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Gouged at the gas pumps

June 8, 2007 | Page 16

GEOFF BAILEY explains how the oil giants are making out like bandits from the record increase in gas prices.

THE PRICE of gasoline topped $3.50 per gallon last week in many big cities, with experts saying that it would likely climb over $4 later in the summer. Prices, which have been creeping up all year, shot up in advance of the Memorial Day weekend. Suddenly, filling up your car could easily cost more than $50.

Oil companies say prices are simply obeying the dictates of the "free market"--low supply coupled with the beginning of high summer demand.

Don't believe it. We've heard this before. When electricity prices began skyrocketing in California during the summer of 2000, energy companies pleaded innocence. But after the collapse of the energy giant Enron a couple years later, it was revealed that companies were artificially restricting supply in order to inflate prices. It's likely that something similar is happening today.

The oil company Conoco even asks consumers to take pity on them, claiming on their Web site that their profits are being squeezed by rising oil prices--so much so that they are only making 10 cents a gallon in profit.

But claims about rising oil prices are simply untrue. In the summer of 2006, a similar surge in gas prices was accompanied by an increase in the price of crude oil, which reached a peak of $75 a barrel. When oil prices dropped later that year, so did the price of gas. This year, however, the price of oil has remained virtually constant at $65 a barrel.

What else to read

Dave Lindorff's "The Great Oil Robbery" published by CounterPunch, describes how the oil giants effectively manipulate supply to push up prices.

 

So where is all the extra money going? The answer: Straight into the pockets of the oil companies.

Oil companies across the board have posted record profits this year. ExxonMobil's stock jumped 35 percent in the last year. The oil giant made $39.5 billion in profits in 2006, topping the Fortune 500.

A spokesperson for ExxonMobil blamed low output from refineries as the cause of the jump in gas prices. But a report on refinery output released last week was almost double what was expected.

What's more, refinery output is routinely manipulated by oil companies to push up prices. All the major companies pool their oil in the same storage facilities. They have instant access to information on not only their own holdings, but on those of their competitors. They can use that information to regulate refinery output and keep prices artificially high--without actually sitting down and colluding to fix prices, which would be illegal under anti-trust laws.

As Tim Hamilton, a researcher with the Foundation for Taxpayer and Consumer Rights, noted: "Years ago, you had companies that would try to guess when the other companies were going to have supply shortfalls of gasoline in the summer. They'd ramp up their own gasoline refining, and then supply the market at a lower price and eat their competitors' lunches.

"But today, no oil company would do that. They all benefit by keeping the supplies tight."

As writer Dave Lindorff put it on CounterPunch: "The oil industry has in practice conspired to limit refining capacity, so that companies can keep pushing up the price of gas artificially--only they've done this without ever having to meet in secret and cut a deal, because they all have complete competitive information on each other's inventories, internal pricing and refinery capacity."

The Bush administration has expressed "concern" for rising prices, but has said it won't intervene to help lower them, either by capping prices or opening up the federal government's fuel reserves. Instead, it's using the current situation to try to revive efforts to expand oil drilling in the Alaskas wilderness.

Are the Democrats doing anything to help? After all, In the spring of 2006, when gas prices were approaching $3 per gallon, Democrats seeking to win back Congress blamed the Republicans in charge. "The American people can no longer afford the Republican rubber-stamp Congress and its failure to stand up to Republican big oil and gas company cronies," Nancy Pelosi, the top House Democrat, said at the time.

A year later, the Democrats control both houses of Congress, and Pelosi is Speaker of the House. The House voted this year to roll back $14 billion in subsidies to oil companies, but couldn't agree with the Senate on a version that might get past George Bush's threatened veto.

The Senate passed a bill that would raise minimum gas mileage in new cars from 25 miles per gallon to 35 miles per gallon by 2020--but it includes a clause that allows automakers to ignore the standards if they find that meeting them isn't "cost-effective."

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IT HAS become a commonly accepted argument that the war in Iraq was fought for oil. But many on the left think the war is about supplying energy-hungry Americans with gas and oil at cheap prices.

The current surge in gas prices shows that the corporations who hoped to benefit the most in Iraq have little interest in anything except lining their own pockets. The companies that are bleeding Iraq dry are the same companies that are robbing people in this country.

Meanwhile, workers--especially the working poor--are bearing the brunt of soaring gas prices. As a Couleecap report, "Affordable Wheels: The High Cost of Transportation," points out, "Most American families spend more on driving than on health care, education or food. The poorest families spend proportionately the most."

Melissa Bakken is a 25-year-old single mother making $7.50 an hour at her job. "When I started driving, it was 98 cents a gallon," Bakken said. "That was only nine years ago. And yet, my wage hasn't gone up, but gas has gone up $2. It doesn't seem fair."

"I don't like how high gas prices are, but what am I going to do about it?" she added. "What I'm finding out more and more every day is that nobody listens to people like me."

Some people concerned about the environment have suggested that there's a silver lining to the high gas prices: that consumption might be driven down.

But this misses the point. For most people, driving isn't a luxury that they can choose to do without. The lack of decent and affordable public transportation in U.S. cities and the sprawl of suburban development make long commutes a necessity for most workers.

Targeting consumers and asking them to tighten their belts further blames workers for a situation that they have little control over, while letting the real culprits--the politicians and the corporations--off the hook.

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