Letters to Oil Companies
March 9, 2004
Mr. Clarence P. Cazalat, Jr.M
President & CEO
Marathon
3200 Pointe Parkway, Suite 200
Norcross, GA 30092
Dear Mr. Cazalat:
Today, the cost of a gallon of regular gasoline is averaging $1.74 in Florida - an all-time record according to the American Automobile Association. Neighboring states such as Georgia, South Carolina, Mississippi, and Alabama also established new records today. All but Alabama surpassed all-time highs established only the day before. We are at, or near, a national record.
On February 25, 2003, representatives from Marathon accepted my invitation to discuss the economically damaging rising fuel prices. We were told that uncertainty in Venezuela, pending conflict in Iraq, and an unusually cold winter led to shortages that produced more demand than supply.
This year, we are emerging from a better winter than last year and into what is called a "peak driving season." No significant factors are dramatically affecting output but, for some reason, the industry seems unprepared for extraneous events.
The fuel industry is led by some of the most experienced and knowledgeable minds in the world. This leads us to question why many recurring or expected market conditions are not addressed and not planned for in a more proactive manner.
Our citizens, especially those that can least afford it, are rightfully seeking answers. I would like to meet with you and your representatives on March 18, 2004, in this office. We should broadly discuss all of the factors that are supposedly leading to these cost increases.
Next week, I will be joining with my colleagues in Washington for the annual meeting of the National Association of Attorneys General. This will be an important agenda item, and we should emerge with some pertinent questions on behalf of our constituents.
I look forward to discussing the well-being of our state and national economy with you. Please contact my assistant, Betsy Seidel, at 850-245-0140 to advise of Marathon’s participation.
Thank you.
Sincerely,
Charlie Crist
March 18, 2003
Mr. Lee Raymond
ExxonMobil Corporation
3225 Gallows Road, Suite 260
Fairfax, VA 22037
On February 25, 2003, representatives from ExxonMobil accepted my invitation to discuss the economically harmful rising fuel prices. Gaining the perspective of the industry was important both then and now. We appreciate your continued cooperation and full dialogue with the staff of our Antitrust Division.
The impetus for those discussions is the damaging, and sometimes devastating, effect that fuel prices have on the lives of everyday citizens. Some on fixed incomes have been forced to make choices between gasoline or fuel oil and other necessities. Most agree that the cost of crude is, or should be, proportional to fuel prices. As one increases, the other does the same. Ideally, the process should work in both directions.
Your representatives offered three primary factors that were purported to affect market conditions. This is important, for most understand that the market operates on supply and demand.
The lingering effects of the Venezuelan oil strike were presented as a negative factor in rising crude oil prices. The unusually cold winter in the north, which necessitated increased production of heating oil at the expense of producing gasoline, was another. Third was the uncertain situation in Iraq.
One month later we should all be pleased with the ability of Venezuela to recover. Production levels plummeted to lows of 200,000 barrels per day during the height of the strike. That country is now producing 15 times that amount – 3 million barrels per day. This exceeds the 2.8 million barrels per day quota normally allotted to Venezuela by the Organization of Petroleum Exporting Countries (OPEC), though OPEC has agreed to a waiver allowing Venezuela to recoup lost revenue and stabilize their economy.
In addition, we are welcoming the first day of spring on the calendar, although thermometers have been on the rise. Washington, New York and the Eastern Seaboard have seen temperatures in the 60s and 70s recently, while Minneapolis and Detroit have enjoyed 60-degree days. The net effect has been a decreasing demand for heating oil, which was undoubtedly projected six weeks ago.
The situation in Iraq will soon play out, but we should all be thankful that Saudi Arabia and OPEC have pledged to make up shortfalls in crude production should an interruption to Iraqi output occur. According to a report in the Wall Street Journal, the Iraqi oil fields, even if sabotaged, will have “limited damage” and the oil fields “can heal themselves.” Saudi Oil Minister Ali al-Naimi has said that “There will be no shortage of oil.”
Mr. al-Naimi repeated this assertion in The New York Times, indicating “we have plenty of spare capacity.” This story provided information regarding another supply safeguard. Though not a preferred option, the United States Strategic Petroleum Reserve could be tapped should gaps in supply actually occur.
Using the presentations of February 25 as a guidepost, at least two, if not all three, of the market altering factors are improving or under control. You can appreciate the public’s monumental frustration with rising, not falling, fuel prices as these publicly stated factors are being corrected. March 18 brought more record high prices.
Adding to their frustrations are reports that prices will not decrease before fall – if then. While we are all accustomed to somewhat higher prices during the summer driving season due to greater demand and less supply – March, April and May do not constitute the peak season.
We are told that gasoline pumped today is a by-product of crude purchased six weeks ago. With market conditions improving, the public needs, and deserves, a break. They should see benefits sooner rather than later. They do not necessarily expect to be better off, but back to where they were three months ago.
To that end, I am suggesting that every conceivable effort be made to increase production and supply as well as the implementation of cost containment measures. The end result should be the facilitation of an immediate price reduction that would enable retailers to roll back prices to January 1, 2003 levels. The alternative would be, or should be, a detailed public explanation to the people of Florida as to why this is not possible. The consumers are tightening their belts, so why shouldn’t sacrifices be shared?
Many of us are happy to acknowledge the oil industry’s positive role in the nation’s economy as a significant source of employment. On the other hand, the well-being of entire industries, as well as our economy, depends a great deal upon the costs associated with your products. Consumers are losing the ability to break even and those consumers include many of your employees or retired employees.
We are not suggesting, nor would we, that the folly of price controls be revisited. We do not believe that the industry should forego its ability to make a profit or return dividends to stockholders – provided those profits are not excessive while everyday citizens are surviving from paycheck to paycheck. We do suggest that a unique opportunity, and ability, exists to have a positive impact on the lives of Floridians and citizens across the nation. Today, we read that light crude for April delivery fell more than $3 per barrel to $31.75 on the New York Mercantile Exchange. North Sea benchmark crude fell to a three-month low of $26.40 on London’s International Petroleum Exchange.
This issue generated a thoughtful discussion on March 18 during the annual meeting of the National Association of Attorneys General. My colleagues are hearing many of the same complaints and expressed their desire for relief for their states as soon as possible.
While your representatives continue to work cooperatively with our Antitrust Division, Florida needs help in the short term. Formal inquiries can take months, if not years, to complete.
Future stories will report on those who may have continued to prosper and those who suffered during this difficult time. Those who struggled will not fondly recall the mere passing along of higher costs, if that is what is occurring. Those who tried to ease the hardship will probably earn some grateful and loyal customers for years to come.
Sincerely,
Charlie Crist
Attorney General