Oil Prices driven by 'fundamentals'

Amid increasing public outcry over record-shattering oil and gas prices, senators on Wednesday hauled industry executives in to testify about the recent runup.
The Senate Judiciary Committee called the hearing to explore the skyrocketing price of oil, which earlier in the day crossed $132 a barrel for the first time. The committee questioned executives from Exxon Mobil (XOM, Fortune 500), ConocoPhillips Co. (COP, Fortune 500), Shell Oil Co. (RDSA), Chevron (CVX, Fortune 500) and BP (BP).
"Normal supply and demand says prices should be around $55 to $60 a barrel," said Sen. Patrick Leahy, D-Vt., chairman of the committee. "Prices should not skyrocket like this in a properly functioning, competitive market."
Congress - a House committee has set a similar hearing for Thursday - is tapping into growing public anger over rising oil and gas prices. Before the hearing even began, a heckler in the crowd shouted: "Stop ripping off the American public - bring these oil prices down."
But the oil executive said prices are being driven by global market and geopolitical forces largely beyond their control.
"We cannot change the world market," said Robert Malone, chairman and president of BP America Inc. "Today's high prices are linked to the failure both here and abroad to increase supplies, renewables and conservation."
Malone's remarks were echoed by John Hofmeister, president of Shell.
"The fundamental laws of supply and demand are at work," said Hofmeister. The market is squeezed by exporting nations managing demand for their own interest and other nations subsidizing prices to encourage economic growth, he said.
In addition, Hofmeister said access to resources in the United States has been limited for the past 30 years. "I agree, it's not a free market," he said.
Indeed, Peter Robertson, vice chairman of Chevron, said that the industry needs to make "massive investment" in oil exploration and development of new technologies.
Robertson, urging conservation, cautioned Congress against further taxing oil companies or undoing some of the mergers of the 1990s.
"Americans need companies that can effectively compete for access to new resources," he said. "Punitive measures that weakened us in the face of international competition are the wrong measures."
John Lowe, executive vice president of ConocoPhillips, said Congress should enact a balanced energy policy. Such a policy could include measures to encourage alternative energy sources, remove the ethanol tariff, promote energy conservation, cut regulations around refining and improve access to oil in the United States.
"We musk work together to find a real solution," said Lowe. "U.S. oil companies should be viewed not as scapegoats, but as assets."
Congress: Familiar ground for execs
The hearing marked the second time in as many months that top oil industry officials have been called before Congress.
In April, roughly the same line up defended their firms before a House committee. The hearing was ostensibly called to ask the executives why they needed some $18 billion in federal subsidies in light of their record profits, but quickly delved into a Q&A on bigger questions in the energy business.
Lawmakers criticized the firms for not investing enough in finding new oil and developing renewable resources and told them, in thinly disguised terms, that they'd be forced to enact extra profit taxes if Big Oil continued to post such large earnings.
The oil men said they're making business decisions in the best interest of their shareholders. They repeated their often-stated position that the best way to lower prices and bring more oil to market is to open up wide swaths of the U.S. that are currently off-limits to drilling.
Although lawmakers don't vote on energy issues strictly along party lines, Democrats generally want to increase taxes on Big Oil and use the money to fund renewable energy research.
Republicans generally favor opening up the Alaska Wildlife Refuge, large parts of the Rocky Mountains, and areas off the east and west coast that have been closed to drilling since the 1970s following a public backlash after several big oil spills.
The parties are widely apart on the issues - a Republican effort to expand drilling recently failed in the Senate - and a compromise is not expected soon.
But both the Democrat and Republican proposals are long-term solutions that would have little impact on the nation's energy picture for several years, if not decades.
In the short run, experts say there's little politicians can do to bring down the price of gas.
Recent proposals to suspend the gas tax from the Democratic presidential contender Hillary Clinton and presumed Republican nominee John McCain were roundly criticized for leaving the government with a cash shortfall while possibly encouraging more driving, and by extension higher prices.
A measure to stop filling that nation's Strategic Petroleum Reserve was enacted last week with wide bipartisan support, but has done nothing so far to stem surging crude prices.
Are you feeling the pinch of gas prices? Tell us how gas prices are affecting you and what you're doing to cope. Send us your photos and videos, or email us to share your story