Oil Companies: Profiteering on Hurricane Katrina?

Every time I go to the gas station these days, I’m possessed by an unshakeable feeling of being cheaply used.

As the gas prices fall precipitously (which, curiously, doesn’t quite make the news, with detailed analysis, quite like the prices going up did), I once again feel the sickening presentiment of shameless profiteering I had when the U.S. first invaded Iraq.

“When Hurricane Katrina slammed into the Gulf Coast in late August,” according to PBS, “it shut down many of the region’s key oil production facilities for over a week.” The net effect was to reduce “U.S. oil supplies by about 1.4 million barrels a day, or 8 percent of total U.S. production.” That’s what we’ve been told over and over again by the media. (Just like “there are WMDs in Iraq!”) Somehow we seem to forget about the for over a week part. Suggesting that, what? it took up to two weeks for most refineries to return to full production? It’s been fourteen months!

During the summer of 2006, gas prices set record highs. In the two months leading up to an election whose prospects look quite dim for the Republican Party, the national average gas price has dropped $0.84/gallon– from $3.07 at the end of August to $2.23 in mid-November (Source: MSNBC 16-Oct-06). Doing the math, that’s a 27% price drop–in a widely traded commodity–in two and a half months. 27%!

But, wait– commodity prices are determined by the market. They can’t be arbitrarily set, right?

Wrong. See: The California Energy Crisis of 2000 and 2001– a crisis largely the result of Enron’s exploitive corporate policies. Enron took advantage of California’s deregulated energy laws to fabricate (or exacerbate) an “energy shortage,” that they used, in turn, to inflate energy prices. While Californians were experiencing widespread brown-outs and black-outs, the California energy grid was producing at well under capacity. By scheduling excessive amounts of routine maintenance at mission-critical times and the use of other blatantly fraudulent excuses to reduce the production of dozens of power plants, Enron artificially created an energy shortage it used, over the course of two years, to nearly double electricity costs for Californians.

So when the prices of a widely consumed commodity drop by 27% over a two-month span, I get suspicious. I mean, surely this price drop couldn’t have come any sooner. Surely, the gas prices weren’t artificial inflated this summer– when lower-class Americans suffered and stock-holders celebrated. Right? These seem unthinkable. But is it a coincidence that oil companies were recording record profits this summer while gas prices were at a record high? Shouldn’t their profits have been slumping, as more consumers found ways to reduce their gas consumption as prices rose? Even with a relatively inelastic good like gasoline, an increase in price will cause a decrease in quantity demanded.

To be honest, I really did believe the now-apparent lies about increased efficiency, streamlined corporate structure and better refining processes being the sole causes for the oil companies’ soaring profits this summer. Just like I believed that increasing demand and decreasing supply caused the rising prices. Were gasoline prices still increasing, I’d probably still buy that line. But they’re not. They’ve plummeted. Doubtless, efficiency aided profit margins. But if prices can drop by 27% and the oil companies are still making profits, then something rotten happened this summer.

Prices at the pump increased because supply was limited. That’s a fact. But it’s like, all of the sudden, someone turned off the “high price” machine. Or like oil companies stopped deliberately under-producing oil– out of preservative self-interest, or at the Republican party’s cue.

Speaking of artificially adjusting prices, an article on the BBC’s website drew an uncomfortable parallel between the dropping gas prices and Bush’s new appointed treasury secretary, “Hank” Paulson. Paulson has been the CEO of Goldman Sachs–a powerful and influential commodity bank–since it went public in 1999. Commodity banks, incidentally, are one of the few institutions capable of influencing commodity prices. Paulson resigned from Goldman Sachs at the end of June, but, while serving as the US treasury secretary, he remains an active Sachs board member until the year’s end. His departure, conveniently, netted him an $18.7m bonus, based on the bank’s performance this year.

Bush’s cabinet? Commodities? Soaring stock prices? Huge bonuses for executives? Sounds like the usual suspects are back again to celebrate another American tragedy.

Is this all just coincidence?

The oil companies know that they’re in big trouble if America sees a big swing to the political left– not unlikely given the general American malaise about the War in Iraq and, until recently, rising gas prices. It goes without saying that the oil companies have a large vested interest in the success of the Republican Party at the polls this November. And if gas prices are $3/gallon in November, you can bet the incumbent controlling party won’t be controlling for long.

So is this another case of shameless profiteering by corporate America? Have the oil companies used the American tragedy of Hurricane Katrina as a cover for the artificial inflation of gas prices? Is this profiteering, or just modern economics? Are oil companies necessarily any more scrupulous than energy companies like Enron? Or is it all just coincidence: the record profits, the record prices, the sudden drop and the coming election?

It’s too much for me to say. But it all leaves a bad taste in my mouth– a sick feeling in my gut. Who profited the most by the 2,917 deaths on 9/11? Probably Halliburton– the oil company that got first bids on Iraq’s “liberated” oil fields. Now it looks like the oil companies win again– this time by the deaths 1,836 and displacement of hundred of thousands in America’s southern states.

About Mark Egge

Transportation planner-adjacent data scientist by day. YIMBY Shoupista on a bicycle by night. Bozeman, MT. All opinions expressed here are my own.
This entry was posted in Uncategorized. Bookmark the permalink.

One Response to Oil Companies: Profiteering on Hurricane Katrina?

  1. Sagar1586 says:

    “We have a long and painful history of ignoring the prophecy attributed to Benjamin Franklin that “those who would give up essential liberty to purchase a little temporary safety, deserve neither liberty nor safety.”

    But even within this history, we have not before codified, the poisoning of Habeas Corpus, that wellspring of protection from which all essential liberties flow.
    You, sir, have now befouled that spring.
    You, sir, have now given us chaos and called it order.
    You, sir, have now imposed subjugation and called it freedom.
    For the most vital the most urgent the most inescapable of reasons.
    And — again, Mr. Bush — all of them, wrong.”

    -Keith Oberman MSNBC