WASHINGTON -- Refining capacity, natural gas, oil prices, price gougingthe joint Senate committee quizzing five oil company leaders was anything but single-minded. But the combined Energy & Natural Resources and Commerce, Science & Transportation committees left no question that they wanted answers about oil and gas pricing that they could bring back to their constituents.
Who sets the price of oil? Sen. Pete Domenici (R-N.M.) began the committee questioning yesterday morning after each oil exec made an opening statement. Is someone rigging the price of oil? Are you rigging the [image-nocss] price of oil?
Lee Raymond, chairman and CEO of Exxon Mobil Corp., bristled at the suggestion, noting that gas prices are set on a world scale and that Exxon, while the largest producer of oil in the United States, only produces 3% of the world supply. The price of crude oil is set by willing buyers and sellers at a price the buyers are willing to pay for it and the sellers are willing to sell it for, he said.
Raymond was joined at the witness table by Chevron Corp. chairman and CEO Dave O'Reilly, ConocoPhillips chairman and CEO Jim Mulva, Shell Oil president John Hofmeister, and BP America Inc. president and CEO Ross Pillari. The committee hearing was called in light of the oil companies reporting record profits for the third quarter while prices at the pump skyrocketed following the Gulf Coast's battering by hurricanes.
Raymond took the brunt of the questioning because he was first in line at the table, and the senators produced a letter from some Exxon jobbers objecting to a 24-cent-per-gallon price increase following Hurricane Katrina's assault on the Gulf Coast. Raymond was subsequently asked if he felt the increase was unconscionably excessive.
In most of our stores, we have nothing to say about the price at the pump, Raymond began, noting that marketers run the bulk of Exxon-branded gasoline stations and stating that he is not convinced prices did rise 24 cents. In the directly affected areas [of Hurricane Katrina], the directive was to minimize the increase in prices while recognizing that if the price was too low, the stations would run out of product. The concept was to try to maintain appropriate supply across the country.
Mulva seemed to backup Raymond's comments in his opening statement when he said ConocoPhillips' third-quarter earnings per gallon sold were only up 4 cents per gallon from last year, from 5 cents to 9 cents per gallon. The industry average retail price for gasoline went up 67 cents per gallon during that same time frame.
Where did all of this difference go? he asked rhetorically before enumerating an answer. According to Mulva:
54 cents per gallon went for higher crude oil and feedstock costs.
6 cents per gallon went to retail margins.
3 cents per gallon went toward tax increases due to higher earnings.
None of the increase went to operating and marketing, where costs remained flat on a per-gallon basis.
Leaving 4 cents for ConocoPhillips, or 6% of the total increase in the gasoline price.
Certainly, all the oil-company executives agreed that Hurricane Katrina and Hurricane Rita's double-whammy on the Gulf Coast created an unprecedented strain on oil supply and refining. They also agreed that without some changes in the way politicians and consumers look at oil and gasoline, similar strains are likely in the future. For too long, Americans have been led to believe they can enjoy low oil and gasoline prices with less exploration and refining, said O'Reilly. The hurricanes have shown that this equation is not sustainable.
In his opening comments, Hofmeister offered perhaps the best summary of the oil execs' wish list for moving the energy industry forward. The world faces fundamental and pressing energy challenges, he said. Demand is likely to be robust despite high prices. The investment necessary to meet this demand will be significant. Prices are high, but input costs are rising everywhere, driven by tight capacity along the supply chain. Every route forward has major challengeseconomic, environmental and technological.
His final hope was that the committee hearing would help industry leaders and politicians work together to meet those challenges.
Click to read transcripts of the oil executive's statements:
RaymondO'ReillyMulvaHofmeisterPillariMembers help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.