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Behind skyrocketing gas prices
Ripped off by the oil bosses

By Alan Maass | August 26, 2005 | Page 7

WITH STATIONS hiking the price at the pumps on an almost daily basis, skyrocketing gas prices sent shock waves through the U.S. during August.

By the middle of the month, a gallon of regular gas cost $2.55 on average, up more than 10 percent in a few weeks and 36 percent from a year ago. At stations in some cities, the price shot past $3 a gallon.

The climbing cost of gas is taking a big chunk out of working people's budgets. Retailers blame gas prices for a fall-off in "back to school" sales this year. One economist estimated that seasonal sales by all-around retailers like Wal-Mart or Target would fall by 9 percent--because people are spending the money on gas.

Internationally, increasing demand, especially in the booming economies of China and India, pushed the price of a barrel of crude oil to an unheard-of $65 over the summer.

Another factor in rising crude prices is the chaos in Iraq and other Middle Eastern countries--a direct result of Washington's "war on terror." Within the U.S, the pocketbook concerns over gas prices are linked in everyone's minds--and rightly so--with the occupation, and that is sending George Bush's approval plunging further downward.

But there's more at work than a "basic supply-and-demand problem," as analyst David Yergin, a reliable champion of the free market, called it. The increase in consumer demand for gas in the U.S. is 0.6 percent compared to a year ago, according to the Energy Department--far less than the hike in gas prices. Or the increase in oil company profits.

That's where the money is really going. According to the Foundation for Taxpayer and Consumer Rights, the biggest factor in August's price increases wasn't a tightening global supply--in theory, rising crude prices should take some time before they're reflected at the pump--but oil company manipulation of refining capacity and inventories in the U.S.

"In a commodities market, domestic oil companies know that the lower the inventories they keep, the higher the profits, because perceived shortages mean a speculative run-up in prices," said the group's president, Jamie Court, in a statement. "Big Oil rigs summertime driving season for big profits by keeping inventories low."

The biggest oil companies that dominate the U.S. market are taking advantage of the international uncertainty--and are laughing all the way to the bank. ExxonMobil set a profit record of $25.3 billion for 2004--an increase over the previous year of 218 percent. ConnocoPhillips' profits climbed by 145 percent, Shell's by 51 percent, and ChevronTexaco's by 39 percent.

ExxonMobil continued the new year in fine form. In the first six months of 2005, its profits had already totaled $15.5 billion, for another double-digit percentage gain over the previous record-setting year.

According to industry analysts, this year's super-profits left Exxon with a cash hoard of $30 billion--part of an industry-wide "embarrassment of riches now that is unavoidable," said Lawrence Goldstein, president of the New York-based Petroleum Industry Research Foundation.

Record profits have fueled a merger boom rather than new exploration or investments in refining capacity--a symptom of the longer-term crisis that looms over the immediate price rises. The largest recent discoveries of oilfields--off the coast of Africa and in the Caspian Sea region--are thought to hold only 1 billion and 10 billion barrels respectively, a far cry from the "super fields," such as Saudi Arabia's 80-billion-barrel Ghawar field, that supply most of the world's oil.

The result is that new production projects aren't profitable enough for the oil companies. "The whole industry right now is cash-rich and opportunity-poor," commented a Wall Street analyst earlier this year.

Of course, there are "opportunities" for these companies. They could shift money into developing renewable energy sources and new technologies to replace the finite supplies of fossil fuels. But new research and investment are expensive--and the oil giants are making out like bandits as it is. So they've done nothing.

This is why the argument of mainstream environmental groups--that rising oil prices are a blessing-in-disguise because they force consumers away from a dependence on polluting fossil fuels--is wrong. Consumers have very little choice in the matter--because the oil companies have rigged the game to their advantage, no matter what the human and environmental consequences.

Compared to the scale of the crisis, the proposals from politicians are totally inadequate.

A few Democrats have called on the Bush administration to release some of the U.S. government's oil stockpile, known as the Strategic Petroleum Reserve. But this perennial "solution" would have little impact, certainly in the short term--and the Democrats know the Bush administration will resist doing so anyway.

No mainstream politician--Democrat or Republican--is talking about real measures, like price controls, to force the oil companies to stop gouging motorists.

On the contrary, the Bush administration's energy bill, signed into law earlier this month, continues to extend loopholes that weaken fuel economy standards for new cars. According to a Sierra Club analysis, the U.S. will consume 130,000 additional barrels of oil every day because of the extended loopholes.

Because of Washington's inaction in the face of opposition from the corporate boardrooms, average fuel economy in U.S. cars has been stagnant for a quarter century--and has actually dropped slightly since 1987, from 22.1 miles per gallon to 21 miles per gallon.

The oil companies and their lobbyists spend a lot of money to make sure Washington does its bidding--and not just on Republicans, but on Democrats, too. Overall, the energy industry spent a total of $314.4 million in lobbying in 2003 and 2004. There's no reason to believe that the oil giants or their politician pals will do anything to ease the gas-price crisis--no matter how hard it hits working people.

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