Are Oil Companies Profiteering from Katrina? American drivers have been feeling the effects of Hurricane Katrina at the gas pump -- gas is averaging close to $3 a gallon nationwide. Some analysts accuse oil companies of profiting from this disaster, while others insist that market forces are to blame. Chris Arnold takes a look at both sides of the issue.
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Are Oil Companies Profiteering from Katrina?

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Are Oil Companies Profiteering from Katrina?

Are Oil Companies Profiteering from Katrina?

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MADELEINE BRAND, host:

This is DAY TO DAY. I'm Madeleine Brand.

Hurricane Katrina wrecked and damaged dozens of Gulf Coast oil and gas platforms and knocked out refineries, but for all its destruction, Katrina will likely mean even bigger profits for most of the major oil companies. With gas around $3 a gallon, some people are fuming and calling for investigations into whether the oil companies are engaging in price gouging, but many economists insist the prices are not improper. NPR's Chris Arnold reports.

CHRIS ARNOLD reporting:

For many people, it just doesn't seem right that the oil industry should be profiting from a natural disaster that has destroyed much of New Orleans and left hundreds of thousands of people homeless. Anna Aurilio is legislative director for the US Public Interest Research Group.

Ms. ANNA AURILIO (Legislative Director, US Public Interest Research Group): The fact of the matter is that oil companies are taking advantage of the situation. In many parts of the country, there's no real competition at the gasoline pump. So when there is a disruption in supply, the companies that serve that area can raise the prices almost as much as they really want.

ARNOLD: An underlying question here is: Are oil companies profiteering by colluding to jack up prices, or is the run-up in prices just a natural reaction of the market?

Mr. STEPHEN BROWN (Federal Reserve Bank of Dallas): It's just market forces.

ARNOLD: Stephen Brown is director of energy economics for the Federal Reserve Bank of Dallas.

Mr. BROWN: A number of refineries were knocked out of production. In fact, four of them are still out of production, amounting to about a little more than 4 percent of US daily oil consumption.

ARNOLD: Four percent might not sound like a lot, but the supply of oil was already so tight that it sent a price shock across the country. Phil Flynn is a vice president of Alaron Trading in Chicago, which trades oil and gas futures.

Mr. PHIL FLYNN (Vice President, Alaron Trading): You know, people when they hear these record profits, it's so easy to get angry and say, `Oh, my gosh, those oil companies are making so much money. What's going on with them?' We have to remember the oil companies were making record profits before the storm hit. It's because the demand for oil has been through the roof.

ARNOLD: Steven Brown with the Fed says a jump in prices helps rebalance supply and demand--for example, as people start driving less and buying less gas--and already demand is down a bit. The price of crude oil has fallen back to prestorm levels, even if the price at the pump will likely stay up there for some weeks. But some experts say supply wouldn't be so tight if oil companies had invested in building more refineries.

Ms. AMY MYERS JAFFE (Rice University): The entire industry invests nowhere for a decade, which is what we've seen.

ARNOLD: Amy Myers Jaffe is an energy researcher at Rice University. She was on a 52-member task force with energy and public policy experts back five years ago.

Ms. JAFFE: You know, your listeners don't have time, but I'd like to pull out from my 110-page task force report the sections we say about the crisis that's coming because of the shortage of refining capacity and energy infrastructure in the United States. I mean, people were talking about that loud and clear and there was no response; no response from industry, no response from Washington.

ARNOLD: Some economists say the oil companies need these boom years to get the resources and motivation to spend more on needed infrastructure, but consumer advocate Anna Aurilio says the profits are reaching an outrageous level. She's among those calling for a so-called `windfall tax' on profits.

Ms. AURILIO: Consumers could get real relief if we tax some of these enormous profits from the oil companies and put some of that money back into consumer incentives and consumer rebates to buy more fuel-efficient cars.

ARNOLD: The big oil companies have donated millions of dollars to the Katrina effort; ExxonMobil alone so far has given $7 million. One newspaper columnist did the math to figure out what percentage that was of Exxon's $25 billion in annual profits; the answer is .0028. Chris Arnold, NPR News.

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