Pump pain, Big Oil gain

Oil giants post massive Q1 profits, demand huge subsidies

Exxon stood head and shoulders above the other big five oil companies with first-quarter profits of nearly $10.7 billion.  CAP’s Valeri Vasquez has the details.

The first anniversary of the BP fatal oil disaster in the Gulf of Mexico reminded Americans of the enormous human and economic costs of our oil dependence. One year later, BP is posting first-quarter profits of nearly $5.5 billion. This 17 percent growth from 2010’s first-quarter earnings comes despite BP having distributed a mere 19 percent of the $20 billion it agreed to pay oil spill victims and their families.

The four other Big Oil companies””ExxonMobil, ConocoPhillips, Chevron, and Shell””also enjoyed massive profits in the first quarter of 2011 compared to 2010 due to high oil prices. These four companies reported a combined $18.2 billion in first-quarter earnings””profits that together mark a 40 percent increase over last year. Exxon stood head and shoulders above the rest with a nearly 70 percent increase over 2010 first-quarter profits, clocking in at nearly $10.7 billion. Shell was a distant second with earnings listed at $6.9 billion.

Oil prices have risen by a third in just more than two months, spurred largely by speculators capitalizing on unrest in North Africa and the Middle East. The jump in crude prices from $85 per barrel to $112 per barrel since January 2011 has boosted gasoline prices by 22 percent.

President Barack Obama warned in an April 26 letter to congressional leadership that “if sustained, these high prices have the potential to slow our economy’s growth at precisely the moment we need to be accelerating it.”

Analysts agree, projecting that a sustained $10 increase in the cost of a barrel of oil can reduce our gross domestic product by up to 0.2 percentage points in 2011 alone. A sustained $20-per-barrel increase in oil prices could yield at least a 50-cent-per-gallon hike in gasoline costs.

This month, drivers are paying an additional 30 percent at the pump compared to April 2010. And this year, an increase of 70 cents per gallon in just more than two months is costing American families dearly. According to some estimates, every “penny increase at the pump sucks $1.5 billion from household spending nationwide.”

Big Oil doesn’t need tax subsidies with billions in profits

But the burden on American taxpayers begins well before they fill up at the gas station. More than $4 billion in unnecessary tax subsidies for domestic drilling and production are doled out to oil companies annually, activities the companies would undertake and profit from without federal assistance.

The handout is supported by Big Oil’s Republican representatives in Congress. House Budget Committee Chairman Paul Ryan’s (R-WI) proposed fiscal year 2012 budget resolution that passed the House of Representatives on April 15 preserves Big Oil subsidies while nearly eliminating investments in the clean energy technologies of the future that are essential to reduce oil use and foster long-term economic growth.

The House Republicans also unanimously opposed and defeated a “motion to recommit” a short-term extension of government funding for FY 2011 in March. The motion would have eliminated these Big Oil tax loopholes.

Big Oil strongly supports the retention of these tax loopholes, of course. Four of the five Big Oil companies have already shown their appreciation to House Republican leaders who led efforts to retain them. These companies gave $280,000 in campaign contributions to their Republican benefactors. This includes House Speaker John Boehner (R-OH), who according to a Center for American Progress analysis has received $15,000 from oil interests since January. ExxonMobil was the largest overall donor to overall campaign contributions. It gave more than 80 percent of this campaign cash.

Speaker Boehner, however, indicated a willingness to consider eliminating Big Oil tax loopholes on Monday. He told ABC News:

We’re in a time when the federal government is short on revenues. We need to control spending but we need to have revenues to keep the government movin’. And they [Big Oil] oughta be payin’ their fair share.

President Obama wrote Speaker Boehner and other congressional leaders in response, urging them to “take immediate action to eliminate unwarranted tax breaks for the oil and gas industry, and to use those dollars to invest in clean energy to reduce our dependence on foreign oil.”

Senate Majority Leader Harry Reid (D-NV) wants to make the repeal of the Big Oil tax loopholes one of the first orders of business when Congress returns from its spring recess on May 2. Hopefully Speaker Boehner will ignore his oil contributors and instead join along by promptly allowing a House vote on Rep. Earl Blumenauer’s (D-OH) bill, H.R. 601, which would eliminate Big Oil tax loopholes.

This quarter’s $18.2 billion in profits certainly demonstrates that the big five oil companies can do without $40 billion in tax subsidies over a decade.

Valeri Vasquez is a Special Assistant for the Energy Team at American Progress.

15 Responses to Pump pain, Big Oil gain

  1. BillD says:

    In Indiana, a leading Democratic state legislator has proposed removing state taxes on gasoline. Personally, I would prefer higher gasoline taxes, more like the European model. It’s not too surprising that the profits of an integrated oil company such as Exon are tied to gas and oil prices. I would rather see profits go to Exxon, than to Iran.

    Don’t overlook the positives of higher gas prices: less use, more conservation and incentives for renewable energy. The main concerns are that the economic recovery may be damaged and that Obama will be blamed for the higher prices and weakened recovery

    Of course, it makes sense that subsidies should go to the alternatives to fossil fuels.

  2. Karmel Korn says:

    I have carefully reviewed the 10K filings, annual reports and SEC filings and do not see subsidies. Exxon must have made their revenue overseas.

  3. Has anyone compiled an inflation adjusted time series of total oil company profits? This would be helpful in arguing against the silly claim that climate scientists are just in it for the money. If they were, they’d be working for oil companies or wall street, not for research institutions!

  4. Wonhyo says:

    JR: A guest on an NPR program this morning claimed that ending oil company subsidies would hurt small companies involved in local exploration much more than the supermajors. Is there any truth to that?

  5. Joan Savage says:

    Equitable enforcement of the maximum corporate income tax rate of 35%, without a heck of a lot of loopholes, would be a more solid way to get through this.

    The oil multinationals are pretty slippery about the jurisdictions in which they would pay taxes, so I am not saying that the US alone would get 35% of those corporate profits. The UK government is hurting for funds, too.

    I tend to turn away from an increase in sales tax. A flat sales tax on gasoline functions as a negative regressive tax, biting a higher percentage of a low-income household budget than what it takes proportionately from a high-income budget. The increased prices at the pump have a similar disproportionately large hit on low-income, as it is.

  6. Michael Tucker says:

    These oil companies, some of the most profitable companies in the world, do not need tax subsidies or handouts of any kind. They will drill with or without the subsidies. They will drill at $70 a barrel or $50. They just want to drill. Open up the Arctic and watch them trip over each other trying to order the rigs; even without subsidies. Do not believe anyone who says that ending the subsidies would hurt domestic oil exploration or US jobs. Republicans want to kill subsidies for wind and solar AND keep the subsidies for oil.

    Republicans are cold calculating liars! Remember Speaker Boehner’s boner.

  7. Solar Jim says:

    “This quarter’s $18.2 billion in profits certainly demonstrates that the big five oil companies can do without $40 billion in tax subsidies over a decade.”

    “BP is posting first-quarter profits of nearly $5.5 billion.”

    “These four companies reported a combined $18.2 billion in first-quarter earnings”

    Based on these statements it would seem the first quarter profits of just these five petroleum mining corporations totals $23.7 billion.

    As for federal subsidies, other research indicates total direct and indirect annual fossil subsidies an order of magnitude larger (some $40 billion per year), and external annual subsidies an order of magnitude larger than those (not counting military costs associated with oil). Call them climate contamination subsidies based on poisoned economics of the fuels of war, socialized disease and cascading calamity.

    It would seem America resembles a militant oiligopoly based on globalized corporate plutocracy. Welcome to the Atomic Age.

  8. madcitysmitty says:

    I’m confused. Is it “4 billion” or “40 billion” in oil industry subsidies? A few months ago, I recall seeing 39 or 40 billion” in subsidies in a Congressional Budget Office research paper on subsidies.

  9. Joan Savage says:

    The large oil companies with the enormous profits don’t need what in their multi-billion dollar world are merely chump change subsidies. “Chump change” is a quote from a former oil industry employee.

    The much bigger volume is in tax credits.

    For an old NYT article that is introductory on the tax credits, as compared to direct subsidy,

    The clean energy people are hungry for subsidies and are competing for the oil subsidies, righteously pointing out oil is the wrong way to go. But clean energy is competing in this instance with petroleum companies within the US, eligible because they are incorporated within the US. Boehner’s position is that the smaller oil companies need the subsidies. He can get around to disclosing which multinationals don’t take the subsidies, and it will all look like more misdirected energy and time wasted, and it could make Obama look like he is against American small business.

    Tax credits for oil, that is were a much higher volume of funds is leaking from the tax base.

  10. Lore says:

    It’s 30 billion over 10 years, or 4 billion a year and that much is just a drop in the bucket to the oil industry overall. Considering the amount the big producers make it’s obvious that subsides really only affect the smaller companies. I’m all for getting rid of them, but I think this has just become another political football and distraction away from what our focus should be on moving to conservation, alternative transportation and energy.

  11. Barry says:

    The chart shows clearly that oil companies have multi-billion dollar incentives to keep oil prices high.

    The higher the price of oil they more money they make.

    This is the diamond cartel biz plan. Scarcity = high prices = higher profits.

    Democrats should ask the Big Oil CEOs in a hearing which is better for their shareholders: $40/oil or $120/oil? Which is better for their profits?

    Oooh, the poor “little guy” oil companies having to sell their product at $120. That is only three times more than they got to sell the same product for two years ago. Ouch they are suffering. Can’t possibly stop shovelling taxpayer dollars their way as well. Nope.

  12. Lore says:

    Whoops… correction on my quick math and thick fingers… 40 billion over 10 years.

  13. Mulga Mumblebrain says:

    The oil companies are just acting like capitalists. Profit maximisation and capital accumulation are their only goods. All else is an externality. Fiddling around with subsidies, tax evasion, transfer pricing, invasions of hydrocarbon rich countries etc are all treating the symptoms, not the disease. The rule of money power in capitalist politics makes all the Western protestations of their ‘democratic’ credibility so much humbug, as well.

  14. Anne van der Bom says:

    BillD #1,

    Don’t overlook the positives of higher gas prices: less use, more conservation and incentives for renewable energy.

    Mostly it is: money in your own government coffers instead of the deep pockets of oil sheiks. But some people are so blinded by their hate for taxes, that they cannot see the simple reality that it is better to give money to your own governemnt than give it to some dictator to provide you with more oil than you really need.

  15. Roddy Campbell says:

    I don’t quite understand this post. Oil companies make larger profits when the oil price rises? Surprise me. And lower profits when it falls.

    And as some commenters have pointed out, the domestic drilling incentives, of $4bn, are rather nominal.

    As Lore in #10 says, something of a weak and irrelevant distraction. I would say a silly Big Oil bash.