Stickup at the gas pump
CHICAGO — Drivers here went into sticker shock as gasoline prices jumped 40 cents over the past week. A gallon of gas in Chicago averaged $2.82 on Aug. 23, up nearly a dollar from a year ago, according to . Around the nation, the average price at the pump hit $2.59 — a 39 percent increase from last year’s $1.87.
As he filled up his van in Rogers Park on Chicago’s north side, local resident Walter Welch said he’s staying home more because of the skyrocketing prices. “It’s a lot more than I want to pay for,” he said, so “I don’t go out as much.”
But staying home won’t help Welch and other Americans this winter, when home heating prices will also skyrocket, said former California public utilities commissioner Carl Wood. “It’s going to be awful this winter,” he told the World in a phone interview.
The reason for the surging prices, Wood and others say, lies in a combination of rising world demand for oil and Enron-style manipulation by oil companies and speculators to maximize profits.
In a March 2004 report Public Citizen charged that as a result of recent mergers, five giant oil companies operating in the U.S. — ExxonMobil, ChevronTexaco, ConocoPhillips, BP and Royal Dutch Shell — dominate oil and gas production, refining and distribution. They use this dominance to stifle competition and push prices up. ExxonMobil’s second quarter net earnings topped $7.5 billion, a 32 percent increase and the highest ever for the corporation. ConocoPhillips netted $3.1 billion in the same period, a 51 percent jump. The others are similarly awash in cash.
Oil price spikes “have nothing to do with actual events,” domestic or international, Tyson Slocum, research director for Public Citizen’s energy program, told the World. “It’s about how much the oil companies want to make.”
Public Citizen’s report, “Mergers, Manipulation and Mirages: How Oil Companies Keep Gasoline Prices High, and Why the Energy Bill Doesn’t Help,” said the five corporations now control about half of domestic oil production and refinery capacity and close to two-thirds of the retail gasoline market. (Worldwide, they control 14.2 percent of oil production.)
Slocum and Wood emphasized the oil giants’ monopolistic control over refineries, enabling them to drive prices up by limiting refinery capacity. “It’s similar to the California energy crisis,” said Wood, referring to Enron’s profit scams there. “If you limit capacity, it makes it easier to manipulate prices.”
Slocum said he believes this is the biggest source of the price spikes. U.S. refineries’ profit margins have risen 80 percent in the past six years, he noted. The Public Citizen report cites a 2001 Federal Trade Commission finding that oil companies had intentionally withheld supplies from the market “because selling extra supply would have pushed down prices and thereby reduced the profitability.” The strategy, the corporate-friendly FTC admitted, was to “maximize their profits.”
Dean Baker, co-director of the Center for Economic and Policy Research, says “it wouldn’t surprise me” if oil companies are “playing games,” using refinery maintenance problems or other factors to “very consciously” withhold gasoline. In addition, Wood notes, the oil giants use their control over gas stations to curb price competition. “Ultimately, the big companies call the shots,” he says.
But Baker and Wood say we also have to come to grips with the contradiction between the growing world demand for oil and real limits to the supply.
We’re not finding oil at rates equal to the global demand for oil, Baker said.
“Oil is a diminishing resource, and natural gas has peaked and will only be declining,” said Wood. Meanwhile “we are living in a world in which other people would like to have the living standards we have” — or aspire to — in the U.S.
The U.S. sucks up a disproportionate amount of the world’s energy resources. Developing countries like China, India and Korea that are rapidly industrializing mean “more people for the same pot of oil.” These realities help drive up the price of crude oil, Wood says.
That price is currently over $66 a barrel, up 43 percent from a year ago. Wood said oil-producing countries have legitimate national interests in sometimes restricting production and keeping prices up. Currently, Baker said, OPEC countries are producing at maximum level. In any case, said Slocum, crude oil prices are really set by Wall Street speculators and oil companies.
But crude oil only accounts for part of what we pay at the pump — $66 a barrel (40 gallons) for crude is about $1.60 a gallon. The difference comes from monopoly-controlled refining and distribution.
Solutions, these experts say, lie, at a minimum, in strong federal and state action to regulate oil companies and curb excess profits, mandate energy conservation and develop alternative sources.
“Just about every secretary of state since Truman came out of the oil industry, and now we have a president and vice president” from big oil, Wood said. The oil industry contributes megamillions to politicians, most to Republicans, and spends additional millions on lobbying.
Slocum called the Bush energy bill just passed by Congress “political payback” for these campaign contributors.
We need to “throw the bums out,” he said, and elect a Congress not beholden to the oil industry.
suewebb @ pww.org