Climate

Oil Companies Earn Billions While Americans Pay More

As American Families Pay 25 Cents More for a Gallon of Gas, Big Oil Earns $5 Billion More in Profits

By Richard W. Caperton, Jackie Weidman, Daniel J. Weiss

Oil prices, which averaged a near-record $103 per barrel in 2011, have risen steadily since the beginning of 2012. In tandem with oil prices, gasoline prices are also rising—from an average of $3.30 ending the week of January 2 to $3.59 last week. Higher gas prices mean that money is flowing out of Americans’ wallets and pocketbooks and straight into the coffers of Big Oil companies. This Center for American Progress analysis finds that each penny rise in the average quarterly (three months) price of a gallon of gas corresponds to a $200 million increase in quarterly profits of the big five oil companies—BP, Chevron, ConocoPhillips, ExxonMobil, and Royal Dutch Shell.

Since the beginning of the year, the price for gasoline increased 29 cents per gallon. If that average increase holds true through the end of March, it will translate to $5.8 billion in additional profits for the big five.

CAP analyzed the past four years of average quarterly gas prices and total profits for the five largest oil companies and, not surprisingly, oil company profits are closely linked to gas prices. While gas prices aren’t the only factors influencing profits, they are a significant indicator. What’s more, we can confidently predict how much money each penny increase in gas prices transfers from consumers to the big five oil companies.

Just this past January the typical household paid about $290.76 for gasoline, up by $25 over the same one-month time span in January 2011. It looks like households will face a similar increase in gasoline expenditures in February with gas prices on the rise even though demand is the lowest it’s been since 1997. This especially affects the 82 million households that spend 6 percent or more of their annual household budgets on gasoline.[1]

High oil and gasoline prices in 2011 enabled the big five companies to rake in $137 billion in profits last year. These enormous earnings contributed to the $1 trillion in profits they earned from 2001 through 2011. Despite a profit figure with 12 zeroes—count them: $1,000,000,000,000—these oil giants are major players in the lobbying efforts to retain $4 billion in annual tax breaks for oil and gas companies that they clearly do not need. In the scheme of all things Big Oil, these tax breaks are small, particularly in relation to their profits and in light of the fact that in 2011 these companies also had a combined $58 billion in cash reserves, nearly 30 times more than they received in special tax breaks.

Still the big five oppose ending their taxpayer handouts. Many of those same oil industry leaders oppose actions that would save consumers money at the pump. Former Shell Oil CEO and founder of Citizens for Affordable Energy, John Hofmeister, for example, opposes selling a small amount of reserve oil from the nearly full U.S. Strategic Petroleum Reserve to lower gas prices, which would provide some relief to drivers. And why wouldn’t he be against such a move? Lower gas prices mean lower profits for Shell. The company’s current CEO, Peter Voser, made $13 million in executive compensation in 2010. The other four CEOs made a combined $40 million in 2010, and will likely have made more in 2011.

Instead of using their outrageous profits to invest in alternative energy sources or create jobs, the big five and other oil and gas firms spent more than $146 million lobbying Congress last year. The big five oil companies alone spent more than $18 million on federal campaign contributions. Ninety percent of these contributions went to Republican candidates and 10 percent to Democrats. Many of these politicians were the loudest defenders of oil tax breaks.

It makes absolutely no sense to remain susceptible to a volatile global oil market. Instead we need to reduce our dependence on oil, which is priced globally and partly set by the OPEC cartel. President Barack Obama has made a significant start by proposing to double vehicle fuel efficiency standards by the year 2025. By that year, modernizing vehicle fuel efficiency will save the average car owner $8,000 in lower gas purchases over the life of a vehicle compared to a car bought in 2010.

While these improved fuel economy standards are taking effect, selling a small amount of reserve oil this year could reduce gasoline prices by 5 percent to 19 percent, which means a reduction of 18 to 72 cents per gallon. This would provide some much-needed relief for middle- and low-income families whose budgets are already strained. And so what if it shaves up to $14 billion in profits from the big five oil companies? We know they can easily afford it.

Methodology: We ran a regression analysis with the nominal values for average quarterly gas prices (the independent variable) and quarterly oil company profits (the dependent variable) from 2008 through 2011. This showed a coefficient of 20.3, meaning that when average gas prices change by $1 over a quarter, big five profits change by $20 billion. The p-value for this analysis is 0.000117, which indicates a statistically significant positive relationship between the two values. We are willing to share this data and analysis with any interested parties.

— Richard W. Caperton is a Senior Policy Analyst, Jackie Weidman is a Special Assistant, and Daniel J. Weiss is a Senior Fellow and the Director of Climate Strategy at American Progress. This piece was originally published at the Center for American Progress website.

Endnotes

[1]This figure is based on 2008 data because of gas prices similar to 2011 (2011 data not yet available).

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8 Responses to Oil Companies Earn Billions While Americans Pay More

  1. Bill Goedecke says:

    If one is serious about reducing the power of western oil companies, one needs to talk about nationalizing the oil companies. National oil companies are the norm in the world, not the exception. These companies are mature enterprises whose asset base (meaning oil/gas field production) is either static or declining. Since they are capital enterprises, they are seeking to enhance their capital given declining prospects. If we want to attack their predatory position, we need to consider removing capital incentives. Plus we should acknowledge our dependence on their product, something alluded to in the article in regards to releasing fuel from the Strategic Petroleum Reserve. Our dependence on oil product is so great, that we would have a lack of food if we did not have gasoline product for even one day. I would hope that the Strategic Petroleum Reserve would be retained so that if there ever was a shortfall of gasoline there would at least me fuel for emergency transport.

  2. Leif says:

    I find it convenient to think of a billion dollars in terms of my life. If you take $1 billion and divide it by the total population of the USA, ~313 million it becomes ~$3.20 per billion to me. Now however we must subtract those that are too poor or to young or too old to have much of a contribution, ~25%?, and I am up to $4.00 per billion. However we must add in the fact that much of that fuel is consumed by tax supported money, also my money. Now we get to add in the folks that are too rich to pay taxes or pass their consumption down to the consumer as higher product costs of doing business, ~25%?, and what do we get? $5.00/billion. So now every time someone tells me the cost of say tax subsidies for ecocidal fossil industry costs ~$75 billion yearly, I can quickly multiply by $5 and see that the impact is ~$375 yearly cost to me. Of course my wife pays taxes as well, so now we are up to ~$750.00 a year contribution from my family budget. 25 billion added profits = another $250 to the ecocidal fossil industry to show my support for their exploitation of the commons. We wonder why the cycle goes on? Why the Ecocidal fossil industry spends so much promoting the status quo…

  3. Sasparilla says:

    Here’s another way to look at it from a profit point of view as the price of oil climbed over the last decade (when we had GOP control of all three branches for the most part and they could drill baby drill all they wanted)

    Totals for the Big 3 (ExxonMobil, ChevronTexaco,ConocoPhillips):

    2003 – $33 billion
    2004 – $47 billion
    2005 – $64 billion
    2006 – $72 billion
    2007 – $76 billion (doesn’t include 1 time charge Conoco)
    2008 – $87 billion (doesn’t include 1 time charge Conoco)
    2009 – $35 billion – oil collapses after crash of 2008
    2010 – $61 billion
    2011 – $80 billion

    It’s still the same oil, still the same gasoline, still the same oil rigs (for the most part) but these guys get alot more money.

    While there’s been alot of talk about the CAFE standards to reduce oil consumption in the future, which is good – its a little disconcerting not to hear plugins mentioned when they can drop oil consumption drastically and will get much cheaper over that same timeline.

  4. John Tucker says:

    They always do this to people before summer.

  5. Tim says:

    If these number seem big, there are a few even more disheartening things to keep in mind:

    (1) Exxon-Mobil would like you to think they’re a “technology”, what with their ads touting clean gasoline, new formulations, etc. They spend less than 1% of revenue on R&D.

    (2) In a recent 10-year period (2001 through 2010, if I recall), Exxon-Mobil spent $175 billion of those buying back their own stock.

    (3) As huge as the profits are, the profits don’t count “costs” and “costs” include exhorbitant execustive salaries, bonuses, and the propaganda budget used to pay people to lie about climate change.

  6. Tim says:

    Sheesh! Corrections:

    (1) …a “technology” company

    (2) …those profits

    (3) …executive…

  7. TNUGA says:

    Where did you get $75 Billion? (“So now every time someone tells me the cost of say tax subsidies for ecocidal fossil industry costs ~$75 billion yearly”)
    The article just told you it was $4 billion a year. and even Obama says the same! Talk about exaggeration!

  8. Leif says:

    Exaggeration, NOT! First I do not agree with Obama by just counting tax subsidies. How about factoring the cost added health care? Premature deaths? Increased storm damage? Decreased agriculture production impacts? Food price increase because of droughts? Irrigation short fall? Forest damage from fires and pine beetle damage. Highway and RR increased maintenance? Ocean Acidification? Gosh I am just getting warmed up there TNUGA. All your and mine tax dollars that should be going to school, health care, housing, green energy… If there is an exaggeration it is on the far short side.