Mellody Hobson: Hope for Gas Consumers

Oct. 28, 2005 — -- Oil companies are reporting record-breaking profits, sparking outrage among consumers who feel pinched at the pump.

Yesterday, ExxonMobil announced quarterly profits of nearly $10 billion, about $75,000 a minute. These profits come at the same time an ABC News poll finds 72 percent of Americans believe "big oil" is taking advantage of the hurricanes to drive up gas prices.

ABC financial contributor and Ariel Capital Management President Mellody Hobson answered questions about the situation at the gas pump on "Good Morning America."

Are big oil companies to blame for the higher price of gasoline?
No. They're not to blame. Big oil companies like Exxon and Chevron do not set the price of a barrel of oil. That's set by the world market. This is a free enterprise system in a global market and the big oil companies themselves simply don't have a hand in setting the price of oil or its derivative, gasoline. They may profit off of the higher prices, but they are not driving those prices higher. It's a simple function of supply and demand.

Ethically and morally should oil companies cut consumers a break?
Technically they could, but that would be irrational. It doesn't make economic sense for them to do that. Think of it this way: If you are selling your home and you can get $250,000 for it, you wouldn't sell it for $150,000 just because you could afford to, just because you don't need that extra $100,000. We have to remember: this is not charity, it's business.

It's not just American consumers who are outraged. Republican senators are calling for big oil executives to do their part to help ease the pain at the pump. Is all this outrage misguided?
Yes. It's tough to swallow but it's business and that's how free markets work. If there is, or was, price gouging going on it was very likely happening at the local level. Gas stations are, for the most part, independently owned. That's where price gouging is most likely to occur.

Is there any good news for American consumers?
Yes. Now that big oil has these record-breaking profits, they have an incentive to put more money into drilling and refining. That means that supply should go up, which should drive the price down. In the past, big oil companies didn't have the mega-profits to put into drilling for more oil and building more refineries.

Is this going to continue with oil companies bringing in unbelievable profits while consumers feel it at the pump?
Probably not. The pendulum has swung very far in their favor right now, but that isn't likely to hold. Historically, this is very unusual for oil companies. Typically, their profits are below other industries, and this was an unusual quarter that's not likely to be repeated. Hurricanes Rita and Katrina dealt a blow to the domestic oil supply, which only drove supply down and demand up.

Is there anything frustrated American consumers can do?
Be a smart consumer. Conserve more gasoline. This is one situation where you're at the whim of the markets, but you can do small things to keep your costs down. Don't buy premium gasoline. Don't drive with deflated tires or a full trunk. Don't drive unless you know where you're going. Get a tune up. All of these things increase fuel efficiency and drive down the amount of gas you need.