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Oil Giants Cling to Cash Hoards and Trim Output, Setting Trigger for Next Price Spike

Santa Monica, CA -- Consumers left deeper in debt by 2008’s record price gyrations for gasoline and heating oil now find that their money landed in the pockets of Exxon and Chevron, said Consumer Watchdog. Both oil giants reported record annual profits today, despite a dip in quarterly profits for Exxon.

Exxon’s annual profit jumped 11%, or $5.2 billion, to $45.2 billion. Chevron was also up more than $5 billion for the year, to $23.9 billion. A substantial portion of Chevron’s increase came in a fourth-quarter jump in its profits for refining and marketing of gasoline and other fuels, mostly outside the U.S.

“The profits of both companies are the result of a Wild West speculative orgy in energy markets,” said Judy Dugan, research director for the nonprofit, nonpartisan Consumer Watchdog. “Congress and President Obama need to put credible regulation into these markets swiftly, before the next price spike kills economic recovery.”

Chevron, in describing its unusual profit increased for the 4th quarter, credited “gains on commodity derivative instruments.” That means speculative gambling in energy markets, rather than traditional hedging of its physical sales and purchases.

While Chevron has spent heavily on a P.R. and advertising blitz touting the company’s commitment to going green, its balance sheet is all about oil, all the time, said Consumer Watchdog. Each of the companies spent $8 billion buying back its own stock in 2008; Exxon’s stash of repurchased stock is now well over $100 billion. (Even ConocoPhillips, which reported a $31-billion dollar paper loss for 2008, first bought back $8 billion of its stock.)

Click here to see more on Chevron's ad campaign.

“Chevron’s advertising greenwash cloaks a company whose business model is all about oil and petrochemicals, and Exxon doesn’t even bother with the greenwash” said Dugan. “They have fillied their piggy banks rather than developing oil alternatives, yet taxpayers are still paying them billions in subsidies and so-called royalty relief, which should cease immediately.”

Lower oil prices are not a reason to leave royalty payments in place, said Consumer Watchdog, since the oil companies have shown that they would rather buy back their own stock than invest in a greener energy future. Chevron and Exxon also cut production of crude oil and refined products in 2008; industrywide reductions in 2009 will leave a recovering economy exposed to another energy-price roller coaster unless regulators step in.

Unlike ConocoPhillips and Shell, which booked largely paper losses and slashed capital spending, Chevron and Exxon both said they would continue their capital investments at current levels. But Chevron indicated that its capital spending in the U.S. would drop by $2.1 billion, a substantial loss of job-creating spending.

Consumer Watchdog backs regulatory changes including:

- Greater oversight and regulation of all energy trading markets, as well as trading limits, complete reporting of trades, and higher trading costs for speculators who are not selling or buying physical petroleum products. These limits should apply to the speculative trading arms of the oil companies.

- Transparent reporting of refinery operating costs separate from profits, and requirements that the industry keep on hand an adequate supply of gasoline to prevent sharp price spikes.

(For historical data on oil profits, see OilWatchdog’s “Oil Profits Monster” database, a free resource on detailed profit figures since 2000, at www.OilWatchdog.org. The annotated Excel database takes into account all mergers since 2000. Color charts are also available.)

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