While the Senate Finance Committee hosted executives from five major oil companies to evaluate the necessity of certain tax breaks enjoyed by their industry, Fox took to defending the profits of these companies using a misleading comparison between industry profits and taxes placed on the gas that is sold to American consumers.
It began with the usual suspects, Fox Business' Stuart Varney and Andrew Napolitano. On his Fox Business show, Varney marveled at a statistic Napolitano cited which suggests that while oil companies only make 7 cents for every gallon of gas sold, the government collects a full 88 cents per gallon. Needless to say, Varney and Napolitano lamented the injustice of oil executives having to defend their comparatively meager profits while the government gets away with this egregious “gouging”:
Napolitano claims that he's getting these statistics from a recent document published by the nonpartisan Congressional Budget Office. However a search of the publications issued by the CBO in the past month shows no such calculation. Who did recently push these numbers? Why, none other than ExxonMobil.
The 7 cent per gallon profit line soon made the jump to Fox's “straight news” program, America's Newsroom, where correspondent Doug McKelway demonstrated his journalistic prowess by reading the statement from ExxonMobil verbatim:
So does Exxon really only make 7 cents for every gallon of gas they sell?
The answer to that question, it seems, is a complicated one. In fact, when asked in 2008 why the Energy Information Administration doesn't calculate the average profit earned on a gallon of gas, EIA economist Neal Davis told FactCheck.org that trying to determine such a figure would be “heroic at best” and “sadly misinformed ... at worst.”
Amy Jaffe, director of the Energy Forum at Rice University's Baker Institute, explained via email that “ExxonMobil makes profits in every aspect of their business, from producing oil from the wellhead to manufacturing gasoline.” She explained further that it is unclear what type of profit the 7 cents per gallon claim is referring to, noting that profits from a gas station are different than profits from production:
We typically refer to the profit made at the refinery as the crack spread. So if the price of crude oil is X and the products you get from refining the crude oil are worth Y, the crack spread is the difference between the two and reflect refining profitability. That is different from the profit that a gasoline station may charge when you fill up. That would be called the marketing division profit. Which of course is different than the profit that ExxonMobil made in pulling the oil out of the ground to turn it into gasoline.
So I don't know if they mean that they only make 7 cents at the retail pump. Or they only make 7 cents at the rack. Or they only make 7 cents at the refinery processing manufacturing operation. Or they only make 7 cents on all three together.
ExxonMobil doesn't clarify what exactly goes into their calculation, but that didn't stop Fox from passing the claim on to its viewers.
Similarly, Fox didn't put the United States' gasoline taxation into perspective. Just how large are our gas taxes? Well, they're significantly lower than those of other industrialized countries, as Matthew Yglesias noted, illustrating the point with the following chart from BBC News:
UPDATE: FactCheck.org examined the claim that ExxonMobil earns just 7 cents on a gallon of gas and concluded that “the 7-cents-per-gallon figure grossly underestimates the industry's earnings. It includes only earnings from the sale of gasoline and not earnings on producing and selling crude oil. There are no independent figures on how much oil companies earn on a gallon of gasoline.” FactCheck.org further wrote:
We called ExxonMobil and asked how Cohen arrived at his figure. Spokeswoman Kristen Hellmer said it was determined by dividing ExxonMobil's “downstream earnings ($694 million) by the number of gallons of gasoline and other products refined and sold during the quarter in the U.S. (9,355 million gallons). The result is 7.4 cents per gallon.” Downstream earnings are what the company earns from refining crude oil into gasoline and other petroleum products and then selling it. But that ignores “upstream earnings,” which is how much Exxon earns in producing and selling crude oil. And the cost of oil exceeded $100 a barrel in the first quarter of 2011.
Oil industry analyst [Tom] Kloza called the 7-cents-per-gallon figure “disingenuous,” because it ignores high earnings from oil production. “Bringing crude oil to market has been incredibly profitable,” Kloza said. “It is disingenuous to say in the downstream we are making only this much.”
ExxonMobil reported that its upstream earnings were $8.7 billion in the first quarter -- up $2.9 billion, or 49 percent, compared with a year ago. As of August 2010, it was the third largest oil refiner in the U.S.