McClatchy Washington Bureau

Print This Article

WASHINGTON — In what's becoming a ritual in the nation's capital, top executives of major oil companies took an oath Wednesday before the snapping cameras, received a heaping of verbal abuse by lawmakers from both parties and defensively blamed Congress for many of today's energy woes.

While the public relations battle was engaged in the Senate Judiciary Committee, crude oil prices shot to a staggering settle price of $133.17 a barrel Wednesday on the New York Mercantile Exchange (Nymex). And American Airlines, faced with skyrocketing jet fuel costs, announced it would sharply scale back its domestic flight schedule.

The Senate hearing may have served as a cathartic platform to grumble on behalf of constituents, but Americans can rest assured that they'll still pay more for gasoline in the months ahead.

Setting the tone, Sen. Patrick Leahy, D-Vt., the committee chairman, opened by telling the five oil executives before him that "prices should not skyrocket like this in a functioning, competitive market." His committee has jurisdiction over antitrust issues like price-fixing.

Over the course of three hours, Democrats pounded away on record profits being posted by oil companies, while Republicans hammered home the point that the United States puts most of its available oil off limits to production.

The hearing began on a humorous note when oil executives were asked to restate their personal compensation, which is public record through company filings with regulators. Several sheepishly listed salaries and compensation between $2 million and $5 million a year. (That could purchase between 526,315 gallons and 1.3 million gallons of regular unleaded gasoline at Wednesday's national average of $3.80 a gallon.)

But John Lowe, executive vice president of ConocoPhillips, couldn't remember his exact salary.

"I wish I made enough money that I didn't know how much I make," Leahy shot back to guffaws in the hearing room. "Do you suppose you might be able to find out how much you make and let us know?"

Ostensibly the hearing was to focus on legislation being considered by Congress, like a measure that would give the United States the ability to bring price-fixing complaints against members of OPEC, the cartel of major oil-producing nations.

And it was supposed to focus on whether to raise the minimum investment requirements for speculators who have no intent to take delivery of oil but are pumping of billions of dollars into the trading of contracts for future delivery of oil.

But there was little talk of solutions. Most of the three-hour hearing was spent on zinging the oil execs, sometimes using props like a giant photo of President Bush holding hands with Saudi Arabia's King Abdullah, who last week politely rejected U.S. calls for significant new production.

"People listening just don't get it ... when demand isn't going crazy why are prices going crazy?" asked Sen. Herb Kohl, D-Wis., who authored legislation seeking to allow antitrust actions against OPEC.

Oil execs didn't think that legislation would help much.

"I don't think suing foreign governments in our courts will do anything," said Peter Robertson, vice president of Chevron Corp.

Kohl interrupted him to note that "unless we deal with OPEC in the foreseeable future, we will not be able to deal with the price at the pump."

Robertson fired back that "I don't think we can control OPEC. I don't think it is our place to control OPEC." The problem, he insisted, is that "there's not much spare (production) capacity in the world. OPEC doesn't have much spare capacity to change the supply."

This lack of spare capacity globally, said the oil execs, is giving speculators room to push up prices because of fears that supply could be disrupted.

"What you are seeing is the market's perception of supply and demand ... because when they look at that (scarce) spare capacity there is a risk premium in the market today," said J. Stephen Simon, senior vice president of ExxonMobil Corp.

Since 2005, the traditional correlation between global days of oil in inventory and market price has broken down, he said, citing three factors: growing political uncertainty in oil-producing countries, a weakening U.S. dollar and an increase in speculation in oil markets because of the first two changes.

Inventory can still affect prices. Wednesday's sharp uptick came after new data showed U.S. crude oil stockpiles fell by 5.3 million barrels over the past week, while energy analysts had expected an increase of a half-million barrels.

Oil executives insisted that their record profits are modest when viewed in percentage terms, and that profits are being pumped back into new energy projects, whose prices are soaring because of the rising cost of steel, concrete and virtually all other materials and labor associated with development of huge projects.

"These are enormously complex projects getting enormously more complex by the day," said Chevron's Robertson. He pointed to his company's recent involvement in a $6 billion project in Kazakhstan whose cost is greater, in inflation-adjusted dollars, than construction of the Panama Canal.

Most of the oil chiefs acknowledged that when measured through the prism of a pre-2005 world, today's oil prices should be far lower.

How much lower?

Shell Oil Co. President John Hofmeister suggested a range of $35 to $65, with $70 or more for high-tech projects in deep ocean waters. BP America Inc. President Robert Malone offered $60, and ExxonMobil's Simon, who drew most of the heat from lawmakers, said that, "I have no idea what the price should be. I think the market determines that."

Simon was later reminded that in testimony before the House of Representatives, he put that number at $55 a barrel.

As senators complained about high prices, oil executives shot back that more than 62 percent of federal land onshore is off limits for exploration and production of oil and natural gas. That's about the equivalent of eight years of oil imports, they said, calling for an opening up of America's three coastlines and allowing production from oil shale deposits in the Rocky Mountain states to yield new production and ease global supplies.

But, they insisted, restrictions imposed by successive congresses over 30 years hampers development of new supplies.

"When many of these policies were implemented, oil was selling in the single digits," said Shell's Hofmeister, adding that private oil companies are forced to explore internationally, where most of the world's oil is now in the hands of state-owned oil companies.

And these emboldened nations, they suggested, have little interest in significantly lowering the price of oil to ease the pain felt by American consumers.

ON THE WEB

Prepared remarks from BP America.

Prepared remarks from Shell Oil Co.

Prepared remarks from Chevron Corp.

Prepared remarks from ExxonMobil Corp.

Prepared remarks from ConocoPhillips Co.