Big Oil Gouges Consumers and Damages the Economy

by John M. Curtis
(310) 204-8700

Copyright May 15, 2011
All Rights Reserved.                                         

               Recording the biggest profits in U.S. history for 2011 Q-1, the nation’s biggest oil companies cleaned up at the expense of the U.S. economy.  With the economy struggling to gain traction, the oil industry reaped big profits from artificially high oil prices.  Since Wall Street relies on oil futures in many funds, it’s difficult to hold down crude oil prices—something no longer dependent on supply and demand  Wall Street loves to blame whopping price hikes on shortages, refinery breakdowns or growing demand in Asia to justify price hikes when the real prices are set by the New York Mercantile Exchange.  President Barack Obama hasn’t responded enough from the bully pulpit, reminding oil companies that they can’t fleece the country with impunity.  Hoping to slow down the industry’s price hikes, he announced steps to “increase safe and responsible production here at home.”

            Contrary to popular belief, over 90% of U.S. oil comes from Canada or Mexico, not the politically volatile Middle East, mostly supplying crude oil to Europe and Asia.  Big Oil’s recent gouging at the pumps has stalled the U.S. recovery, robbing consumers of the cash needed to stimulate the economy.  Since the real estate bubble burst in 2008, consumers, especially homeowners, have had less cash to spend on the consumer economy.  High unemployment also hurts the economy by robbing the cash needed for consumer purchases, accounting for about two-thirds of the nations GDP.  As consumers tighten their belts, the GDP faces sluggish growth, keeping pressure on the Federal Reserve Board to keep artificially low interest rates.  To put more cash into circulation and improve GDP, the banking system must relax lending standards to make homeownership more accessible.

     Obama’s attempt to increase domestic oil production should help counter the oil industry’s relentless excuses to raise prices.  Given the oil industry’s whopping Q-1 profits, it’s obvious the White House and Congress must fashion legislation to end the industry’s two billion in tax breaks.  “I believe we should expand oil production in America, even as we increase safety and environmental standards," referring to last year’s Gulf oil disasters, spewing millions of gallons of crude oil into the environmentally sensitive Gulf of Mexico.  Current U.S. problems with the oil industry stem not from too little domestic production but too much manipulation.  While Big Oil doesn’t set world oil prices, it’s also true that they set pump prices—something so controlled that consumers don’t have a prayer.  Instead of trying to control Big Oil’s profits, the White House and Congress should reinstate a windfall profits tax.

            Lecturing the oil industry about easing up on profits hasn’t worked.  The industry feels entitled to gouge consumers and other industries for various types of refined products, especially heating oil, jet fuel, diesel fuel and other products demanded by consumers.  Expanding leases in the Gulf, drilling in the Alaskan National Petroleum Reserve or drilling offshore in the South and Mid-Atlantic won’t change Big Oil’s price-gouging monopoly to maintain artificially high pump prices.  Inflated pump prices have caused consumers to stop buying gasoline, forcing Big Oil to finally begin lowering pump prices.  Industry profits go down when consumers stop spending.  More fuel-efficient and alternative-energy cars also hurt Big Oil’s bottom line.  Instead of regulating how the industry does business, the government must simply end tax breaks and tax  excess profits.

            Whether or not Obama or Congress approves drilling in the Alaska National Wildlife Reserve [ANWR] or anywhere else, it doesn’t deal with obscene profit-taking by oil companies.  No government—capitalistic or otherwise—can tolerate one industry holding the economy hostage.  Big Oil always feels entitled to maximum profits, regardless at the cost to other industries.  Runaway pump prices have stalled the U.S. economic recovery on which the entire population depends for jobs.  Escalating pump prices harmed consumers and contributed to inflation, something eroding the value of a dollar.  All industries doing business in the U.S. must consider their impact on the economy.  “The oil companies’ executives biggest complaint was ‘Hey, we want to drill more but we’ve been thwarted by this administration,’” said Paul Flynn, oil analyst with Chicago’s PFGB est.

            Obama must do more to control runaway pump prices than promise more domestic production.  Allowing Bin Oil to hold the U.S economy—and nation—hostage serves no one except a few oil industry executives reaping wicked profits at the expense of taxpayers.  White House and congressional officials must fashion legislation to end Big Oil’s tax preferences and create a reasonable windfall profit tax to return excessive profits back to consumers.  Allowing monopolies, like Big Oil, to hold the economy hostage by robbing consumers of needed cash to fuel the economy makes no sense.  Big Oil must do its part to recycle cash back into the economy, not pull the rug out from underneath consumers.  Obama and Congress must also address the harmful effect of hedge and private equity funds, bidding oil futures into the stratosphere.  Big Oil’s revolting profit-taking must be recycled to consumers.

John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com.and author of Dodging the Bullet and Operation Charisma.

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