“If concentration in the oil industry continues to increase, higher gasoline prices can be expected.”
– U.S. Senate Permanent Subcommittee on Investigations, 2002
I blew a gasket paying $3.89 for a gallon of gas the other day. It cost me over $60 to fill the tank and tore a gigantic hole in my pocket.
Everybody’s fuming about it. The average price of gas at the pump has jumped nearly 40 cents since Feb. 22.
“Analysts” say the price rise is because of turmoil in the Middle East and specifically Libya, where production has been cut by one million barrels a day. But other oil producing countries have picked up the slack and deny supply is the problem.
There’s no oil shortage either. According to Chris Rhodes at oilprice.com, “The world proved oil reserves are close to 1.2 trillion (1,200 billion) barrels” and growing.
Even before all the turmoil in North Africa and the Middle East, “experts” were warning of $4 per gallon of gas for this summer. Sure enough the prices started going up shortly after that.
So what’s the cause of the skyrocketing prices? Kevin Kerr, president of commodities firm Kerr Trading International calls the current price levels “simply money grab and fear trade.”
It’s said “speculators” are responsible for the run up in prices. Some say half the price of a barrel of oil is due to energy futures traders and speculators.
Who are these speculators? They are in fact the oil companies themselves and the nation’s biggest banks and hedge funds.
The extreme monopolization of oil production, it’s refining and marketing (from the well to the pump) and the near total deregulation over the last 30 years of the energy industry has allowed the oil giants and Wall Street to manipulate the so-called energy future’s trading market and control pricing.
The six largest oil companies operating in U.S. (ExxonMobil, Chevron, ConocoPhillips, Valero, Shell and BP) control 60% of the U.S. refining market and (minus Valero) 60% of the nation’s gas stations, compare with 27% in 1991.
By virtue of their monopoly, they don’t unilaterally set the price of crude, but they are a major determinant and largely determine the price of gas at the pump.
The transfer of wealth to these bandits is staggering. The San Francisco Chronicle reports, “for every $10 sustained increase in oil prices, gas prices increase by 25 cents and for every one cent increase in gas prices, the cost to American households $1 billion. This means that a sustained increase of $10 in oil prices costs American households $25 billion!”
Chevron announced its 4th quarter profits from 2010 jumped 72%, with a net income of $5.1 billion for the quarter.
Chevron wasn’t the only thief boasting. Exxon’s profits jumped 53% and its profit was $9.25 billion, compared with $6.05 billion the year before. For the year, Exxon made $30.46 billion. BP, which had a rough year, still boasted a 30% profit in the 4th quarter.
Part of the oil company profits is $4 billion a year in federal government subsidies and tax breaks. Some estimates are as high as $15-35 billion per year in subsidies.
According to Antonia Juhasz in her informative and aptly named book, “The Tyranny of Oil” the oil giants lost their domination of the global oil markets after OPEC nations began nationalizing their reserves during the 1950-1970s. The oil companies then sought to regain control of pricing and boosting profits by two means.
The first was the result of merger mania of the 1980s and 1990s in the energy industry. With their enormous combined wealth, these behemoths became vertically integrated and bought up the independent refining business and gas stations around the country. That allowed them to determine prices at the pump without competition.
Secondly, they sought to circumvent control of global oil prices by the OPEC nations. This was done by establishing an “energy futures market” and deregulating governmental oversight over that market.
Despite global competition from energy companies in China, Venezuela and elsewhere, the global price of crude oil is largely determined by the oil futures market first established in 1983 in the New York Mercantile Exchange (NYMEX).
Prices paid on futures markets are not what someone would pay for a barrel of crude oil today, but what they will pay for future orders. Most of the futures trading are done by investors who never take possession of a single barrel of oil.
The drive for deregulation of the futures markets started during the Reagan administration and was led by the nation’s biggest banks, investment companies and hedge funds and later by the Seven Sisters (the above mentioned plus Marathon) and other energy related corporations like Enron and Koch Industries (bankrollers of the tea party and Wisconsin’s Republican Walker).
Deregulation removed the Commodities Future Trading Commission from oversight of the futures market and further deregulation in 2000 allowed Wall Street and energy corporations to establish their own exchanges exempt from any oversight. This was known as the “Enron Loophole.”
As a result the Intercontinental Exchange (ICE) was established by the Wall Street thieves and has become the dominant exchange. No one really knows what kind of manipulation is taking place in the markets. In fact many of the energy traders learned their craft at Enron. These corporations are free to plunder without restraint.
To reduce prices at the pump requires an all-people’s fight against Wall Street and the oil companies. Mass outrage can have an effect, but ultimately their greed and insatiable desire for greater profits drives prices upward.
A powerful movement in the streets and the electoral and legislative arena is needed to reregulate the energy futures market followed by its dismantlement. It will take a movement of heretofore unseen power to nationalize the oil corporations altogether, allowing the nation to develop a publicly owned energy industry and freeing the country from the stranglehold on our democratic institutions.
A publicly owned energy industry can also invest in a sustainable energy policy based on renewable resources. Then the “tyranny of oil” will be a thing of the past.
Photo: Creative Commons 2.0