For months, the media have blamed virtually anything but free market forces for the rise in oil and gas prices. NBC’s Lisa Myers attributed these increases to greed on a recent Nightly News report stating almost disgustedly “Exxon earned 9.5 cents on every dollar of gasoline and oil sold, cashing in at every stage of the process.”
Imagine the nerve of ExxonMobil actually making a profit. Oh the humanity.
A few days earlier, CBS’s Russ Mitchell, clearly concerned about price gouging, asked one of his guests on the Evening News, “How easy is it for a gas station, for an oil company to just jack up the price of gas?"
I bet you can’t guess the response.
Yet, in the midst of all this hysteria, a highly unlikely source – National Public Radio’s Internet website – published an article entitled “Q&A: What’s Behind High Gas Prices?” In it, author Scott Horsley adroitly cut through the hype, and shared with his readers the facts surrounding the recent explosion in energy prices – facts that most media refuse to share with the public.
First, Horsley did a breakdown of how various factors go into the actual retail price per gallon of gasoline. Top on the list was crude oil, which, according to Horsley, “accounts for about $1.60” of the currently $2.90 national average. Next, “Refining costs add another 64 cents or so to a gallon of gasoline.”
Then, Horsley raised a cost that few media are willing to acknowledge: “The balance of the price is taxes -- about 55 cents.”
Oil companies pay taxes? I thought none of Bush and Cheney’s friends pay taxes.
Well, we’ll get to that later. But, before we do, using Horsley’s numbers, $2.79 out of the $2.90 that folks are currently paying for a gallon of gasoline are oil companies’ costs.
That’s certainly not the way most media are presenting these numbers, for on the same day Horsley’s article was published, ABC’s Elizabeth Vargas started her World News Tonight broadcast: "Tonight, the world's largest oil company reports record profits as Senators look for ways to save Americans pennies at the pump." She continued: “We begin with the rising oil pressure in the United States, fast becoming the country's economic and political priority.”
Rather than address all of the various expenses involved in producing gasoline in this segment, ABC chose to castigate ExxonMobil for not spending enough.
Leave it to a media member to see things in such a backwards fashion.
Correspondent Betsy Stark asserted: “But according to the company's own financial statement, last year only 30 percent of the oil giant's $36 billion in profits went to exploration and increasing capacity.” Stark then had the gall to complain about what ExxonMobil did with its profits: “15 percent of profits went directly to shareholders in the form of cash dividends, and the biggest chunk, 40 percent, was used to repurchase Exxon's own stock."
Are you kidding me? ExxonMobil actually shared some of its profits with the people that own the company? There oughta be a law!
Yet, apart from addressing any of ExxonMobil’s almost $74 billion in expenses in the first quarter, ABC also chose not to report the $7 billion in income taxes – I promised we get back to this – the oil giant paid to the federal government. In fact, as the Media Research Center’s Rich Noyes pointed out at NewsBusters.org that same day, ExxonMobil’s total tax bill in the first quarter – when factoring in income taxes, excise taxes, and “other taxes” – was $25 billion, or fully three times its profits.
We certainly wouldn’t want to report that now, would we?
Finally, Stark chose not to inform the viewer that shareholders received a total of $2 billion in dividends – representing a paltry two percent yield based on the current share price, which is less than what one can make in a money market account or certificate of deposit – or less than one tenth what the government made from ExxonMobil in the quarter.
That’s right – the government actually made more than ten times as much money from ExxonMobil as its shareholders. Capitalism at it’s finest, wouldn’t you agree?
Not to be shut out of the oil company bashing, the NBC Nightly News also lead with oil prices that evening. Correspondent Lisa Myers began her report: “For outraged consumers, the staggering profit numbers boil down to this: Exxon earned 9.5 cents on every dollar of gasoline and oil sold, cashing in at every stage of the process." Unlike NPR, Myers opted not to explain what happenend to the other 90.5 cents, or to address the tax issue. How convenient.
On the same day, the CBS Evening News began its newscast: “Gas prices are still going up, and so are profits for ExxonMobil.” Anchor Bob Schieffer was only interested in discussing the $8.4 billion in profits made by America’s largest oil company rather than informing his viewers of all the other expenses involved in producing and marketing a gallon of gasoline.
Of course, the greed of oil companies and their executives is only one cause of high energy prices according to the media. Another has been price gouging. A fine example occurred on the April 25 CBS Evening News. Sitting in for Bob Schieffer was Russ Mitchell who invited New York state attorney general Elliot Spitzer on to discuss this issue. Mitchell began by asking, “How easy is it for a gas station, for an oil company to just jack up the price of gas?” Spitzer was the perfect person to ask, and quickly answered, “Very easy.”
Yet, NPR didn’t agree. According to Horsley’s article, “The government has conducted numerous investigations of suspected ‘price gouging’ in the past; it usually finds that market forces of supply and demand, not illegal market manipulation, are responsible for high prices.”
NPR also addressed what actually controls the price of oil: “Oil companies don't set crude-oil prices; the global market does. Basically, the market decides what people are willing to pay at a certain moment in time.”
Not surprisingly, this isn’t how most media members see it. For instance, on April 30’s Meet the Press, host Tim Russert actually argued with secretary of energy Samuel Bodman that oil companies were responsible for establishing the price of gas: “They determine, they determine, help determine the price at the pump.”
Not according to NPR: “…if oil companies could control the price of crude oil, they would not have allowed the price to fall to $10 a barrel as it did in 1998.” Horsley offered a great analogy: “Oil companies, like the farmer, are the beneficiaries of high market prices, but they can no more control those prices than a farmer can dictate what he gets for a bushel of corn.”
Instead, NPR accurately stated that prices are established by market forces in an expanding global economy: “Countries like India and China are growing, and that has created more demand for oil and gas. In the United States, we're still going full throttle when it comes to energy use.”
Horsley also addressed other factors that add to the direction of prices: “At the same time, there have been supply disruptions and political instability in major oil-producing nations. So you have a situation where demand has been growing steadily and inexorably, and the system of supply is quite vulnerable.”
Finally, Horsley accurately depicted why oil companies are making so much money today: “Big oil companies are making most of their money by producing crude oil. They invested in oil fields when prices were much lower, with the expectation that they could break even at, say, $25 per barrel.” Obviously, with prices now above $70, these companies are doing very well:
“It's like a farmer who can raise corn for $1.50 a bushel. If the market price is $1.75, he makes a quarter per bushel. If the market price jumps to $2.25, his profits jump as well.”
Of course, this isn’t a one-way street: “If the market crashes to $1 per bushel, the farmer loses money. That can happen to oil companies as well.” As a result, all this reward comes with a lot of risk, investment, and expense…something it seems that few in the media other than NPR realize.