Media Spread Suspicion of Gas 'Gouging'

A recent Gallup Poll ranked the oil and gas industry 25th out of 25 in the consumer's view with a minus 65-the most negative rating for any industry ever that Gallup has measured. It is no wonder when this is the kind of reporting afforded to the industry:

It’s déjà vu all over again. Rising gas prices and oil companies’ “record profits” fuel an almost yearly call for investigations into “price gouging.” The media then complain of alleged wrongdoing and fail to ask intelligent questions about the issue.

“Kinda suspicious, huh?” said CBS’s Julie Chen when “Early Show” co-host Harry Smith mentioned that “higher than ever” gas prices are prompting politicians to call for another investigation.

“It makes you wonder at least a little bit,” replied Smith on the May 23 show.
The House of Representatives passed a bill that same day that would outlaw “price gouging” – without really defining it – and is now being considered by the Senate Committee on Commerce, Science and Transportation.

Never mind that there have been more than 30 investigations into price gouging over several decades, and no conspiracy by oil companies has ever been found, according to the American Petroleum Institute (API). Or that 28 states and one territory already have their own price gouging laws on the books as of 2004.

But the price of gasoline almost always makes the media suspicious, even when it’s going down. CNN’s Jack Cafferty proposed a conspiracy theory in August of 2006 that oil companies were artificially lowering the price of gas to re-elect Republicans.

“You know, if you were a real cynic, you could also wonder if the oil companies might not be pulling the price of gas down to help the Republicans get re-elected in the midterm elections a couple of months away,” suggested Cafferty on the Aug. 30, 2006, “Situation Room.”

Of course, we know how that turned out.

But They’re Making Money!
Even when government investigations came up empty, finding no evidence of oil company price gouging, journalists continued to be “suspicious” of the oil and gas industry, complaining about profits and tarnishing their reputation.

CBS, which is consistently the most negative network for economic reporting according to Business & Media Institute research, has a history of promoting price gouging rhetoric.

In a May 23 interview of Florida governor Charlie Crist, who along with 21 other governors is asking Congress to investigate high gas prices, “Early Show” co-host Hannah Storm threw him softball questions and didn’t include any opposing arguments.

Storm asked how high gas prices were hurting Florida; if Crist thinks “oil companies are gouging consumers;” what concerned him in the 2005 investigation; and if the lack of new refineries is a problem.

At one point in the interview, Crist said, “[Y]ou have to reach the conclusion that, you know, they’re gouging people.” There was not a word of disagreement from Storm.

Moments later, Storm remarked, “last time prices shot up like this, Governor Crist, the oil companies said, ‘Look, we can’t help this. We can’t control prices.’ And then they turn in these record profits. I mean, how does that make you feel …”

“Let’s hope you get this investigation that you and the other governors are pushing for,” Storm gushed to close the interview.

The “record” profits Storm referred to are a common media argument. Oil companies make record profits in dollars because in they are enormous businesses, but the percentage of profit is lower than many other industries.

According to an op-ed by Cato Institute senior fellows Jerry Taylor and Peter Van Doren, oil companies had a 9.5-percent profit margin last quarter.

In 2006 Exxon Mobil, a much larger company, made a profit of $39.5 billion – 10.5 percent of their $377.6 billion in earnings.

In fact, CBS itself had a greater profit margin than that. In 2006, the company made $1.66 billion profit – 11.6 percent of their total earnings of $14.3 billion.

And other media companies have even higher margins. David Carlson, former president of the Society of Professional Journalists, wrote that “even in today’s difficult climate, many newspapers turn an annual profit greater than 25 percent.” That wasn’t even the top. “One national chain reportedly demands 30 percent profit from each of its newspapers,” he continued.

Guilty Until Proven Evil
But comparisons were missing when CNN’s “In the Money” team welcomed anti-industry rants from Rep. and would-be president Dennis Kucinich (D-Ohio) on April 21, 2007.

“It seems the profits for these companies keep going up and the American consumer doesn’t have anyone intervening on his or her behalf,” Kucinich said as the reporters indulged his conspiracy theories.

The media also left out the liberal leanings of so-called “industry watchdogs.”

NBC “Today” reporter Michael Okwu cited “industry watchdog” Judy Dugan on May 3 and blamed oil companies for “gouging consumers by indirectly controlling the supply.” But just like the January 16 USA Today, Okwu left out Dugan’s anti-industry slant, conspiratorial opinions, and 2006 support for California voters to approve a “profit-based levy on companies that extract oil in California.”

Even when official investigations found no wrongdoing, that didn’t affect reporting much.

“CBS Evening News” correspondent Sandra Hughes reported price fixing allegations by the California attorney general back on June 5, 2006. Just two short weeks earlier, CBS “Evening News” ignored an announcement on May 22, 2006, by the federal government that there was no concerted effort by the oil industry to manipulate gas prices.

Hughes’ June 5 report also excluded the government conclusion that there had been no systemic price gouging following Hurricane Katrina, only localized incidents.

The same government report confused CNN contributor and now Fortune magazine managing editor Andy Serwer, who said it “boggles the mind.” “American Morning” host Miles O’Brien said it wasn’t “good news for the little guy.” So it would have been good news if the oil industry had been committing a crime by conspiring to jack up pump prices?

What They’re Not Telling You
The media consistently leave out economists, industry experts, oil companies and the facts about price gouging.

CBS interviewed Gov. Crist, who alleged price gouging was causing higher gas prices, but the “Early Show” didn’t include any other reasons for the high gas prices like regulation, taxes, or increasing demand for gasoline.

The networks didn’t criticize the House bill that would criminalize the sale of gasoline at “unconscionably excessive” prices.

But a May 25 USA Today editorial did criticize the bill, saying it “would criminalize free enterprise” and could cause shortages.

The same editorial cited the Energy Department when it said “the U.S. refining and marketing industry has been characterized by unusually low product margins, low profitability, selective retrenchment, and substantial restructuring throughout the decade of the 1990s.”

Taylor and Van Doren pointed out in their May 25 column that the House bill failed to define its own terms:

“What constitutes taking ‘unfair advantage’? Congress doesn’t say. Apparently, taking ‘fair advantage’ of motorists is O.K. And what is an ‘unconscionably excessive’ price? Again, silence. Presumably, ‘conscionably excessive’ pricing is O.K., as is ‘unconscionably high’ prices if we posit that there is a difference between a ‘high’ price and an ‘excessive’ price,” they wrote.

Of course one of the reasons gas prices rise is too simple for the media to bother reporting. Demand is growing and supply has had its disruptions, which resulted in increasing prices.

NBC “Today” show reporter Okwu and CBS “Early Show” co-host Hannah Storm both mentioned the problem of limited refining capacity, which in turn limits the supply of gasoline.

One reason oil companies are unlikely to build new refineries is because of the huge government push for alternative fuels. The New York Times pointed this out in a May 20 column.

“If that’s the plan, will oil companies want to invest in more refineries? ‘You’ve got to ask whether the demand will be there’,” the Times quoted John Felmy, chief economist of API.

By Julia A. Seymour

Business & Media Institute

Will Gas Prices Go Down for the Summer Driving Season?

Becasue of CARE's involvement in energy, we are frequently asked about the price of gas. Last year CARE did two special reports on the topic which are still available on our website--though they are not updated. While we are on the topic, here is an Op-Ed written by a source not affiliated with CARE and also not connected to the energy industry. We read it, we liked. Tell us what you think! (Edited slightly for brevity, see the full version at The Hudson Institute.)

Get Pumped
As New Yorkers recently discovered, when crude oil prices jump, gasoline prices can jump even more. But though oil sheiks in the Middle East and President of Venezuela, Hugo Chavez, are convenient scapegoats, the real problem lies closer to home — our shortage of oil refining capacity.

Congress has discouraged the construction of new refining capacity through proposed legislation that punishes refiners when prices rise, that gives extensive and expensive permit requirements for construction of new refineries and expansion at existing sites, and that allows for tort risk. These policies need to be reversed.

A widely-respected non-profit research institute, the Energy Policy Research Foundation, published a report this month on our refinery sector titled "The Silent Disruption." It persuasively documents the difficulties of transforming barrels of oil into gasoline and heating oil.

In February 2007, pump prices fell to a recent "low" of $2.36 per gallon in New York, according to the American Automobile Association, and the price of oil was about $57 for a 42-gallon barrel. Now, refiners must pay about $67 for crude oil, a 17% increase. But the average price of gasoline in New York, $3.11 per gallon, has jumped 32%, equivalent to crude at $90. How does a rise of $10 per barrel (24 cents per gallon) become 75 cents more a gallon at the pump?

"Surprises get priced," president of EPRINC, Lucian Pugliaresi, says. He writes, "Rising gasoline demand in the U.S., combined with unscheduled refinery closings, looming strikes, limited spare replacement capacity, longer turnaround times for scheduled maintenance, and refining factors are all contributing." No new refinery has been built in America for 30 years.

For those reasons and others, refiners' inventories of gasoline are low. Inventories serve as a cushion against disruptions of supply. So does spare refining capacity, of which there is none.Inventories have declined from February highs, and now stand at 192 million barrels, equivalent to about three weeks of supply, barely above the low point of 190 million barrels that occurred just after Hurricane Katrina.

Unforeseen shutdowns have dropped the national average for refinery capacity utilization down to 88% from the usual 93%. Sinclair Oil's refinery in Wyoming is shut for 10 days of maintenance due to a power outage on May 6. It would ordinarily refine 71,500 barrels of oil a day into gasoline, diesel, and jet fuel.

On April 27, Gary Williams Energy Corp.'s 50,000 barrel a day refinery in Oklahoma closed down due to a rare surprise: lightening hit a storage tank. That refinery was already working overtime because Valero's 170,000 barrel a day refinery in McKee, Texas was closed due to a fire on February 16 and still is not running at full capacity.

Not only is supply down, demand is up. So far this year Americans have consumed 2% more gasoline, 200,000 more barrels a day, than in 2006. In early May, Americans used 9.3 million barrels of gasoline per day, of which 1.1 million were imported.

The spring season usually sees a spike in gasoline prices when refineries change their mix of output from winter to summer blends of gasoline to satisfy clean air mandates. Refiners shut down their plants and clean the tanks. This customarily results in a price rise, but the 2007 price bump is much higher than usual because of low inventories.

An obvious remedy would be to build new refineries, expand existing plants, and import more gasoline. But it's impossible to find a community that will approve a new refinery. People like to fill cars up at low prices, but they don't want a refinery close to home.

Why don't we import more gasoline? According to Mr. Pugliaresi, "Refineries abroad are expanding, but they can't expand fast enough to meet global demand. Exxon builds a refinery abroad every 3 years." There's nothing wrong with importing gasoline from abroad, but if more refineries were built here, our workers would get the jobs and our supplies would be more secure.

The good news is that as the summer fuel reaches gas stations, prices are likely to decline — barring no more surprises. But our system is stretched so thin that it continues to be vulnerable to refinery fires and hurricanes. To avoid price spikes, Americans need to take the long view and increase refinery capacity at home.


This Op-Ed was featured in The New York Sun edition of May 11, 2007.
Diana Furchtgott-Roth is a senior fellow and director of Hudson Institute's Center for Employment Policy. She is the former chief economist at the U.S. Department of Labor.

The Media's Gloom and Doom About Gas Prices

With today’s price of gas topping previous historic highs, it seems apropos that we open a dialogue on the topic. Interestingly, according to the Lundberg Letter, Gas is only $.05 a gallon more than it was in March of 1981 (adjusted for inflation). The Energy Information Administration’s 2005 report (the most recent) on motor vehicle mileage determines at US consumption continues has been in the low 500 gallons a year for most of the last two decades—with their most recent published figure at 557 gallons per year, per passenger car. Doing the simple math, that means that the adjusted for inflation figure has the average driver paying $2.32 more a week for gas at today’s prices—less than the price of a latte at Starbucks—or $27.84 a year. Looking at the numbers another way, two months ago, we were happily paying an average of $2.60 a gallon. Today’s high is an increase of $.58—which comes out to an increase of $6.21 a week, 26.92 a month, or 323.06 a year. Meanwhile the price for a barrel of crude oil, remained stable at around $65. Yet the media is having a field day with gloom and doom reports. Below is a report from a member of our Energy Council: Dan Gainor. (Edited for brevity)

Gassing Up: Networks Warn About $4, $5, or $6 Gasoline. Maybe One Day They'll Be Right.

Gas prices have again passed $3 a gallon. But Americans should be used to high prices by now – the mainstream media have been warning them of $4, $5 and even $6 a gallon for more than two years. According to a May 7, 2007, CNN poll, “more than three quarters of Americans” think they'll have to pay more than $4 a gallon this year. It’s no wonder. The media have been telling viewers that for years.

If you want to drive faster, you hit the gas. Network news shows that want higher ratings do the same thing, except they hit gas prices.

Since Jan. 1, 2005, ABC, CBS and NBC have mentioned prices that high in at least 70 stories. Network evening and morning show stories hyped the high prices in high-tax, high-regulation states like California. They also relied on expressions like “approaching,” “closing in on,” “bumping up against” and “just around the corner” to indicate $4 gas was on the way.

But $4 a gallon never happened. It never even came close. Despite all the network hype--with the exception of the current spike, the average national price for a gallon of regular gas topped out at $3.06 on Sept. 5, 2005, after Hurricane Katrina took a toll on the nation’s distribution system. And that’s still 16 cents below the number economists would use – the inflation-adjusted record high of $3.22 from March 1981. As far back as two years ago, NBC was talking about $5 gasoline. On the May 20, 2005, “Today,” reporter Carl Quintanilla asked the audience to picture a scary future. “Imagine a world with $5 gasoline. What would you do?” he asked.

From Jan. 1, 2005, through May 8, 2007, major news events were consistent opportunities for reporters to caution about $4-a-gallon or higher gas prices. Reporters underlined the danger of hurricanes, Mideast war and terrorism, along with U.S. regulatory roadblocks and refinery fires.

When Iran kidnapped 15 British sailors and marines, CBS’s Anthony Mason warned of a potential cataclysm. If Iran shut the Straits of Hormuz, Mason said, energy prices could spike. “In a heartbeat, oil could hit $100 a barrel. Imagine gas at $5 a gallon,” he predicted on the March 30, 2007, “Evening News.”

Iran announced the 15 would be freed just days later. Gas prices had increased about four cents in that time.

It was one of many predictions that turned out wrong.

The Jan. 21, 2006, “NBC Nightly News” brought on oil expert John Kilduff, who said high oil prices could be destructive. “I think $70 per barrel could prove to be the breaking point for the economy,” he warned.

Reporter Rosalind Jordan responded by piling another incorrect claim on top of that one. “Meaning gasoline $4 to $5 a gallon, heating oil and jet fuel just as expensive,” she said.

Oil prices went above $78 a barrel in August 2006 and the economy continued to flourish. Gas prices hit $3.04 that month. Both the “expert” prediction and the journalistic claim were quite wrong.

$4 Is Just a Start

Why worry about $4 a gallon when the networks warned gas prices will even go higher than that? At least 20 times since Jan. 1, 2005, the big three networks mentioned prices hitting $5, and another six times for $6 or higher.

Gas prices became a common network component of bad news. A May 8, 2007, “Good Morning America” story linked the possibility of $4 gas to a stock market crash. Host Diane Sawyer dwelled on the dangerous combination. “Will runaway gas prices keep soaring, and did you know that the stock market has hit a milestone reminiscent of what happened before the big crash?” she asked.

When ABC warned about a possible terror plan to target America’s oil supply, what stood out was the huge potential increase in price. The Jan. 8, 2007, “World News with Charles Gibson” was introduced by Gibson who told viewers ominously, “A militant network targeting America’s oil supply and triggering fears of $6 a gallon gas.”

High gas prices figured prominently in good news stories as well as bad ones. It didn’t matter if the stock market went up, gas prices went down or global tensions eased; network journalists found some way to talk about the threat from expensive fill-ups.

When gas prices declined, ABC naturally warned of their going up – to $4 a gallon. During the Oct. 11, 2006, “Good Morning America,” host Diane Sawyer mentioned the price had dropped and “that’s the ninth straight week that prices have gone down.”

While the story detailed the price decline, it wasn’t how reporter Dan Harris ended his piece. “But, and there’s always a but when it comes to gas prices, this could all change if winter is harsh, if Mideast tensions flare once again, or if the oil producing countries get their act together and seriously cut back on production.”

In other words, the good news of lower gas prices could go bad any minute.

That was the same strategy deployed by CBS’s Anthony Mason. In a July 13, 2006, “Evening News,” story, he claimed the market for oil is never good, even when peace breaks out. “Even if political tensions ease, analysts say, gas prices are likely to get worse before they get better.”

They did get worse--just not by much. Prices rose a mere 8 cents before dropping like a stone.

A TV Camera or a Crystal Ball?

News typically focuses on current events, but not with gas prices. Journalists trot out experts who predict what might or might not happen to oil or gas prices. And when that doesn’t work, the reporters go into the fortune-telling business themselves. The 70 stories in this study included at least 52 references to high gas prices that might someday occur.

Not one of the national predictions came true.

Reporters relied on “analysts” or “some analysts” to caution about the most devastating price hikes. CBS’s Rene Syler relied on those “analysts” to predict a huge increase in prices during the May 3, 2006, “Early Show.”

“Oil prices are spiking again. This morning, sweet crude was nearing record highs trading for $74.87 a barrel,” she explained. “But some analysts predict much higher prices by winter, and that could push gasoline prices to $5 a gallon.”

Ann Curry of NBC’s “Today” showed the concept wasn’t confined to CBS. Her Sept. 23, 2005, story detailed the damage from Hurricanes Katrina and Rita. “At least one analyst predicts that gas prices could hit $4 a gallon within two weeks,” she said. Within two weeks, national gas prices had gone from $2.75, when Curry made her comment, to $2.94 and were already dropping again.

NBC’s Anne Thompson also relied on those “analysts” for her gloomy July 14, 2006, “Nightly News” report. “If you think $3 gas is bad, what about four? Analysts say it could be just around the corner because of the fighting in the Middle East.”

She drew support from expert Phil Flynn, an Alaron oil analyst. “If it goes bad, we could be talking 4, 4.50, maybe even $5,” he said. If that wasn’t scary enough, Thompson ended her report with more worries. “All this on fear, without a hurricane or other major event that really squeezes the world’s oil supply.”

NBC had even worse luck with expert John Kilduff, of the brokerage FEMAT USA. Kilduff made an April 23, 2006, “Nightly News” prediction that didn’t even come close to being accurate. “Gasoline prices are going to continue to soar well over $3 a gallon on the national average. More unfortunate folks will be paying upwards of 3.50, 4 and maybe even $5 a gallon as we hit into mid-June and early July.”

Gas soared nationwide to $3.04 at its 2006 peak.

Many of the bad predictions relied on incorrect assumptions about oil prices.

A July 16, 2006, report showed oil trader Eric Bolling warning that war in the Mideast could lead to “$100 [per] barrel” for oil. CBS Reporter Anthony Mason followed that “Sunday Morning” comment with this claim: “That would push the price at the pump well over $4 a gallon.”

Neither came true. Oil topped out at $78.64 in early August and gasoline barely passed $3 nationwide.

There Was Some Good News

CBS offered more good news than both ABC and NBC by relying on the more rational assessment of Tom Kloza from the Oil Price Information Service. While many experts were predicting $4, $5 or even $6 a gallon, Kloza was going the opposite direction.

The April 25, 2006, “Early Show” was one ideal example. When Kloza was asked about $4 or $5 gas by reporter Sharyl Atkisson, he called it “a lot of fearmongering.” “I think you could see 4 to $5 a gallon if you bring your car back to the car rental without filling it up or if you’re looking at a couple of rogue stations in places like Rodeo Drive or Palm Beach or whatever.”

CBS used Kloza in roughly one-fourth of all stories about $4-a-gallon or higher priced gas (6 out of 26). Julie Chen of “The Early Show” called him “an optimist,” but he was more of a realist. Kloza was consistently proven correct by events.

On May 2, 2007, he told the “The Early Show” that he didn’t think gas prices would hit $4 in 2007. “I don't think it's a stepping stone up to 3.50 or $4 or some of the apocalyptic numbers you hear,” he explained.

Conclusion

Gas prices are cyclical. High demand, lack of new refineries, high regulation and higher taxes all contribute to rising prices. But that doesn’t excuse the hype and the seemingly endless stream of journalistic predictions. Gas prices had journalists chomping at the bit while they were going up and caring little when they came down.

Former “CBS Evening News” anchor Bob Schieffer summed up much of what was wrong in the network reporting on high gas prices. In an Aug. 30, 2006, account, he managed to downplay the good news of declining prices and predict an ongoing problem. “Whatever the short-term prospects for gas prices, though, over the long haul, it is clear the days of cheap gas are over,” he claimed.

After Schieffer’s comment, gas prices dropped every business day until mid-October.

Dan Gainor

Read the complete report at businessandmedia.org.

What's That Got to Do With the Price of Tortillas?

Before moving off of the food or fuel question, we must address the aforementioned topic of the price of tortillas. While this is now old news, it apparently slipped under the radar for many as most seem to think it is a joke when addressed in general conversations. (Try it. Read this short piece and, for more information, the full article linked to it. Then mention this information in casual conversations with your friends, family or coworkers. In general settings, you’ll get a baffled response. Let us know what kind of response you get by posting your comments here.) The issue of the price of tortillas was brought to CARE’s attention through a small mention at the end of a feature in the Energy Tribune magazine. While the Energy Tribune is a trusted source, more research needed to be done. A simple Google search pointed to articles done on the topics from both the Washington Post and the New York Times—just to name a couple of the more notable sources. Here is a summary of what we found: (edited primarily from the Washington Post article for brevity)

Tens of thousands of workers and farmers filled central square in Mexico City on January 31 to protest spiraling food prices. Most analysts agree that main cause of increase in price of tortillas has been spike in corn prices in United States as demand for corn to produce ethanol.

Mexico is in the grip of the worst tortilla crisis in its modern history. Dramatically rising international corn prices, spurred by demand for the grain-based fuel ethanol, have led to expensive tortillas. That, in turn, has led to lower sales for vendors and angry protests by consumers.

The uproar is exposing this country's outsize dependence on tortillas in its diet--especially among the poor. Tortilla prices have tripled or quadrupled in some parts of Mexico since last summer.

"Going ahead, it looks very good for high corn prices," said William Edwards, an agricultural economist at Iowa State University.

In another place, a rise in the cost of a single food product might not set off a tidal wave of discontent. But Mexico is different. "When you talk about Mexico, when you talk about culture and societal roots, when you talk about the economy, you talk about the tortilla," said Lorenzo Mejía, president of a tortilla makers trade group. "Everything revolves around the tortilla."

Poor Mexicans get more than 40 percent of their protein from tortillas, according to Amanda Gálvez, a nutrition expert at the National Autonomous University of Mexico. Modern-day tortilla makers use "an ancient and absolutely wise" Mayan process called "nixtamalizacion," Gálvez said. The process is straightforward. Large kernels of white corn are mixed with powdered calcium and boiled, then ground into a dough with wheels made of volcanic rock. The resulting tortillas are more pliable and more durable than those typically found in U.S. stores. Mexicans say tortillas are their "spoons" because they use them to scoop up beans, and can serve also as their "plates" because they're sturdy enough to hold a pile of braised meat and vegetables.

Gálvez said she believes the price increase is already steering Mexicans toward less nutritious foods. The typical Mexican family of four consumes about one kilo--2.2 pounds--of tortillas each day. In some areas of Mexico, the price per kilo has risen from 63 cents a year ago to between $1.36 and $1.81 earlier this month.

Many poor Mexicans, Gálvez said, have been substituting cheap instant noodles, which often sell for as little as 27 cents a cup and are loaded with less nutritious starch and sodium.

There is almost universal consensus in Mexico that higher demand for ethanol is at the root of price increases for corn and tortillas. Ethanol, which has become more popular as an alternative fuel in the United States and elsewhere because of high oil prices, is generally made with yellow corn. But the price of white corn, which is used to make tortillas, is indexed in Mexico to the international price of yellow corn, said Puente, the Mexico City economist.

Mexico, which counts corn as one of its major agricultural products, now faces a shortage and will now have to import more than 800,000 tons of corn from the United States and other countries.