Big Oil's Bad Rap

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Antiwar protesters shouting "No blood for oil!" infuriate George Bush. His color rising and lip curling, he retorts in speeches and private meetings, "It's not about oil! It's about naked aggression!"

Bush, a former oilman, knows well the visceral animosity most people feel toward America's major oil companies. A survey by the American Petroleum Institute, the industry's trade group, finds that 72% of Americans view Big Oil unfavorably. A study by Chevron shows that 65% of citizens say they cannot believe anything the industry says about the gulf war. Most Americans think -- incorrectly -- that oil is more profitable than most businesses, a view that is reinforcing cries in Congress for a windfall-profits tax.

The industry's latest offense, in the popular wisdom, is apparent in its profits for 1990's fourth quarter, reported by the Energy Department last week. Thanks mostly to a brief rise in the price of crude to a high of $40, those earnings rose 77% above 1989's level. "We are protecting their oil with American boys," complains Senator Howard Metzenbaum, the Ohio Democrat who introduced a bill earlier this month calling for a surtax on the profits of the largest companies. "As quick as Saddam raised his sword, the oil companies raised their prices."

Sometimes it's hard to believe Metzenbaum was a businessman before becoming a Senator. The quarter's profit increases looked so dramatic because the corresponding period in 1989 was the industry's worst in a decade. Disregard its Valdez-size write-offs of 1989, and the industry's total profits rose only 11% in 1990. That still didn't make them especially high. They represented just a 13.5% return on the shareholders' equity, far lower than in such businesses as cosmetics (30.5%), pharmaceuticals (29.5%) and restaurants (19%). "No one is accusing the cosmetics industry of making obscene profits," says William O'Keefe, vice president of the A.P.I. Oil-company returns have averaged 12% since 1985, vs. an average of nearly 15% for all other manufacturing.

Most consumers were understandably livid over the way gasoline prices leaped after Iraq's invasion of Kuwait, peaking at an average $1.30 in October for an unleaded gallon. Actually, however, the U.S. rise was much less than the rise in European nations and Japan, where pump prices more accurately reflected the cost of crude. The Energy Department last week announced it had found no proof of profiteering by the oil industry, while the Hudson Institute concludes that 80% of the benefit of the higher prices went to the foreign nations that control the commodity.

Since war broke out on Jan. 16, crude prices have dropped from $32 per bbl. to $21 per bbl., but oil companies have been slow to cut retail gas prices correspondingly. This has fed anti-oil acrimony, but the industry argues that it is just making up for not hiking prices all the way during last fall's crude run-up. Even so, the average price of a gallon of unleaded is down to $1.18, only 10 cents higher than the day before Iraq invaded Kuwait -- and half that difference is from a nickel-a-gallon federal tax imposed in December.