are paying record prices at the pump, as well as for heating oil and natural gas. Many oil industry critics, as well as most drivers, can connect the dots.

Tyson Slocum, acting director of Public Citizen's energy program, said oil companies are taking advantage of consumers. "Oil prices are definitely arificially high," Slocum said, "in large part because of anti-competetive practices by major oil companies. We've documented it, government investigations have documented it." Slocum testified before the Senate on Wednesday about the price squeeze induced by mergers in the oil industry. In the past 15 years, there have been more than 2,600 mergers in the oil industry, which Slocum says make this kind of price manipulation almost inevitable.

"In 2001, the Federal Trade Commission did a major investigation of gasoline markets and found that oil companies could intentionally withold capacities from the marketplace in order to create some scarcity to drive prices up," Slocum said. "Now when they create scarcity, they're not actually creating scarcity like long gas lines, but they're creating shortages that, in the wholesale market, translate to higher retail prices. If that sounds familiar to you, because that's exactly the economic strategy pursued by Enron and other electricity companies in California, where they literally were taking power plants offline, creating shortages that caused the prices of electricity to skyrocket, and they made tons of money."

It's not just the big-business-friendly policies that rule Washington these days that have caused both high gas prices and even higher oil company profits. Between last year's intense hurricane season (which is expected to be as bad or worse this year) and ongoing concerns about Middle East oil, the public has been primed to expect high prices.

But many experts dispute the reality of those facts on the ground. Antonia Juhasz, author of "The Bush Agenda" and an AlterNet contributor, says that blaming high prices on the war in Iraq is a misleading argument. "One of the reasons that high oil prices have been sold to the American public is that there is a tighter supply because of a disruption in supply coming out of Iraq," Juhasz said in a recent phone interview. "The reality is that there is more oil coming out of Iraq today to the U.S. than at almost any other time in history. It's not steady or as much as the Bush administration had hoped for, but it's certainly more than was the case in the last 30 years, and certainly there's no reason to justify increased oil prices."

The sad truth of the matter is that gas companies have always been quick to raise prices and glacially slow to bring them back down. Steve Kretzmann, executive director of Oil Change International, explained the trend: "The oil industry takes the opportunity of the price of crude going up to pass on the price increase to the pump. They basically take whatever excuse they can get to raise it. And then you'll notice, when the price goes back down, there's nowhere close to a corresponding decrease in the price of gas. It's pretty clear that they're getting this coming and going."

Matthew Wheeland is AlterNet's managing editor.

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