by Gerard Donnelly Smith
(Swans - November 7, 2005) Gas prices got you pissed off, well then tell Chevron, BP, Shell, et al. to piss off. The citizens of Bolivia told Bechtel to piss off by protesting in the streets about hikes in water rates. Bechtel left Bolivia, and as far as we know Bolivia still has water. When, or even if, American consumers will get pissed off enough to protest gas price spikes remains a tantalizing probability for major oil companies. How much of the price for each crude barrel can be recouped? That's the question corporate oil boards contemplate while sipping expensive liquor in 5-star hotels. How much can we charge per crude barrel? That's the question OPEC ministers ask over sumptuous feasts. How much are you willing to pay at the pump? That's the question you should ask yourself.
The price per crude barrel will continue to rise, some predict up to $80 within the next two years, unless some event, compromise, or control impedes its rise. Currently the price fluctuates around $60 per barrel, with the effects of Hurricane Katrina said to have played a significant roll in reducing crude supply by 25%. The increase in cost for crude, for whatever the reason, always results in increased prices.
The oil companies always try to increase and maintain their profit margins. How much of that profit you, the consumer, are willing to ensure may make a difference in future price per gallon. Demand (even given the price fixing and the "maximizing of profit" mentality of CEOs and ministers) causes prices to rise or fall. As demand lessens so does the corporation's ability to manipulate profit. One cannot extract maximum profits from surplus commodities except through increased volume of consumption. If the consumer depends upon the commodity (is made to depend upon the commodity) then greater control over pricing may allow the corporation to extract the maximum profit from an otherwise superfluous product. With gas pricing both the threat of lower supply and consumer dependency allow for relatively high profits for all parties involved, from production to delivery. Who pays for all that luxury? Think about that when you're barreling down the interstate at 85 m.p.h.
Currently 52% of the price per gallon of gas goes to recoup crude oil costs. As the price per crude barrel increases, so does the depth of Oil's reach into your pocket. When is deep, deep enough? Sooner or later, they'll have their hands in so deep that they'll have you by the balls. Think you're being squeezed now?
To understand why you're being squeezed, go to
Note the corresponding increase in the percentage of crude expense, of refining costs, and the percentage for distribution cost. Next correlate that percentage to the actual price per gallon. Notice a pattern? Apparently, the combined percentages of distribution/refining cost range between 30% and 40%, while crude oil percentage charges to the consumer correlate to the current price per barrel of crude. That correspondence seems to even out over time, unless something dramatic happens such as Hurricane Katrina, or like the Iran/Iraq war when the price per barrel of crude rose dramatically to $35 (or $60 using dollar values for 2000) in a matter of months, prompting US price controls. Similarly, it appears that after 9/11/01 the price per barrel for crude oil fell from $24 to $16 and remained below $24 per barrel for almost a year. One might be tempted to draw a correlation between the events of 9/11 as they unfolded and the corresponding decrease in crude oil prices. But that would be crazy, wouldn't it? Maybe it is all just coincidence?
Maybe not. Did some OPEC minister feel sympathetic toward America during a price fixing meeting? Did these ministers lower prices to help the American economy recover from the loss of its World Trade Center?
Between October 2001 and March 2002, Americans paid on average $1.16 per gallon, down from a previous yearly average of $1.50. After March 2002, the price of gas, as well as the price of crude, climbed steadily and now has achieved 1970s levels. So what happened in the spring of 2002 that might have caused oil prices to rise again?
On the 15th of March 2002, the United States invaded Afghanistan. Who controls the flow of oil in Afghanistan? If, as some conspiracy theorist believe, the U.S. took out the Taliban, not to capture Osama bin Laden, but to secure Afghanistan oil fields, then shouldn't the price for crude have gone down? Or perhaps the sympathy and goodwill, shown by OPEC nations after 9/11, was dampened by the US invasion? Don't call me a conspiracy theorist, and no, I did not eavesdrop on OPEC meetings, but some change caused crude prices to go up. Could there be a corresponding shift in OPEC production, OPEC pricing of crude, and the shifting events in the Middle East? Could it be that simple?
In 1990, the price of crude oil spiked due to the Iraqi invasion of Kuwait and the Gulf War. During the Yom Kippur War conducted by Israel (supported by the U.S. and others) against Syria and Egypt, the Arab oil embargo resulted in crude price increases. In other words, if we play nice then prices remain relatively stable, fluctuating according to the free-market constraints of supply and demand, refining, and distribution. If we don't play nice, then, it seems price increases.
So whom do American consumers blame for the increase in gas prices? The charts are confusing, the percentages are confusing, but the correlations are clear. When the U.S. flexes its imperial might in order to secure natural resources to fuel its capitalist economy, then prices soar.
So whom should you tell to piss off?
Well, the United States has all that Iraqi oil now, right? All that oil that was supposed to pay for the war, all those oil fields, all that refining equipment, all that production potential to be privatized by ExxonMobil, Shell, Chevron, etc. Perhaps, the privatization of Iraqi oil wasn't such a good ideas? Perhaps the privatization of water by global corporations isn't such a good idea. In both cases, such privatization breeds resentment, looks like imperialism, and feels like colonialism to those who have lost their jobs, their wealth, and their resources. Resentment breeds anger. Sabotage continues, while rebuilding the infrastructure of Iraq and Afghanistan grows more and more expensive. Meanwhile you're paying for it all at the pump. Add natural disaster to the already tense supply and demand decisions, then sum up the results.
Do you think it will get better if America keeps troops on the ground in Iraq? Do you think US threats against Iran and Venezuela will help stabilize oil prices? Other hurricanes, other desert storms are looming on the horizon.
Is there a coincidental correlation here, or just plain cause and effect?
If there is a cause and effect relationship, then expect prices to continue to rise if the United States does not establish control over some new reserve of oil. Forget ANWR -- lost cause, not much oil. The oil companies will drill there because the caribou won't fight back. As the world's oil reserves dwindle, those countries with oil economies will become more aggressive in their pursuit to secure resources that are always tied to national security. So expect things to get worse.
Charles Whall, Global Oil & Gas Analyst at Newton, notes that without
immediate changes in either supply or demand prices will continue to
spiral upward. He suggests that exploration has not replenished
reserves, and current conservation measures aren't making much
difference. He concludes that "Weaning global consumers from their false
sense of security will require bold action, most probably in the form of
much more restrictive conservation measures (i.e., ever stricter fuel
efficiency standards), and fiscal stimuli needed to accelerate the
implementation of alternate energy technologies. Otherwise, in the not
too distant future, energy consumers will face an unprecedented "Super
Price Spike," with potentially devastating economic disruptions."
Such super price spikes are predicted, or at least feared, because crude may hit $80 per barrel. How much of that price per barrel will be passed on to you, the consumer? Oil companies will wish to ensure future "maximum" profits. Will they take the hit when crude prices surge or will they, as they have always done, pass it on to you? Are you ready for $5.00 per gallon and higher?
When Bush took office in January 2000 the price for crude was $24.11 per barrel. Five years later, the price has risen to $65. Prices at the pump increased from a national average of $1.28 in 2000 to $2.60 in 2005. Some folks are paying significantly more; on the West coast, for example, prices climbed to over $3.00. Because of Hurricane Katrina, prices soared: in some places upwards of $6.00 per-gallon. In 2006, if the price of crude really does hit $80 per barrel, then will you tell the oil companies to piss off when the price of gas threatens to reach $4.00? In 2008, when election time rolls around, whom will you tell to piss off? The oil companies and Bush believe you won't say a thing. I think you will.