For Every Penny You Pay In Increased Gas Prices, They Make A $200 Million Increase in Quarterly Profits (So, Fair's Fair)

Are you kinda thinking (now and then, anyway) about how those "oil" guys are real stinkers now that everyone's finally conserving energy use and yet the price (due to speculation, according to the buzz on the street) keeps skyrocketing? You gotta love those aftereffects of deregulation, don't you? Too bad it's not money in your pocket.

Oil Companies Earn Billions While Americans Pay More

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

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.

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.

Bye Bye American Pie: The Challenge of the Productivity Revolution

Robert Reich

Here’s the good news. The economic pie is growing again. Growth in the 4^th quarter last year hit 3 percent on an annualized rate. That’s respectable – although still way too slow to get us back on track given how far we plunged.

Here’s the bad news. The share of that growth going to American workers is at a record low.

That’s largely because far fewer Americans are working. Although the nation is now producing more goods and services than it did before the slump began in 2007, we’re doing it with six million fewer people.

Why? Credit technology. Computers, software applications, and the Internet are letting us produce more with fewer people.

In theory, this is a huge plus. We can live better and have more time off.

But as Tonto asked the Lone Ranger, “who’s ‘we,’ kemosabe?”

The challenge at the heart of the productivity revolution – and it is a revolution – is how to distribute the gains.

So far, we’ve been failing miserably to meet that challenge.

True, some of the gains are widely spread in the form of lower prices and higher value. My 3-year-old granddaughter gets more out of an i-Phone in five minutes than my 98-year-old father ever got out of reading the daily paper (putting to one side their relative capacities to process the information).

But many of the gains are distributed narrowly in the form of profits to owners, and fat compensation packages to the “talent.”

The share of the gains going to everyone else in the form of wages and salaries has been shrinking. It’s now the smallest since the government began keeping track in 1947.

If the trend continues, inequality will become ever more extreme.

We’ll also face chronically insufficient demand for all the goods and services the productivity revolution can generate. That’s because the rich save more of their earnings than everyone else, while middle and lower-income families – with fewer jobs or lower wages – no longer have the purchasing power to keep the economy going at full tilt. (Before 2008 they kept up their buying by sinking deep into debt. This proved to be an unsustainable strategy.)

Insufficient demand – as everyone but regressive supply-siders now recognize – is a big reason why the current recovery has been so anemic and the pie isn’t growing faster.

So while the productivity revolution is indubitably good, the task ahead is to figure out how to distribute more of its gains to more of our people.

One possibility: higher taxes on the rich that go into wage subsidies for lower-income workers, combined with job sharing.

We also need better schools (from early-childhood through young adulthood, followed by systems of lifelong learning) so everyone has a fair shot at a larger share of the gains.

Finally, the benefits of the productivity revolution should be turned into more abundant public goods – cleaner air and water, better parks and recreation, improved public health, and better public transit.

Regressive right wingers want Americans to believe we’ve been living beyond our means, and can no longer afford it.

The truth is just the reverse. Most Americans’ means haven’t kept up with what the economy could provide – if the fruits of the productivity revolution were more widely shared.

Regressives growl about America’s borrowing and tut-tut about future federal budget deficits. The reality is the world is willing to lend us vast amounts of money because we’re so productive. And the productivity revolution is making us ever more so.

Get it? The pie is growing again but most people aren’t getting much of a slice. That’s bad even for those getting the biggest pieces. They’d do better with smaller slices of a pie that grew much faster.