The media are awash with historical flashbacks. Is this the worst economy since the Great Depression? Or is it a repeat of ’70s-era financial woes? For the most part, the comparisons have been less than accurate. But there’s one the media have missed: an old villain from the ’70s causing Americans grief over oil and gas.
Oil prices have soared to more than $100 a barrel and journalists are looking for someone to blame for Americans’ “pain at the pump.” They call “Big Oil” “thieves” and accuse them of reaping “excessive profits” driven by “greed.” But the networks ignore one of the big causes of high gas prices – the hostile leaders of the world oil cartel – the Organization of Petroleum Exporting Countries (OPEC).
The American people “know that companies like Shell are posting record profits,” NBC’s Meredith Vieira said to Shell Oil Company President John Hofmeister on the “Today” Show May 14, 2007. “Now, it may not be fair, it may not be right, but there is a perception out there in the country among certain consumers that the oil companies are a bunch of thieves, that you’re ripping people off.”
Vieira wasn’t alone in her thinly veiled hostility toward oil companies.
In an interview with Hofmeister Nov. 14, 2007, ABC “Good Morning America” host Robin Roberts suggested that “in an economy when people are truly struggling to try and make ends meet, could you cut back a bit on your profit?” Roberts also criticized Shell’s investment strategies, asking if the company invests “enough” into finding alternative fuels.
Despite economists’ reminders that supply and demand are at work – that oil companies don’t set gas prices – the networks have hammered away at that point. But Roberts wasn’t urging OPEC leaders to “cut back a bit” on their profits.
In fact, network reporters covered oil companies’ profits 14 times as often as they covered the profits of OPEC – an actual cartel that controls supply and directly affects prices, according to experts like Ariel Cohen, a senior fellow at the Heritage Foundation who wrote in June 2005 that OPEC “facilitates” high oil prices.
Many Americans still remember the cartel’s embargo against the United States in 1973. It caused record prices at the pump and led to gasoline rationing and long lines at service stations. Record prices have returned, but journalists now depict OPEC as a market follower instead of a market manipulator.
In the last year, OPEC has increased production by only fewer than 3 million barrels per day, according to the U.S. Energy Information Administration [1], while the per-barrel price of oil has doubled. Increasing production would lower the cost of crude oil by increasing supply to meet demand.
Members like Venezuela’s Hugo Chavez have admitted wanting to use anti-market practices to keep oil prices high to hurt the U.S. economy.
Yet from the beginning of 2007, when world prices hit a yearly low of $48.20 a barrel [2], through the first week in March 2008, the media have focused on oil companies’ profits as the cause of high prices and downplayed the role OPEC plays in manipulating prices by artificially controlling oil supplies.
The Anti-American OPEC Monopoly
OPEC was created in 1960 [3] by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. It now includes nine other oil-producing nations – Algeria, Angola, Ecuador, Indonesia, Libya, Nigeria, Qatar, Saudi Arabia and the United Arab Emirates. Its stated goal is “to co-ordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers.”
But in reality, its effect is less than “fair” and “stable,” said Cato Institute Senior Fellow Jerry Taylor. He wrote in March 2004 that OPEC contributes to the instability of oil prices.
“In the period between World War II and the formation of OPEC, the inflation-adjusted price of oil fluctuated little,” he wrote. “From 1970-1980, however, the real price of oil rose by about 1,300 percent. Between 1980 and 1986, it dropped by about two-thirds. It was fairly steady between 1986-1997, fell farther in 1997-1998, and then nearly quadrupled after February 1999. This is stability?”
Taylor predicted in 2004 – when oil was around $31.50 a barrel – that “if OPEC disappeared tomorrow, oil prices would drop to somewhere around $8 a barrel and gasoline prices would almost certainly be south of $1 a gallon. A price collapse of that magnitude would do more for consumer welfare and the overall health of the American economy than almost anything that’s been put on the table by President Bush or his Democratic Party rivals.”
Add to that the fact that Iran, one of the original five members of OPEC, is listed by the U.S. State Department as a state sponsor of terrorism [4].
In May 1973, Libyan leader Muammar el Qaddafi said, “The day will come when oil will be used as the ultimate weapon in the battle” against the West (July 8, 1973, New York Times). Iranian President Mahmoud Ahmadinejad has in recent years repeatedly mentioned that Iran could use oil as a weapon against the United States if attacked. Venezuelan President Hugo Chavez has made similar threats.
In 50 stories mentioning OPEC – excluding passing references to the cartel – since the beginning of 2007, the broadcast networks’ news shows didn’t mention the cartel’s history of anti-American antagonism, its current leaders’ vocal anti-Americanism, or its member nations’ use of profits to fund terrorism.
A May 2007 survey commissioned by the liberal Consumer Federation of America found that 86 percent of Americans expressed “concern” about imported oil funding terrorism. The same survey found 82 percent expressed concern about funding “unfriendly foreign governments.”
“High oil prices, which OPEC facilitates, serve to transfer wealth from Western consumers to petroleum producers,” Heritage Foundation Senior Research Fellow Ariel Cohen wrote in a WebMemo in June 2005 [5]. “This wealth transfer funds terrorism through individual oil wealth and government-controlled ‘non-profit’ foundations. It also permits hundreds of millions of dollars to be spent on radical Islamist education in madrassahs.”
In all, the networks mentioned a connection between OPEC’s production level mandates and oil prices only 46 times during the year that saw crude prices double as supply didn’t keep up with rising demand.
Even when it was mentioned, OPEC coverage was cursory.
“Where oil and gas prices go from here depends on whether OPEC cuts production and on how cold this winter gets,” Carl Quintanilla reported on the “NBC Nightly News” Jan. 17, 2007.
“OPEC ministers meet today in Vienna,” Alexis Christoforous reported on the CBS “Morning News” March 5, 2008. “Traders would like to see the cartel boost production to bring down prices, but oil analysts say that’s unlikely since OPEC believes global demand for crude will fall this spring.”
And the inquiry into OPEC stopped there.
None of the stories connected OPEC with Iran’s Mahmoud Ahmadinejad or Chavez, both of whom have previously threatened to use oil as a “weapon” against the United States. When OPEC leaders met in Venezuela in 2006, Chavez tried to get his colleagues to cut production. He failed, though, as members decided to keep production at “maximum” levels.
In the 50 stories mentioning OPEC, the networks – ABC, CBS and NBC – mentioned OPEC nations’ oil profits only three times. Only one of those reports specifically noted how much money OPEC nations make off of oil exports.
“Global economists say with oil near $100 a barrel, the OPEC nations alone now make enough money in just six days to buy General Motors, enough in three years to buy 20 percent of every company in the S&P 500,” Betsy Stark reported on the ABC “World News with Charles Gibson” Jan. 16, 2008.
A year earlier, on Jan. 17, 2007, Stark reported on “World News” that OPEC was
still making plenty of money” with oil at $50 a barrel. But she didn’t say just how much.
Lester Holt, on the Nov. 12, 2007, NBC “Today” show, did. “[W]ith $700 billion a year flowing to OPEC producers, that liquid gold is quickly dividing the world into the haves and have-nots,” Holt said.
The U.S. Energy Information Administration estimated [6] OPEC countries earned $675 billion in revenue in 2007 and are on track to bring in $863 billion in 2008. EIA does not estimate how much profit OPEC countries make.
The Evil of “Big Oil” Profits
Compare the networks’ virtual silence on OPEC profits (three stories) to the 43 stories on oil companies’ profits since January 2007 – a ratio of 14-to-1. Those profits, which affect American investors, deserve to be reported. But much of the coverage of companies’ profits went beyond merely reporting the facts and ventured into attacks on domestic and foreign companies.
Journalists blamed the companies for high gas prices and some went so far as to suggest they “are a bunch of thieves.” That’s what Meredith Vieira said to Shell Oil Company President John Hofmeister on the NBC “Today” Show May 14, 2007.
The three biggest American oil companies reported 2007 revenues of $806 billion combined. ExxonMobil, a favorite target for the media, reported $404.6 billion in revenue [7] in 2007. It reported $40.6 billion in profits. Chevron reported [8] $214 billion in revenue and $18.7 billion in profit. ConocoPhillips reported [9] $187.4 billion in revenue and $11.9 billion profit.
Journalists have a history of ignoring [10] how little control oil companies [11] have over the price of oil or gasoline [12]. Nor do they focus much on how oil companies invest their profits in research and development [13], Hofmeister said in a November 2007 interview on CNN.
ExxonMobil’s profit was about 10 percent of revenues. Chevron and ConocoPhillips had profits below 10 percent of revenue. Those percentages aren’t high [11] when compared to other industries [14]. Bank of America operates with an 18-percent profit margin, according to Forbes.com. Berkshire Hathaway has profit margin of 11 percent. AT&t: 11.8 percent. Proctor & Gamble: 13.1 percent.
By the newspaper industry’s standards, oil companies must be on the verge of collapse. Newspapers, in spite of incessant fears that the industry is declining, reported pre-tax profit margins “in the high teens” in 2007 [15], according to the Project for Excellence in Journalism.
Oil price analyst Tom Kloza told CBS “The Early Show” April 2, 2007, that oil companies were reaping “really excessive profits and excessive numbers.”
On “The Early Show” May 8, 2007, CNN host Lou Dobbs reported that “the biggest five oil companies operating in this country have made more than $400 billion in profits since 2001. Now I’d call that earnings, but I’m not sure they’ve earned it.”
Claire Shipman used the loaded term “windfall profits” to describe oil companies’ earnings on ABC’s “Good Morning America” May 15. On May 24, a “Good Morning America” report on gas prices used a graphic aligning oil companies’ profits with “greed.”
The media negativity continued. On the Feb. 1, 2008, “NBC Nightly News,” anchor Brian Williams said of ExxonMobil’s $40 billion, “that’s profit – that’s not what they made over the course of a year – might have something to do with what we’re paying per gallon. Why shouldn’t people be outraged to hear that?”
They shouldn’t be outraged because ExxonMobil and other oil companies have a responsibility to their employees and shareholders [16] to make a profit and maintain corporate stability. Oil companies need profits so they can invest in finding and producing more oil.
And the media don’t look at profits versus expenditures in context. Over the last 25 years, ExxonMobil, for one, has reported profits of $331 billion. It has invested $355 billion back into its business over the same time period, according to spokesman Gantt Walton.
“We’ve invested more in the business than we’ve earned,” Walton said. “You can’t just take snapshots in time because it’s really just a reflection of the commodity price.”
Neither do the media focus on taxes paid by oil companies. Exxon paid $105 billion in taxes in 2007, Walton said, more than two-and-a-half times as much as it made in profit.
CNBC’s Jim Cramer was one of only two journalists to stand up for oil companies since 2007, pointed out that oil companies have “been through bad times and now this is just a great time for them. I don’t hold it against them.”
The other was ABC “20/20” host and consumer reporter John Stossel. “When did profit become a dirty word?” he asked on the June 1, 2007, broadcast, suggesting oil executives ask, “‘What do you think we do with it? Buy fancy cars and homes? Well, we do actually, but nearly all the money goes to looking for more oil and in following the environmental rules that you want us to follow. You should want us to make more profit.’”