NEW YORK -- Chevron CEO David O'Reilly appeared yesterday on NBC's The Today Show with Matt Lauer, the second major oil industry executive to take that particular media hot seat this month. Lauer noted Chevron's $4 billion profit for first-quarter 2006, up 49% from the previous year. He asked, What price do you think Americans are going to be paying by the end of this summer per gallon?
I would expect gas prices to stabilize at this level, O'Reilly answered. We've gone through a transition period. We have had to get MTBE [methyl tertiary butyl ether] [image-nocss] out of gasoline and put ethanol in. All of that is behind us now.
He added, There's one caveatno more hurricanes this year. Last year, the hurricanes hit us badly and disrupted supply.
Pointing out the high prices Europeans pay for gasolineabout $6 per gallonand noting increased demand from China and India, Lauer asked, Is the party over for Americans? Are we going to have to mentally prepare ourselves to pay those kinds of prices?
O'Reilly said, I'm not sure we'd pay $6because a lot of that is taxes. Our tax rates, even though significant, are quite a bit lower here than they are in Europe. I think the days of really low gas prices are over. We've gone though a period of about 25 years where supply has outstripped demand. Because of the economic growth you've described, we're seeing the growth of demand around the world. As a result, we're going to see firmer gasoline prices in the future.
When asked, What percentage of profits come directly from the pump?, O'Reilly said, 4 to 5 cents per gallon. He added that retail gasoline sales make up about 15% of the company's profit pie.
Regarding corporate responsibility to consumers, Lauer asked, What if you got all of your [12,000 Chevron] stations around the country together and saidwe're going to lower price per gallon by about 5 cents for the summer months.' Don't you think you would create such brand loyalty and customer loyalty that the reward of that would outweigh any risk in terms of profit to your shareholders?
Responded O'Reilly: We have customer loyalty today. The problem with lowering the price is that it increases demand, and that goes contrary to how the market works. The problem with lowering your price relative to competition is you run out of gas.
He said, I can understand why people would criticize us when prices are high, because they are unexpectedly high. Relative to this period of time, we've had low prices. So I can understand the frustration there. But if you put it in the great scheme of things, the profit that we earn [are] relative to the big capital investments we maketo bring more oil and gas to the American people.
Lauser closed with, What's the biggest misconception about [the oil] industry?
O'Reilly said, The complexity that it takes to deliver that gallon of gasoline.
Click here to view the complete interview with O'Reilly.
Lauer interviewed Exxon Mobil Corp. Chairman and CEO Rex Tillerson on May 4. To view the complete interview, click here.Members 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.