Big oil companies are not getting rich from price hikes

Sep 27, 2005 02:00 AM

by Ben Fischer

The cost of filling your car's gas tank or heating your home on cold days is high and still going up -- but Big Oil isn't getting rich on your misery, a national industry spokesman said. Responding to a flurry of price-gouging allegations, John Felmy, the chief economist for the American Petroleum Institute, testified to lawmakers that energy companies' profits historically are below national averages across sectors.
"There's a lot of rhetoric floating around," Felmy said. "It's something that's not well understood, because people know what the price of gasoline is, but they don't know our costs we have."

His remarks came during a hearing called by the state Senate Energy, Utilities and Information Technology Committee to examine the adequacy of Wisconsin's oil pipelines.
But on the heels of Governor Jim Doyle's multi-front attack on the industry and a UW-Madison professor's report saying that retail gas prices can't be justified, Felmy spent most of his time explainingwhat he called a simple supply and demand imbalance made worse by hurricanes.

Current market prices for oil equate to about $ 1.50 per gallon of gasoline, he said. Add 50 cents in taxes to that and retailers have a base price of $ 2 before any overhead is accounted for.
Sen. Robert Wirch (D-Pleasant Prairie) said it took a "leap of faith" to believe Felmy's explanations. Oil closed up $ 1.63 at $ 65.82 on the New York Mercantile Exchange. Also, President George W. Bush said he would order more oil released from federal reserves. That step, along with importing more gasoline and changes in driving habits all drove prices down after Hurricane Katrina, Felmy said.

But a different commodity natural gas can't be easily imported, and those prices will begin to take centre stage as the driving-heavy summer turns to winter, said Sen. Robert Cowles (R-Green Bay).
Felmy dismissed the widespread concern over gas prices, saying it was merely a factor of the visible nature of gas prices and some "crazy rumours."
"Other commodities fluctuate even more, but they don't notice," he said.

Source: The Wisconsin State Journal
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