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By Robert Rapier on Feb 6, 2008 with no responses

Consumers Boil

This is quite timely coming on the heels of my previous essay. I talked about the press picking up and running with the comments of Oil Watchdog’s Judy Dugan as if she were actually a credible source of information. Here’s a perfect example:

Consumers boil over oil profits

For years, oil companies have been cast as villains. That perception didn’t change Friday when the two largest U.S. oil companies reported record profits — again.

Let me first say that I certainly understand why consumers are upset. I remember when I was younger and commuting a long distance, every increase in gas prices really hurt. If oil companies were reporting record profits at the same time I was paying record amounts for gasoline, I would have been angry as well.

Last year, Exxon Mobil reaped more money than any U.S. corporation has ever made, while consumers were sliding into a recession, said Judy Dugan, research director for the Foundation for Taxpayer and Consumer Rights in Santa Monica. At the same time, oil companies have lobbied against any control of the market that has pushed crude oil to $90 and up, she said.

“Their product is so important to our economy that energy costs alone are driving inflation and raising consumer debt,” Dugan said.

I am really curious as to how Dugan thinks the market can be controlled. When OPEC controls 40% of it, and the ExxonMobil’s of the world control less than 10%, it is really hard to grasp how Dugan thinks the oil companies are controlling this market. What does she think governments should do? But, it has become obvious to me that you don’t have to grasp the issues in order to be a self-proclaimed watchdog.

Dennis Clancy of Thousand Oaks has been unhappy with oil companies. “I’ve always had a problem with gas prices over $3,” he said while filling up at a Shell station in Camarillo. “It shouldn’t cost over $50 to fill up a midsize car.”

He wants to see more proof about how the oil companies’ profits are utilized, as well as less dependency on foreign oil.

Do you really want to see less dependency on foreign oil? Then embrace higher prices, which will get Americans to drive less and buy more fuel efficient cars. Downsize that midsize car. Don’t put yourself in the position where you demand a lot of gasoline, and then get made at the oil companies when the price goes up. Take matters into your own hands and reduce your own dependence, if you expect the country as a whole to reduce dependence.

Oil companies blame energy markets for high crude prices, but they profit immensely from these markets and oppose controlling them, Dugan said.

“The government has to get some control over these unregulated electronic energy trading markets,” she said.

Oil companies are spending billions of dollars buying back their own stock instead of investing in renewable energy or their own refineries, which, Dugan says, is the very definition of greed without regard for corporate responsibility.

More hysterics and fabrications from Dugan. Are oil companies buying back stock? Sure, I would be as well if I felt my stock was undervalued. But that doesn’t mean they aren’t investing back into their business. Oil companies have spent far more money expanding refineries and upgrading to meet ever tighter environmental regulations (like ultra-low sulfur product specs). Dugan’s comments are the very definition of reporting without regard for journalistic integrity.

“I’m still almost speechless at the amount of profit they made,” Dugan said. “Americans should be furious.”

We can all wish. Fortunately, there was some sanity injected near the end of the article:

The oil companies have always been “the bad guy,” but perhaps they don’t deserve the label, said Jack Kyser, chief economist of the Los Angeles County Economic Development Corp. “People don’t understand the world has changed for oil companies,” he said.

It’s becoming more expensive and difficult to find oil fields, and oil companies are trying to explore in nations where real danger or politics are involved, Kyser said. Consumers feel the pain at the pump and don’t think about the kind of infrastructure that oil companies have to build to access the oil, or the political risks.

“In a way, they’re becoming a declining industry,” Kyser said, adding that seems contrary to the companies’ financial growth. But, he said, he believes that their position as the world’s major players has changed. “It’s a whole different ball game. They don’t have the clout they used to have,” Kyser said. “They can’t go into a country and sign contracts and expect stability anymore.”

While oil companies have been accused of price gouging, Kyser said, he believes they’re simply trying to protect themselves for tough times ahead. “Everyone acts like it’s blue skies for them, but if you look over the history of the industry, they’ve had some very lean times,” he said.

This is more or less the way I see it as well. The risks have gone up dramatically for oil companies, as those operating in Venezuela found out last year. If oil prices were to unexpectedly crash, I suspect the climate would become friendlier as governments wouldn’t want to assume the risks for projects.

That’s why Venezuela invited oil companies in to start with: Prices were low, the risks were high, and the projects were expensive. So, oil companies were invited in, and contracts were signed. Then, as soon as prices shot up, Venezuela cancelled contracts and seized control. This is the world oil companies must operate in now; it’s very high risk. The Judy Dugan’s of the world would like to see oil companies take the risks, but not be rewarded when markets bid up the price of oil.