Oil soars to $130, What will Congress do?

May 21, 2008 7:28:17 AM PDT
The top executives of the nation's largest oil companies are once again being summoned before Congress to testify about the skyrocketing cost of gasoline. But even as oil climbed today to a new high above $130 a barrel don't expect this hearing to be any different from the last time the oil chiefs were hauled before Congress. Or the time before. Or the time before that.

Every few years, as rising oil prices hit consumers, the House, the Senate or both decide to call in the oil companies. They hold grand hearings but then don't take any action.

The last such hearing was on April 1, and it started off with a bang.

"On April Fool's Day, the biggest joke of all is being played on American families by big oil," said Rep. Edward Markey, D-Mass., chairman of the Select Committee on Energy Independence and Global Warming.

So will the oil companies be election-year punching bags again?

"It will not differ from past hearings," said Jerry Taylor, a senior fellow at the Cato Institute. "The Congress feels the need to signal to voters that they are moving heaven and Earth to reduce gasoline prices and are investigating every single possible idea to do this."

While the politicians might endorse an idea in their rhetoric, Taylor said, they "won't necessarily vote for it or push very hard to get it adopted."

The oil executives first appeared as a group before Congress on Nov. 9, 2005 -- when oil had risen to $58.93 a barrel.

Just four months later, they were back testifying before another committee. By then, oil had climbed to $63.10.

They all last appeared on April 1, the day oil hit $100.98.

In the seven weeks since, oil has skyrocketed even higher, trading now at nearly $130.

And with rising oil prices have come rising oil profits. ExxonMobil recently reported $10.9 billion in earnings for the first three months of this year. That's up 17 percent from the year before.

And they weren't alone. BP is up 60 percent; Shell, 25 percent; ConocoPhillips, 17 percent; and Chevron profits rose 10 percent.

The industry says in response to criticism about its profits that, yes, it is making billions of dollars but that it is also spending billions and billions of dollars to bring oil to the gas pump and to invest in finding new sources.

Even with these big profits, there is very little the oil companies can do to reduce the price of oil, which is set on world markets based largely on supply and demand.

As for Congress, Taylor said, "there's virtually nothing that the Congress is discussing that would actually reduce gasoline prices.

"Politics demand that hearings be held. Hearings are essentially show trials that politicians put forward periodically to provide compelling theater for voters," he said. "It's an advertisement for the people on the committee for how hard they're fighting for you -- the working man -- and your dramatic struggle against high gasoline prices."

Ben Lieberman, senior policy analyst for energy and environment at the Heritage Foundation, echoed those thoughts, saying, "There's been a large number of hearings about gasoline prices and oil prices, and not much new has come from it."

"I guess it's sort of a show trial more than anything else," he added.

Lieberman said he does not believe that oil companies are manipulating prices. If they could do so, he said, we would have been paying $3.80 for a gallon of gas our whole lives. Additionally, as big as these companies are, they are tiny compared to the nationalized oil companies that actually control most of the world's oil.

"To the extent that we are going to berate the oil executives, we ought to at least bring in somebody from OPEC, if they are willing to show up, and give them a little bit of the treatment as well, not that that would do any good," Lieberman said.

But Josh Dorner, a spokesman with the Sierra Club, said that hearings do have some value.

"I don't know that anybody is expecting a whole lot. Hearings are hearings," Dorner said. But, he added, "I think it's always good to get them on the record and ask them the tough questions and see what they are doing to make headway."

The oil companies are receiving $18 billion in tax breaks over a 10-year period. The House voted last year and again in February to end those tax breaks and instead use the money to support wind, solar and other renewable energy sources. The measure has not passed the Senate, and President Bush has promised a veto.

Dorner notes that Congress could push for a more comprehensive energy plan. While that might lead to higher oil prices in the short term, it could reduce the country's overall energy costs long-term.

"A hearing is not a solution to a problem," he said, "but is a valuable tool to getting more information about a problem."

John Felmy, chief economist at the American Petroleum Institute, was asked that question by a reporter on a conference call Monday: "Do you think having these types of hearings is helpful to the industry or ostensibly they are just there to be beaten up by members of Congress?"

Felmy responded, "I think it's helpful for the industry, for us to tell our story. We're open and engaged in this."

It wasn't always that way. When the oil executives first appeared before Congress in 2005, committee Republicans and Democrats fought over whether the executives would have to be sworn in. (The oil companies also testified before Congress back in the 1970s.)

Republicans feared that the photo of the CEOs and company presidents with their arms raised would look bad. When tobacco executives, also under fire, testified, they first had to raise their hands and swear to tell the truth.

That photograph appeared on many newspaper front pages and became a lasting image in the tobacco debate. Ultimately, the oil executives were sworn in and that image did appear across the country.


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