Oil industry made $100 billion in windfall profits; consumers take hit
Wednesday, May 3, 2006
(Washington, D.C.) – The latest consumer group study on skyrocketing gas prices shows the U.S. oil industry made $100 billion in windfall profits since the late 1990s, largely by eliminating refining capacity that paved the way to drive up prices at the pump. Those price increases have added more than $1,000 a year to the average family’s gasoline bill.
The analysis, entitled “Debunking Oil Company Myths and Deception: The $100 Billion Consumer Rip-Off,” found that the difference between the cost of crude oil, and the price at the pump (net of taxes) is now about 40 cents a gallon higher than historical averages. That spike comes as a small number of large oil companies control both oil production and refining in the United States. To get a copy of the report, click here.
“Consumers are trapped between a small group of powerful, non-competing oil companies out to maximize profits and weak governmental authorities who consistently fail to strengthen or enforce the law,” said Mark Cooper, director of research for Consumer Federation of America, and author of the report.
“Comparing their annual reports to their PR campaigns we found that the industry tries to mislead the public and policymakers by telling very different stories on Wall Street and Main Street,” Cooper added. “On Wall Street they point to their soaring return on equity and cash flow as proof of their huge profitability, while on Main Street they point to profit as a percentage of sales and ignore cash flow to claim less than stellar results.”
Ann Wright, Senior Policy Analyst of Consumers Union, applauded the report. “The oil industry’s anti-competitive practices and mismanagement are gouging consumers and filling industry coffers,” Wright said. “It’s time for Congress and the Administration to plow excess profits into expanded refining capacity that will grow competition and thereby hold down gasoline prices in the future.”
CFA and Consumers Union are recommending Congress and the Administration take immediate steps to alleviate future spikes in gas prices.
“We need policies that change the market fundamentals and we cannot rely on the oil companies to do the job – their record of underinvestment, mismanagement and deception teach us otherwise,” Cooper said.
The recommendations include:
• Reinvest windfall profits in expanded refinery capacity.
• Reduce fuel consumption through aggressive, targeted improvements in vehicle fuel efficiency standards.
• Establish a federal reserve of gasoline stock to use during seasonal peaks or in the event of a supply disruption.
• Create a joint task force of federal and state Attorneys General to monitor the structure, conduct and performance of gasoline markets.
Contact: Mark Cooper, CFA, 301-807-1623
Jennifer Fuson, CU, 202-462-6262