This article is over 14 years old


Wednesday PM May 21st, 2008

Big Oil executives blame supply and demand principles for high gasoline prices…American Airlines cutting back on domestic flights, laying off workers and adding new fees to cope with fuel prices…LAT TV ceasing broadcasting operations…

Senators told oil executives that high oil prices cannot be explained by supply and demand and the oil industry’s concentration–and OPEC price collusion–is contributing to the costs facing consumers. Executives of the five largest oil companies are appearing before the Senate Judiciary Committee. Committee Chairman Patrick Leahy said there’s an unexplained “disconnect” between prices–at nearly $130 a barrel–and legitimate supply and demand. And Wisconsin’s Herb Kohl said, “we need to get prices under control.” He added, “we can only conclude that the oil markets have failed.” But Shell Oil Chairman John Hofmeister said the prices can be explained, saying, “the fundamental laws of supply and demand are at work.” ExxonMobil Executive Vice President Stephen Simon says his company and the nation’s four other top oil companies have had huge profits “in absolute terms.” But he tells a Senate committee that what he calls “current up cycle” profits are needed to cover investments when profits are down. Senate Judiciary Committee Chairman Patrick Leahy called that “a nice term” when close to $4-a-gallon gasoline means “people can’t afford to go to work.” When Leahy asked how much he is paid a year, Simon replied that he makes $12.5 million. Pennsylvania Republican Arlen Specter says he can see no explanation for why ExxonMobil’s annual profits have increased from $11.5 billion to more than $40 billion in the past five years. Exxon and the four other oil companies earned $36 billion in the first three months of this year.

Just days before the summer driving season kicks off, gasoline is averaging almost $4 a gallon, about 20 percent more than a year ago. AAA puts the national average of a gallon of regular gas at just under $3.81. That’s 60 cents a gallon more expensive than a year ago. Premium will set you back an average of nearly $4.19 a gallon, up 65 cents from a year ago. The price of crude has also soared to a new high, eclipsing $130 a barrel in Asia. Three senators have written President Bush, urging creation of a Justice Department task force to investigate possible fraud and manipulation in oil and gasoline markets. The House, meanwhile, is set to approve a package of legislation that includes tax incentives for solar, wind, and other types of renewable energy. Analysts blame the run up in crude prices in part on the sliding U.S. dollar and on word from OPEC that it’s not going to boost production before its next meeting. That’s not scheduled until September.

Shell’s John Hofmeister challenged lawmakers to open more areas to drilling. He says granting greater access could help the U.S. avoid awkward situations in which U.S. leaders ask producing nations to produce more and get unresponsive replies. President Bush was unable to persuade Saudi Arabia to ramp up oil output last week. Chevron’s Peter Robinson says the U.S. can’t expect other countries to increase production when we limit our development without good reason.

American Airlines is cutting back on domestic flights, laying off workers and adding new passenger fees as it struggles with record-high fuel prices. American will begin charging a $15 fee for the first checked bag beginning June 15th. It will raise other fees for services ranging from reservation services to oversized bags. The nation’s largest carrier tells shareholders that it will cut its domestic flight schedule by up to 12 percent in the fourth quarter of this year. Fort Worth-based parent AMR Corporation says reduced flying will lead to job cuts at both American and its American Eagle subsidiary. AMR expects to retire 45 to 50 planes from its fleet, most of them gas-guzzling MD-80 aircraft. Those were the plane grounded for faulty wiring last month. American said rising oil prices have increased its expected annual fuel costs by nearly $3 billion since the start of the year.

Delta Airlines says it will not match Americans’ plan to charge $15 for a passenger’s first checked bag. A Delta spokeswoman says the carrier is considering a number of options to deal with record fuel prices, but the $15 check-in fee is not one of those options. American says the first-bag charge will go into effect on June 15th. It also plans to raise other fees for services ranging from reservation help to oversized bags. The airline says it is also cutting domestic flights and laying off workers to reduce operating costs.

American Airlines pilots and flight attendants are taking their protest against management to the shareholders who own the company. Hundreds of airline workers took part in a union-organized protest outside the hall where shareholders of American parent AMR Corporation were scheduled to meet. The unions are unhappy because there’s been little progress in negotiations for new contracts, while several hundred managers up to the CEO got stock-based bonuses last month. Shareholders expected to hear Chairman and Chief Executive Gerard J. Arpey discuss how the nation’s largest airline will deal with record high fuel prices and a slowing economy that could hurt demand for travel. Fort Worth-based AMR, which also owns the American Eagle commuter airline, earned $504 million last year–its second straight profitable year after it lost more than $8 billion in the previous five years. But the company lost $328 million in the first three months of 2008, as spending on jet fuel increased $665 million, or 45 percent.

The board of directors of LAT TV are stopping broadcasting operations and proceeding with a company shutdown, according to Program and Branding Vice President Patricia Torres-Burd. The Spanish-language group, which feeds programming to five television stations in Texas, says it has been unable to secure a source of ongoing funding to continue operations. Programming has been coming from broadcasting groups in Central and South America, re-edited for use in Texas. Torres-Burd says tapes and masters are being returned to all distribution and production houses this week. LAT TV programs have been carried on KCVH Channel 30, as well as on KPRC’s third digital channel 2.3 and Comcast channel 321.

The House has passed a $54 billion tax package that provides breaks for millions of people and businesses and incentives for development of renewable energy. The bill expands a child tax credit for lower income families and creates a new deduction for homeowners. It renews a popular research and development tax credit and a credit for the out-of-pocket expenses of teachers. The White House is threatening to veto the bill. It objects to new tax revenues to pay for the measure.

A Bureau of Land Management study shows that vast untapped oil and natural gas resources exist on public lands in the United States. The report is a third in a series of Congressionally-mandated scientific studies of U.S. onshore Federal oil and natural gas resources and limitations on their development. The public lands are estimated to contain at least 31 billion barrels of oil and 231 trillion cubic feet of natural gas. Some 60 percent of those federal lands are presently closed to leasing.

Subscribe to Today in Houston

Fill out the form below to subscribe our new daily editorial newsletter from the HPM Newsroom.

* required