Oil Companies Won’t Fish

Washington, D.C. – As Americans start hitting the open road this summer and high gas prices creep even higher, the oil industry will draw an increasing amount of fire from critics who claim it should be doing more to increase supply. Already, President George W. Bush, himself a former oilman, has lamented that the oil companies aren’t investing more to expand production.

With the price of crude well above $70 a barrel, the Bush administration believes that oil companies have all the incentive they need to scour the world for new reserves and ramp up more costly production of unconventional oil. Still, the notion that Big Oil is constraining supply in order to reap outsized profits is the stuff of conspiracy theory–private oil companies have no more control over the world price of oil than motorists.

So it is puzzling to many industry analysts that instead of using these profits to develop new sources of supply, they prefer to lavish them on their shareholders in the form of higher dividends and buy back stock. The industry protests that it has poured $106 billion into new production already this year. But though that may sound like a lot, it isn’t even enough to replace the depletion of current oil fields as well as cover the wear and tear on equipment and machinery.

“The oil companies have done a tremendous amount of investment,” says James Hamilton, an economist and energy expert at the University of California at San Diego. “But they have to just to remain in the same place.”

Forbes