by John M. Curtis
(310) 204-8700

Copyright September 8, 2005
All Rights Reserved.

urricane Katrina was the perfect storm, giving publicly traded oil companies the best excuse to continue hiking prices. President George W. Bush has been conspicuously mum on the subject of oil companies exploiting Katrina for big profits, at the expense of consumers and the overall economy. No press report has accurately characterized the extent of damage from the nation's biggest supplier and refiners in the Gulf region. Press reports are no better or worse than the industry or government sources feeding information from which to base various stories. Hurricane Katrina didn't cause the run-up in oil or pump prices but has been the right excuse to justify the astronomical spike in prices. Oil refiners and suppliers seized the opportunity to exploit a national disaster for short-sighted profits. With clean-up and rebuilding taking months and years, there's no relief in sight.

      Energy companies like San Antonio-based Valero Energy Corp., the nation's largest refinery chain, is “in the right business at the right time,” Valero's Chief Operating Officer told Lehman Bros. analysts at a meeting in New York, boasting about the favorable profit picture. ”Longer term we believe gasoline margins will continue to be strong,” forecasting high earnings and profits into the foreseeable future. With refineries down in the Gulf, Valero can justify passing price increases on to wholesalers, who, in turn, increases prices to service stations. Motorists and trucking companies have endured unthinkable punishment at the hands refiners and service station operators. Allowing “free markets” to set oil prices puts the stock market and economy in danger, fueling inflation and forcing the Federal Reserve Board to continue hiking short-term interest rates.

      President Bush turns his back on consumers—66% of the nation's Gross Domestic Product—when he allows oil companies to run amok. Bush and Vice President Dick Cheney like to blame states for not building enough refineries and power plants. In reality, energy companies, including electrical power generators and gasoline refiners, don't want to build more capacity, fearing a glut would cause prices to plummet. As long as refiners can blame shortages on limited capacity, prices will continue to rise. Refineries take cues from crude oil markets, where vacillating prices become a convenient excuse to hike prices. According to the Energy Department's Energy Information Administration, the clearinghouse for oil and gasoline data, 57% of the Gulf Coast's oil production and 40% of refinery capacity has been shut down and won't reopen until December. About 7-10% of the nation's oil and gasoline output comes from the Gulf Coast.

      Confirming the exact loss of oil and gas production has been difficult, especially when you consider the consequences to U.S. consumers. Chevron Corp's Pascagoula, Miss.'s facility, for instance, produces 325,000 barrels of oil a day. Chevron officials haven't given a clear estimate of exactly how much capacity has been lost and how long it will take to resume normal output. While Chevron acknowledges that “catastrophic damage” has been avoided, they won't say exactly when oil production or refining capacity will be back online. Meanwhile, energy traders are busy trying to figure out the expected prices of oil and gasoline. Stating it would relax air-quality standards to improve supplies, the Environmental Protection Agency hinted that lower prices were on the way. According to the AAA, the nationwide price of self-serve regular averaged $3.042, bad news for motorists.

      Allowing the oil industry to clean up while the rest of the country limps along sends the wrong message to corporate America. Gouging consumers hurts the economy, adding insult to injury in the wake of hurricane Katrina. Instead of back-slapping and applauding Wall Street, President Bush should show some leadership, jawboning the oil industry to display restraint. It's bad enough that industrialized countries like China and India have expanded appetites for oil, driving worldwide prices into outer space. Giving oil companies the green light to engage in an unbridled feeding frenzy exposes the worst side of American big business. All citizens, including publicly traded corporations, must show responsibility in times of national crisis. With so many sacrifices made in Iraq and now the Gulf Coast, U.S. taxpayers can't afford to be ripped off by greedy oil companies and gasoline refiners.

      It's not the American way for companies to exploit consumers to pump up share prices. Since hurricane Katrina hit Aug. 29, Valero's stock jumped a whopping 24%. Other refiners like Sunoco Inc. and Tesoro Corp. have also watched share prices leap 22%, as Wall Street pushes oil and gas prices to new heights. Upgrading Valero and Sunoco to “buy,” Citigroup Global Market analyst Doug Leggate sees only dollar signs for the nation's big oil refineries. Runaway oil and gas prices fuel inflation, hurt the economy and push the country closer to recession. With only a handful of refiners controlling the market, there needs to be some restraints on “free enterprise” before the economy implodes. Calling astronomical prices good for conservation doesn't give oil companies a license to plunder the U.S. economy. Nobody wins when the hogs rule Wall Street—and especially the White House.

About the Author

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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