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Manipulation of Gas Prices
I f you think surging gas prices is another case of OPEC sticking it to the Great Satan, think again. While prices of crude oil hover around $40 a barrel and gasoline above $2 a gallon, it’s the oil companies who are making out like bandits. The oil industry and its supporters point to the summer driving season, environmental regulations for reformulated gasoline, surging demand in China and the United States, and a shortfall of crude oil production as the factors underlying this year’s ballooning gas prices.
But consumer groups, government agencies, and internal documents from the oil industry reveal that the gasoline market is being deliberately manipulated to boost profits. Tyson Slocum, research director of Public Citizen’s Energy Program, says, “The scarcity is manufactured. These companies act as if the summer driving season snuck up on them.” Slocum points to consolidation within the oil industry during the last decade as the underlying reason for repeated spikes in gas prices. As a result, “America no longer has access to adequately competitive gas markets.” Slocum states the problem is not so much with crude oil supply, but with the “downstream component” of refining and marketing. Public Citizen released a report in March authored by Slocum that noted five of the largest oil companies now control 50 percent of U.S. refinery capacity (versus 34 percent in 1993) and 62 percent of the retail gasoline market (versus 27 percent a decade ago).
This gives the oil industry unprecedented ability to manipulate the market. After a spike in gasoline prices in the Midwest in the summer of 2000, the Federal Trade Commission launched an investigation. It released a report in March 2001 that concluded the price increases were due in part to “decisions by firms to maximize their profits” by such methods as “curtailing production [and] keeping available supply off the market.”
more damning, the FTC report stated that one unnamed oil company
executive “made clear that he would rather sell less gasoline
and earn a higher margin on each gallon sold than sell more gasoline
and earn a lower margin.” The federal government could force
prices down, but with a White House soaked with more oil than Prince
William Sound, it’s taken to blaming “environmental extremists”
for the crisis. Since 2000, the oil industry has pumped out more
than $68 million to politicians—80 percent of that going to
Republicans. Every penny increase in gas prices costs U.S. consumers
more than $1 billion. Since January 2000, consumer groups estimate
that increasing prices for gasoline and natural gas have cost consumers
$250 billion. Even before the latest price surge, household energy
expenditures increased by an average of 35 percent, or $500, from
1999 to 2003.
If the oil industry “were simply passing on higher costs, their profit margin wouldn’t change,” Slocum says. In 2003, the five largest oil companies operating within the United States—ExxonMobil, Chevron-Texaco, ConocoPhillips, BP, and Royal Dutch Shell—raked in more than $60 billion in after-tax profits. And 2004 is shaping up to be Big Oil’s best year ever. For the first three months:
- ChevronTexaco’s profit jumped 33 percent to $2.56 billion and profits for its U.S. division for oil refining quadrupled from the same period last year to $276 million this year
- ConocoPhillips, the biggest refiner and fuel marketer in the United States, also had a profit increase of 33 percent to $1.62 billion
- ExxonMobil, the world’s largest corporation, raked in profits of $5.44 billion from January to March 2004, more than its entire 2002 total
A study by the Consumer Federation from October 2003 notes that in the last 15 years about 75 refineries have closed. So, in 1985, refinery capacity was equal to the daily consumption of petroleum products, whereas by 2000, “daily consumption exceeded refinery capacity by almost 20 percent.” (Not only are U.S. oil imports increasing, so are imports of refined fuel products.) Gasoline stocks have also declined precipitously since the early 1980s, from ten days above minimum operating needs to just two days by 2003. A New York Times article from June 15, 2001, quotes a document from Chevron written in November 1995 that spelled out the strategy: “If the U.S. petroleum industry doesn’t reduce its refining capacity, it will never see any substantial increase in refinery profits.” The result, according to the Consumer Federation, is that operating income in the refining and marketing sectors has gone from about $1 billion in 1995 to $19 billion in 2003.
I t’s no coincidence that today’s gas crisis seems similar to the California electricity scam of 2000- 2001. Slocum of Public Citizen says now, as then, “The ability of individual companies to manipulate supplies for their own profits is widespread.” He notes that some of the same culprits are involved, such as BP, which “has a subsidiary called BP Energy that was fined $3 million for intentional manipulation of the California energy market.” The tactics are also similar: consolidate control over a market, tighten supplies, and then wait for a small disruption. In California, electricity companies deliberately idled plants while supplies were tight and then waited for prices to skyrocket on the spot market. In transcripts of telephone conversations, energy traders called their successful attempts at manipulation “exciting,” “cool,” and “fu-un.” In the gasoline market, refinery capacity has declined by 20 percent since the 1980s. The U.S. Energy Information Administration estimates that refining capacity will continue to decline by 50,000 barrels per year until 2007. The result is high rates of refinery utilization—96 percent by early May—leaving them susceptible to accidents.
This may be part of the oil industry’s strategy because, “Every accident or blip in the market triggers a price shock and profits mount,” observes the Consumer Federation of America. Thus, “A pipeline breaks here, a refinery goes out there, or a blackout shuts down production for a day someplace else. Because stocks are so tight, prices shoot up, and stay up for an extended period of time.” Californians are feeling the brunt of this energy crisis with the nation’s highest gas prices, nearly $2.50 per gallon in southern California as of early June. Analysts predict the price may hit $3 this summer. Only 13 refineries controlled by a handful of oil companies feed the state’s supply. That’s down from 37 refineries in 1983. Now Shell is planning to demolish a refinery in Bakersfield, California that supplies two percent of the state’s gasoline and six percent of its diesel, despite the fact that it has the highest profit margin of any of Shell’s U.S. refineries. The oil companies can manipulate the markets because, says Slocum, “Political contributions buy you a certain amount of immunity from prosecution and investigation.”
The Bush administration is also using the same political strategy it developed during the California electricity crisis. It argued that environmental regulations caused the tight supplies. Its solution was to gut clean air laws to allow more power plants, a position quietly abandoned once Enron went belly up. Now the Bush administration is saying the only thing that can alleviate high gas prices is to drill for oil—in the Arctic National Wildlife Refuge, the Gulf of Mexico, and national parks and monuments across the country. Bush also wants his energy bill passed, which doles out more than $7 billion to Big Oil. Yet prices are likely to drop on their own by the fall. Key to the oil industry strategy is price volatility. If prices stayed high, consumers would demand the development of cheaper sources of energy. Addi- tionally, the oil industry knows that with a presidential election looming, cheaper gas prices beforehand will help propel the Bush administration to another oil-friendly term.
To bring down gas prices, some Democrats have said, President Bush should release crude from the strategic petroleum reserve, which holds 660 million barrels. Few analysts expect that doing so would reduce gas prices by more than a few pennies and some suggest the Democrats are just proposing the easiest thing to do because, “it’s not going to ruffle the feathers of any powerful interests.” Saudi Arabia and other Persian Gulf countries supply about 2 million of the 10 million barrels of oil the U.S. imports daily. As the strategic petroleum reserve has enough oil to make up a disruption from the Middle East for more than 300 days, observers say the Bush administration could stop adding to the reserve—which it is doing at the rate of 100,000 barrels a day—if it were serious about increasing supplies of crude oil.
A more effective solution is for the federal government to mandate that refiners increase their supplies of gasoline and release it into the market when prices increase, thereby limiting price-gouging. Longer-term suggestions include increasing fuel-efficiency standards, which dropped during the Clinton administration and are lower now than in the 1980s. Oil consumption would drop by one- third, almost 7 million barrels per day, if passenger vehicles had to average 40 miles per gallon.
There is general agreement that alternative energy sources need to be developed, but there is no easy solution. Hydrogen-based fuel cells are no panacea. Sources for the hydrogen include: natural gas, an already over-tapped energy source; coal, the dirtiest of fossil fuels; or radiation-spewing nuclear power plants.
Wind, tidal, and geothermal energy are cleaner sources of electricity, but battery-powered vehicles generate just as much pollution as gas-powered ones. The difference is, the pollution is in the form of solid waste from the batteries rather than air pollution from hydrocarbons. Oil junkies want to develop marginal sources, such as Canada’s vast fields of tar sands that may hold more than 1 trillion barrels of oil—more than all known reserves in the Persian Gulf. But tar sands require tremendous amounts of water to process and natural gas to heat and extract the oil, and leave behind enormous environmental damage from the waste. Ultimately, the problem is not so much fossil-fuel powered vehicles as the single-passenger vehicle. It’s inherently wasteful to have two-ton machines carrying a single person to the store for a quart of milk.
A real solution would involve robust networks of bus and rail—with suburbs, towns, and cities redesigned for walking and biking. An impressive model is the Brazilian city of Curitiba, which uses extensive bus networks, pedestrian walkways, bike paths, and planned growth to limit car usage, with the result that its residents use 30 percent less gasoline on average than 8 other Brazilian cities. But such planning would strike at the heart of the over-consumptive U.S. way of life and our car- and oil-driven economy.
A.K. Gupta is an editor at the Indypendent , the newspaper of New York City Indymedia. He was also an editor at the Guardian Newsweekly from 1989-1992.
Z Magazine Archive
CUBAN 5 - From May 30 to June 5, supporters of the Cuban 5 will gather in Washington DC to raise awareness about the case and to demand a humanitarian solution that will allow the return of these men to their homeland.
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BIKES - Bikes Not Bombs is holding its 24th annual Bike- A-Thon and Green Roots Festival in Boston, MA on June 3, with several bike rides, music, exhibitors, and more.
Contact: Bikes Not Bombs, 284 Amory St., Jamaica Plain, MA 02130; 617-522-0222; mailbikesnotbombs.org; www.bikesnotbombs.org.
LEFT FORUM - The 2013 Left Forum will be held June 7-9, at Pace University in NYC.
Contact: 365 Fifth Avenue, CUNY Graduate Center, Sociology Dept., New York, NY 10016; http://www.leftforum.org/.
VEGAN FEST - Mad City Vegan Fest will be held in Madison, WI, June 8. The annual event features food, speakers, and exhibitors.
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ADC CONFERENCE - The American-Arab Anti-Discrimination Committee (ADC) holds its annual conference June 13-16 in Washington, DC, with panel discussions and workshops.
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CUBA/SOCIALISM - A Cuban-North American Dialog on Socialist Renewal and Global Capitalist Crisis will be held in Havana, Cuba, June 16-30. There will be a 5-day Seminar at the University of Havana, plus visits to a co-op and educational and medical institutions.
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NETROOTS - The 8th Annual Netroots Nation conference will take place June 20-23 in San Jose, CA. The event features panels, trainings, networking, screenings, and keynotes.
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GRASSROOTS - The United We Stand Festival will be hosted by Free & Equal, June 22 in Little Rock, Arkansas. The festival aims to reform the electoral process in the U.S.
LITERACY - The National Association for Media Literacy Education (NAMLE) will hold its conference July 12-13 in Los Angeles.
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IWW - The North American Work People’s College will take place July 12-16 at Mesaba Co-op Park in northern Minnesota. The event will bring together Wobblies from across the continent to learn skills and build one big union.
PEACESTOCK - On July 13, the 11th Annual Peacestock will take place at Windbeam Farm in Hager City, WI. The event is a mixture of music, speakers, and community for peace. Sponsored by Veterans for Peace.
Contact: Bill Habedank, 1913 Grandview Ave., Red Wing, MN 55066; 651-388-7733; firstname.lastname@example.org; http://www. peacestockvfp.org.
LA RAZA - The annual National Council of La Raza (NCLR) Conference is scheduled for July 18-19 in New Orleans, with workshops, presentations, and panel discussions.
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ACTIVIST CAMP - Youth Empowered Action (YEA) Camp will have sessions in July and August in Ben Lomond, CA; Portland, OR; Charlton, MA. YEA Camp is designed for activists 12-17 years old who want to make a difference.
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