"We Gave at the Pump"

By Janice Castro

Are oil companies ripping off their customers? As the gyrating price of crude sends quakes through the world economy, consumers and politicians have hurled angry accusations that Big Oil is using the crisis to maximize profits. Those suspicions only grew stronger last week, when several leading oil companies reported that their earnings rose sharply in the July-September quarter. At Phillips Petroleum, profits more than doubled, to $178 million. Unocal's earnings were up 53%, to $121 million. The Justice Department and the Senate are investigating oil pricing. And some legislators, notably Senator Joseph Lieberman, a Connecticut Democrat, are calling for a new windfall- profits tax. Said he: "The escalating price of oil is the result of panic, speculation and price gouging during a time of national crisis."

Yet so far the criticism has not reached the fever pitch of the 1970s, when Big Oil's "obscene" profits inspired a wave of legislative controls. The oil companies contend that they have heeded President Bush's admonition to show restraint at the gas pump. In fact, while oil prices at the end of last week stood at about $33 per bbl., or 65% higher than they were just before Iraq invaded Kuwait, average U.S. gasoline prices were only 31% higher, or $1.38 per gal. for unleaded regular. Said Holly Hutchins, a spokesman for Shell Oil: "We gave up a considerable amount at the pump to meet the President's request."

Energy consumers complain, however, that Big Oil has been less moderate in boosting prices of other products. Heating fuel has risen about 45%, to 88 cents per gal. The biggest run-up has occurred in jet fuel, which has zoomed 100%, to $1.40 per gal. "Petroleum producers are reluctant to stick it to the little guy, so I think they are attempting to shift more of the expense to a place where the average consumer won't see it immediately," contends David Messing, a spokesman for Continental Airlines.

At a time when the recessionary economy was hurting the airlines anyway, the oil jolt has hit the industry particularly hard. For Continental, the doubling of fuel prices increased monthly expenses by $80 million. To pass along some of their higher costs, several carriers boosted airfares last week for the third time since August. Still, the higher fuel prices seem certain to intensify airline industry consolidation as weaker companies falter. Continental, which filed for bankruptcy in 1982, narrowly avoided a second reorganization last week when its management decided instead to consider selling planes and other assets. Pan Am meanwhile agreed to sell some of its few remaining crown jewels -- principally its London routes and gates -- to United for $400 million.

In the oil industry, not all companies have profited handsomely from the rise in crude prices. The big winners are mostly firms that own large petroleum reserves as well as those that sell large amounts of gasoline or oil products to others at wholesale. Arco, for example, which controls a large stake in Alaska's North Slope, enjoyed third-quarter earnings of $462 million, up 22% from last year. Some companies were losers because they lack major reserves but operate large retail networks of gas stations. Mobil, which buys an unusually high proportion (60%) of its crude oil from other companies, suffered a profit slump of 29%, to $379 million for the quarter.

Nonetheless, consumer advocates charge that some oil companies are hiding their profits and delaying their windfalls through imaginative accounting methods. Said Edwin Rothschild, the energy policy director for Citizen Action: "We're likely to see some fat profits in the fourth quarter." The oil companies dispute that charge. "It's all there in our earnings statement for everybody to see. There's no hocus-pocus," said Michael Thompson, an Amoco spokesman. Even as they pay more for fuel, consumers should take consolation in the effect of their griping. If not for the public scrutiny, gasoline prices would no doubt be higher.

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With reporting by Thomas McCarroll/New York and Richard Woodbury/Houston