TIME: Almanac 1993/TIME Almanac 1993.iso/time/022591/0225201.000

Text File | 1992-08-28 | 5.5 KB | 130 lines

                                                                                BUSINESS, Page 64

Big Oil's Bad Rap


The Middle East war has rekindled consumer hatred of petroleum
companies. In fact, they get more loathing than loot


    Antiwar protesters shouting "No blood for oil!" infuriate
George Bush. His color rising and lip curling, he retorts in
speeches and private meetings, "It's not about oil! It's about
naked aggression!"

    Bush, a former oilman, knows well the visceral animosity
most people feel toward America's major oil companies. A survey
by the American Petroleum Institute, the industry's trade
group, finds that 72% of Americans view Big Oil unfavorably.
A study by Chevron shows that 65% of citizens say they cannot
believe anything the industry says about the gulf war. Most
Americans think -- incorrectly -- that oil is more profitable
than most businesses, a view that is reinforcing cries in
Congress for a windfall-profits tax.

    The industry's latest offense, in the popular wisdom, is
apparent in its profits for 1990's fourth quarter, reported by
the Energy Department last week. Thanks mostly to a brief rise
in the price of crude to a high of $40, those earnings rose 77%
above 1989's level. "We are protecting their oil with American
boys," complains Senator Howard Metzenbaum, the Ohio Democrat
who introduced a bill earlier this month calling for a surtax
on the profits of the largest companies. "As quick as Saddam
raised his sword, the oil companies raised their prices."

    Sometimes it's hard to believe Metzenbaum was a businessman
before becoming a Senator. The quarter's profit increases
looked so dramatic because the corresponding period in 1989 was
the industry's worst in a decade. Disregard its Valdez-size
write-offs of 1989, and the industry's total profits rose only
11% in 1990. That still didn't make them especially high. They
represented just a 13.5% return on the shareholders' equity,
far lower than in such businesses as cosmetics (30.5%),
pharmaceuticals (29.5%) and restaurants (19%). "No one is
accusing the cosmetics industry of making obscene profits," says
William O'Keefe, vice president of the A.P.I. Oil-company
returns have averaged 12% since 1985, vs. an average of nearly
15% for all other manufacturing.

    Most consumers were understandably livid over the way
gasoline prices leaped after Iraq's invasion of Kuwait, peaking
at an average $1.30 in October for an unleaded gallon.
Actually, however, the U.S. rise was much less than the rise
in European nations and Japan, where pump prices more
accurately reflected the cost of crude. The Energy Department
last week announced it had found no proof of profiteering by
the oil industry, while the Hudson Institute concludes that 80%
of the benefit of the higher prices went to the foreign
nations that control the commodity.

    Since war broke out on Jan. 16, crude prices have dropped
from $32 per bbl. to $21 per bbl., but oil companies have been
slow to cut retail gas prices correspondingly. This has fed
anti-oil acrimony, but the industry argues that it is just
making up for not hiking prices all the way during last fall's
crude run-up. Even so, the average price of a gallon of
unleaded is down to $1.18, only 10 cents higher than the day
before Iraq invaded Kuwait -- and half that difference is from
a nickel-a-gallon federal tax imposed in December.

    The war has been bad news for the major oil companies so
far. Not only are crude prices down, but many experts foresee
a further plunge when the war ends. Other countries have more
than made up for Iraq's and Kuwait's lost production, and the
U.S. is getting by on less imported oil, thanks in part to a
warm winter and reduced demand driven by the recession. When
Iraq and Kuwait start pumping again, the sudden glut could
force prices down temporarily to $15 per bbl. or less. That
would wash away the industry's profit gains of last quarter and
further lower its subpar returns. Warns Unocal chairman Richard
Stegemeier: "Instability is coming, and the industry doesn't do
well in turbulent times."

    So why do Americans deeply detest Big Oil? After all,
observes Stegemeier, "No one seems too concerned when orange
juice goes up after a freeze. Society says everyone should have
a free market, except the oil industry." Harvard Medical School
psychologist Steven Berglas, who works with corporations that
suffer from image problems, concurs. "People resent powerful
entities that control necessities like oil," he explains. "We
can actually gain psychological control by hating them." Berglas
also suspects that some civilians deflect their anti-Iraq
feelings toward Big Oil, a more accessible target. "You and I
are not flying F-15s," he says. "But we can really be ticked
off at the oil companies for supposedly reaping profits off
misery." And never mind whether it makes sense.


By Richard Behar. With reporting by Thomas McCarroll/New York.


____________________________________________________________
BEFORE AND AFTER THE INVASION


    U.S. oil imports in millions of bbl.:

    JULY -- 275 total

    -- Arab OPEC - Saudi Arabia  42                  - Iraq
       35                  - Other         11

    -- Non-Arab OPEC             65

    -- Non-OPEC                 122


    NOV. -- 209 total

    -- Arab OPEC - Saudi Arabia  47                  - Other
        6                  - Iraq           0

    -- Non-Arab OPEC             56

    -- Non-OPEC                 100