Soaring gasoline prices. Unprecedented corporate profits. Is it okay to hate Exxon Mobil? If you do, you’ll have plenty of company. In a recent NBC– Wall Street Journal poll that asked Americans what worries them most, 45 percent said $3-a-gallon gas. That was the number one answer, beating out a nuclear Iran, illegal immigration, and civil unrest in Iraq. When asked what was responsible for the spike in prices, people were more than happy to blame Big Oil. And no one’s bigger than Exxon Mobil.
So is the company responsible for the high gas prices? Every economist on CNBC tells a different story. Well, as LBJ used to say, “If you put two economists in a room, you’re bound to hear three opinions.” So let’s keep the answer simple: First, worldwide demand is soaring. The United States imports 60 percent of its oil, but it’s also competing with booming economies in China and India. To make matters worse, the supply has tightened. Perhaps you’ve heard of the instability in the oil fields in the Middle East, not to mention Africa and South America. It didn’t help that a sloppy transition from the additive MTBE to ethanol in our gasoline also pinched supplies. Some analysts believe that 60 cents of the per-gallon increase can be blamed on that switch. Sadly, Exxon Mobil can’t be on the hook for that—though it sure fattens the bottom line.
What about collusion? Oil is traded on the open market, and the price is largely dependent on the producers (remember a little group called OPEC?). So most experts simply don’t believe it’s possible. But if you think fixing the price of the most important commodity in the world is that easy, just ask a Houston oil exec from, say, 1986.
So how does Exxon Mobil justify its profits? There’s no doubt the numbers are startling: In 2005 the company pocketed $36.1 billion in profit, more than any other business in history. And this year it had its highest first-quarter profit ever, $8.4 billion. But the company says the profit is simply a result of smart business decisions. Even detractors admit how disciplined Exxon Mobil is—it earns an astounding 31 cents for every dollar spent.
But while the company is humming along, aren’t the high prices hurting the economy? In the long run, yes. But in early May the Dow Jones Industrial Average hit a six-year high, and at the same time, major retailers reported strong sales. And Exxon Mobil isn’t the only company posting massive profits. Citigroup, the nation’s largest financial institution, made $24.6 billion last year and pocketed a first-quarter profit of $5.6 billion. Time Warner posted a nearly 60 percent increase in profit in the first quarter.
How has the government responded? Remember that even before this issue exploded, President Bush said in his January State of the Union address that “America is addicted to oil” (never mind that he once tried to be a high-flying oil baron himself). In late April top Republicans called for an investigation into possible price fixing, and recently a House committee set out to investigate the retirement pack- age of former Exxon Mobil CEO Lee Raymond, which could be worth nearly $400 million. That last figure pushed the public over the edge; it would be easier to spin for a land mine company or doctors who practice without licenses.
So what can the average Joe do? Well, you can join a variety of protests at the company’s annual shareholders’ meeting, which takes place on May 31 in downtown Dallas. (You can also expect a police presence worthy of a papal visit.) Or you can exercise your consumer muscle: Officials in Bee County, south of San Antonio, passed a resolution asking residents to boycott Exxon Mobil stations. But to be honest, the best thing you can do is cut back on how much gasoline you buy.
But why should folks have to change their habits when the company’s former CEO gets that kind of money? Isn’t $400 million ridiculous? Of course it is. For what it’s worth, so was A-Rod’s $252 million deal with the Texas Rangers. I know that if this magazine ever offered me that kind of cash, I would turn it down in a heartbeat.
Are you being sarcastic? I hate to defend a greedy corporate fat cat while I’m struggling to fill up my SUV, but CEO pay across the board is obscene. At least Raymond built tremendous wealth for the company. During his tenure the company’s stock price went up 500 percent. A lot of other CEOs get huge sums for doing nothing—or worse. Sanjay Kumar, who pleaded guilty in late April to inflating revenues at Computer Associates, may be able to keep more than $300 million in bonuses.
So if I’m a stockholder, I should love Exxon Mobil. It’s hard to argue with those returns. But there is one serious charge that should give investors pause. Exxon Mobil has spent millions of dollars to cast doubt on global warming, prompting Paul Krugman, of the New York Times, to call the company an “enemy of the planet.” And in the end, the worst thing that can happen for Exxon Mobil is for oil prices to hit, say, $150 a barrel—and stay there. Then the public outcry would hit a fever pitch. It might actually last long enough to change the way we look at our cars, our priorities, and the energy future of this country.