The Oil Company Gusher

Exxon-Mobil’s first quarter earnings of $10.7 billion are up 69 percent from last year. That’s the most profit the company has earned since the third quarter of 2008 — perhaps not coincidentally, around the time when gas prices last reached the lofty $4 a gallon.

This gusher is an embarrassment for an industry seeking to keep its $4 billion annual tax subsidy from the U.S. government, at a time when we’re cutting social programs to reduce the budget deficit.

Especially embarrassing when Americans are paying $4 a gallon at the pump.

Exxon-Mobil’s Vice President asks that we look past the “inevitable headlines” and remember the company’s investments in renewable energy. What investments, exactly? Last time I looked Exxon Mobil (XOM) was devoting a smaller percentage of its earnings to renewables than most other oil companies, including the errant BP.

Other oil companies also had a banner first quarter, compounding the embarrassment.

American Petroleum Industry CEO Jack Gerard claims the gusher is due to the “growing strength in our economy.” Untrue. If you hadn’t noticed already, this is one of the most anemic recoveries on record. In fact, $4 a gallon gas is itself slowing the economy’s growth, since most consumers are left with less money to spend on everything else. during one of the most anemic recoveries on record.

Gerard then claims the giant earnings “reflect the size necessary for [American] companies to be globally competitive with national oil companies” around the world. Another bizarre argument. The crude oil market is global. Oil companies sell all over the world. The price of crude is established by global supply and demand. In this context, American “competitiveness” is meaningless.

Republicans who have been defending oil’s tax subsidy are also finding themselves in an awkward position. John Boehner temporarily sounded as if he was backing off – until the right-wing-nuts in the GOP began fulminating that the elimination of any special tax windfall is to their minds a tax increase (which means, of course, the GOP must now support all tax-subsidized corporate welfare).

Boehner is now trying to pivot off the flip-flop by reverting to the trusty old “drill, drill, drill” for opening more of country to oil drilling and exploration. “If we began to allow more permits for oil and gas production, it would send a signal to the market that America’s serious about moving toward energy independence.”

This argument is as nonsensical now as it was when we last faced $4-a-gallon gas. To repeat: It’s a global oil market. Even if 3 million additional barrels a day could be extruded from lands and seabeds of the United States (that sum is the most optimistic figure, after all exploration is done), that sum is tiny compared to 86 million barrels now produced around the world. In other words, even under the best circumstances, the price to American consumers would hardly budge.

Whatever impact such drilling might have would occur far in the future anyway. Oil isn’t just waiting there to be pumped out of the earth. Exploration takes time. Erecting drilling equipment takes time. Getting the oil out takes time. Turning crude into various oil products takes time. According the federal energy agency, if we opening drilling where drilling is now banned, there’d be no significant impact on domestic crude and natural gas production for a decade or more.

Oil companies already hold a significant number of leases on federal lands and offshore seabeds where they are now allowed to drill, and which they have not yet fully explored. Why would they seek more drilling rights? Because ownership of these parcels will pump up their balance sheets, even if no oil is actually pumped.

Last but by no means least, environmental risks are still significant.

Let’s not fool ourselves – or be fooled. There’s no reason to continue to give giant oil companies a $4 billion a year tax windfall. Nor any reason to expand drilling on federal lands or on our seashores. But there are strong reasons to invest in renewable energy – even in a time of budget austerity.

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