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Multinationals feel the
pinch
By Emad Mekay
WASHINGTON - Dozens of US industry leaders
say rising oil prices have dimmed the economic
forecast and made their firms vulnerable, at a
time when international oil companies are earning
record profits. A survey released Monday by
PricewaterhouseCoopers LLP says chief financial
officers and managing directors of prominent US
companies with offices around the world have grown
gloomier about the prospects for the US economy
and their own profits next year, largely because
of rising oil prices.
Some 36% of 150
executives interviewed said their companies are
scaling back expectations for revenue growth, new
jobs and investments. Some 52% said higher oil
prices were eroding profits, with 23% saying the
impact is strongly negative and 29% describing it
as moderate. On Monday, US oil prices retreated
slightly to US$66.25 a barrel after crossing the
$67 record on August 12. "In the second quarter,
business leaders saw oil prices cross the
$60-barrel mark for the first time," said John
O'Connor, vice chairman of PricewaterhouseCoopers
LLP. "It remains to be seen whether their reduced
growth estimates, capital spending, and hiring
plans represent a temporary case of the jitters,
or a signal of something more."
The number
of executives expressing optimism about the US
economy in general dropped to 62% - 15 points less
than the last quarter. One-third are now uncertain
about the economy, a 13-point increase. Many have
cited rising oil prices as a reason for reducing
growth targets. The survey also shows just 47% of
executives are planning large new investments, 12
percentage points less than the prior quarter.
Only 46% plan new hiring, down 11 points.
O'Connor said the US economy has been
resilient, clearing hurdles like the tripling of
short-term interest rates, and enjoying a rallying
dollar that now makes US exports more costly
abroad. "Escalating oil prices have the potential
to slow future economic expansion through their
impact on profit margins, revenue growth, new
hiring, and capital investments. The challenge
now, in this increasingly uncertain period, is to
adjust to $60 oil, and regain momentum."
Meanwhile, analysts note that oil
companies are making a killing. ExxonMobil's
second-quarter earnings jumped 35% over last year,
while Royal Dutch Shell's rose 34% and
ConocoPhillips' shot up 51%. On Monday, the
Foundation for Taxpayer and Consumer Rights
(FTCR), a Santa Monica-based consumer group, said
profiteering by the oil industry is to blame for a
20% increase at the pump over the last three
weeks.
The Congressional Research Service,
which provides information at lawmakers' requests,
issued a report earlier this month showing high
prices for crude oil in 2004 and into 2005 raised
costs for most businesses but steered billions of
dollars to the oil industry. The report says the
profits of virtually all firms in all segments of
the oil industry have increased, and that the
greatest hikes have been in the so-called
"downstream", or refining and marketing, segments
of the industry.
"The relatively high
profit levels earned in refining and marketing
suggest that conditions in the petroleum products
markets, including the gasoline, diesel, and jet
fuel segments, contributed to earned profits above
and beyond the effect of higher crude oil prices,"
says the Congressional Research Service report.
This view was corroborated by FTCR's research
report Monday, which blamed "manipulation of
domestic refining capacity and inventories by
American oil companies" as the reason for gasoline
price spikes, not the traditional scapegoats of
Middle Eastern oil-producing cartels like OPEC,
government regulation, litigation, or
environmental standards.
"In a commodities
market, domestic oil companies know the lower the
inventories they keep, the higher the profits,
because perceived shortages mean a speculative
run-up in prices," said Jamie Court, president of
FTCR. "Big Oil rigs summertime driving season for
big profits by keeping inventories low ... every
summer should not be open season for oil companies
to gouge American motorists."
(Inter Press
Service) |
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