Gasoline prices have soared an average of 60 cents a gallon in less than a month because suppliers are unable to keep up with demand, a situation that could persist up to three more years, Energy Secretary Samuel Bodman said Sunday.
Bodman said on NBC’s “Meet the Press” that the shortfall was a sign of a stronger economy under President Bush, but he acknowledged that, at least for now, “the suppliers have lost control of the market.”
“The oil has gone up because the suppliers are unable to make the flows equal to the demand,” he said. “... Clearly, it’s going to be a number of years, maybe two to three years, before suppliers are going to be able to keep up with those demands.”
Bodman blamed demand from China and India, reduced refining capacity after Hurricane Katrina, and inadequate planning for shifts to cleaner fuels like ethanol and low-sulfur diesel for causing market “dislocations” that led to rising prices, but Red Cavaney, president of the American Petroleum Institute, the industry trade group, said the war in Iraq played a major role, too.
U.S. companies have been unable to provide the Iraqis with technical assistance to revive their oil industry because “we make sure that we don’t put our employees in harm’s way,” he said. “As soon as you can stabilize the situation in Iraq, they can ramp up production, but it’s going to take years.”
Industry profits defended
Senate Minority Whip Dick Durbin of Illinois said the price of gasoline had almost doubled since Bush took office. “All of these things were predictable,” he said, pointing to provisions of the energy bill Bush signed last year, which did not shield producers of cleaner-fuel additives like MTBE from legal liability, thereby slowing the transition and squeezing gas supplies.
“We’ve had a failure in our nation’s energy policy,” Durbin said.
At the same time, U.S. oil companies are reporting record profits even as motorists struggle to deal with the rising prices. Chevron Corp., ConocoPhillips Ltd. and ExxonMobil Corp. combined to earn more than $15.5 billion in the first three months of the year. But Bodman and Cavaney said they saw no problem with the profit reports.
Bodman said the U.S. companies faced competition primarily from from government-owned and -controlled firms, which can manipulate market forces to their advantage. “A lot of it is controlled by what [Venezuelan President] Hugo Chavez does, for instance,” he said.
U.S. refiners need large cash reserves to compete in research and development, he said, and to drive more exploration and drilling.
Bush said last week that there was no evidence of price gouging, but he called on the Justice Department to open an investigation. Bodman said he, too, saw “we see no evidence of it, but this is one of those situations where I guess I would call it ‘trust but verify.’”
Bush last week announced several measures to lower prices, including a suspension of filling the nation’s emergency oil stockpile and relaxing environmental regulations.
“This administration is doing everything it can do,” Bodman said.
Taxes on oil companies?
The secretary was clear in his opposition to imposition of a “windfall profits” tax on the oil industry, which many Democrats and some prominent Republicans have supported.
Sen. Arlen Specter, R-Pa., chairman of the Judiciary Committee, said last week that a windfall profits tax could offer eventual relief to consumers, while Senate Republican leader Bill Frist of Tennessee said on MSNBC’s “Hardball” that the Republicans would try at least to repeal some tax credits to oil companies.
Durbin, the No. 2 Democrat in the Senate, echoed those calls on “Meet the Press,” warning that “if you do not tax these corporations ... they will continue to run up the profits to high heavens.”
But Bodman said such presumably “punitive” tax measures would be counterproductive. “That was tried 30 years ago. It did not work," he said. “That proposal does not hold water.”
An NBC News-Wall Street Journal poll found this week that rising gasoline prices were Americans’ biggest concern this week, more than the nuclear threat from Iran and illegal immigration. Economists, however, say the impact on the economy will be muted because energy costs were a relatively small part of the $11 trillion U.S. economy.
Ben Bernanke, chairman of the Federal Reserve, predicted last week that the rising cost of energy would probably likely slow economic growth by only “a couple of tenths” of a percent over the next two years by cutting into consumer spending.