The profit guzzlers
reports on the impact of spiking gas prices--and who's benefiting.
SKYROCKETING GAS prices are hitting working people hard across the country, whether the impact comes at the pump or in the increased of food and other goods or in a variety of other ways.
But that's good news for the small number of people who profit at our expense--the executives and shareholders at oil corporations reporting mega-profits, and the Wall Street speculators who are raking it in with bets that have driven oil prices higher still.
Gas prices continued their relentless climb in the early weeks of May, reaching a national average of $3.97 a gallon last weekend, just 14 cents below the all-time record of $4.11 set in 2008 and over $1 more than this time last year.
The rise in prices is being driven by a spike in the cost of crude oil, which had been trading at well over $110 per barrel, also the highest since 2008, before dropping last week to $97 per barrel on Friday.
Yet despite the fall in crude oil prices, gas prices continued to go up last week. Drivers in some states have been hit harder than others--in 13 states and Washington, D.C., including California, Illinois and New York, average gas prices are over $4 per gallon. In Chicago, the price for a gallon of regular unleaded is hovering around $4.50.
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THE SPIKE in gas prices is adding further strains on the budgets of workers at a time when millions are struggling to cope with an anemic job market and the austerity agenda--the bipartisan assault on the living standards of working people in the form of cuts at the local, state and federal level to programs they depend on.
According to a Washington Post/ABC News poll conducted in mid-April, 71 percent of respondents said increases in gas prices caused financial hardship in their household, with 43 percent reporting serious hardship.
The media have been filled with stories of people riding their bikes or taking public transportation instead of driving because of gas prices. But for most people, this isn't a realistic option--whether because they have a lengthy commute to get to work or face a lack of reliable or affordable public transportation, often a target of the budget ax. The time lost in alternatives to driving is particularly hard on U.S. workers, who work more hours per year than their counterparts in any other industrialized nation.
High gas prices discriminate, too. Poor drivers are hit harder, not only because they pay a higher proportion of their income on gas, but because they typically can only afford older, less fuel-efficient cars. People of color are affected disproportionately by the price rises.
In an article for the Milwaukee Journal Sentinel, reporter Eugene Kane made spot checks at gas stations in inner-city Milawukee and found many people buying less than a gallon of gas at a time:
A tank of gas at $4 a gallon costs approximately $50 to $60 dollars if you're driving a midsize car. Frankly, that's too much money for some households to pay on a regular basis.
[Gas station owner Diane] Stowers wasn't surprised at all to hear about the low purchase prices. "Hey, some people are busting into their piggy banks to buy gas," she said. "They are getting whatever they can get."
Stowers said it wasn't uncommon to have customers who limited their purchase to the bare minimum. "I get the $2, $3, $5 buyers all the time."
Also especially hard-hit are the underemployed--people who would prefer full-time work, but have only been able to find part-time jobs. According to Gallup, 9.6 percent of workers in the U.S. were in this position in April. Not only are these workers paid less, but many have multiple commutes to a second or third job--which have been made more expensive by rising gas prices.
As Sarah, a student in North Carolina who works two jobs, says, "Even though I drive the most fuel-efficient car I can afford, and take the bus whenever I can, gas still eats up one-third of my pay," up from one-fifth or less before the spike in gas prices.
"Between the two [jobs], I still can't afford an apartment. I alternated between squatting and couch-surfing until I found a room to rent that affords little privacy, is 10 minutes on the highway from the nearest grocery store--making bike commuting nearly impossible, which was how I used to get around--and doesn't have access to bus service."
High gas prices reach into every part of our lives. For example, Jeanette, who lives in rural Vermont, is now only able to see her partner on weekends due to the high cost of gas and lack of affordable public transportation. Her partner, who is currently applying for asylum in the U.S. because of threats to her life in her home country, must travel out of state weekly to meet with her lawyer, a two-hour trip each way. According to Jeanette:
Now, [my partner] has been offered a job about one hour away. Since [she] can't drive and there are no buses, I'd have to give her a ride both ways...Fifty percent of her paycheck or more would be spent on gas alone. I am working part-time while in school, and I can't support the two of us, so she needs to work. If she takes the job, she will have to sleep there during the week...I will only see her on weekends, which is when I work.
The thing we are giving up because of gas prices is our time with each other. The asylum process is extremely stressful for both of us, especially for [my partner], and we need a lot of emotional support. Our time together, just to hold each other at night and comfort each other, is incredibly important right now, because [her] life is literally on the line.
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MEANWHILE, THE oil giants are making out like bandits.
According to MarketWatch, oil company profits jumped 45 percent in the first three months of 2011, over the the first quarter of 2010. Leading the pack is ExxonMobil, whose profits increased 69 percent to $10.7 billion, followed closely by Royal Dutch Shell, which raked in $8.8 billion, a 60 percent increase.
So while workers struggle to pay for gas so they can commute to their jobs and pick up their children from school, Big Oil is pulling in profits of about $300 million per day--or $12.5 million an hour. That's equivalent to the U.S. average hourly earnings for nearly 550,000 people in the U.S.
The exorbitant oil and gasoline prices are taking a bite out of consumer spending and increasing the cost of raw materials, thus contributing to a slowdown in economic growth and increased jobs losses. GDP growth in the U.S. slowed to 1.8 percent for the first quarter of this year, down from 3.1 percent in the last three months of 2010--and new jobless claims grew for three straight weeks in April to over 425,000 for the week of April 23.
According to Republicans, though, the problem isn't that oil companies are making too much, but that the government is preventing them from making even more.
According to a report in Politico, House Speaker John Boehner "said that Obama's moratorium on oil drilling in the Gulf, as well as his decision to cancel leases on drilling in national parks, has contributed to the rising prices." Similarly, Rep. Michael Murgess of Texas made the dubious claim that the House's passage of a bill promoting faster leasing for drilling in the Gulf of Mexico and the Atlantic Ocean was behind the recent drop in oil prices--even though the legislation hasn't been considered by the Senate, and probably wouldn't be signed by Barack Obama.
Obama is hardly the enemy of the oil industry that Republicans claim--his administration has supported the expansion of offshore drilling, and back in October, he lifted the moratorium on deepwater drilling imposed after the BP disaster.
Regardless, though, Boehner and other Republicans who hold up domestic oil drilling as the solution to high gas prices are blowing smoke. According the CNN Money:
[A] 2009 study from the government's Energy Information Administration [found that] opening up waters that are currently closed to drilling off the East Coast, West Coast and the west coast of Florida would yield an extra 500,000 barrels a day by 2030.
The world currently consumes 89 million barrels a day, and by then would likely be using over 100 million barrels. After OPEC got done adjusting its production to reflect the increased American output, gas prices might drop a whopping 3 cents a gallon, the study said.
Boehner and Co. are simply using high gas prices to score political points, while trying to help the oil giants rake in bigger profits.
Nor can the rise in gas prices be blamed on a lack of supply in general. Despite the disruption to oil production in Libya, caused by first the Muammar el-Qaddafi's war on democracy protesters and then the U.S.-led military intervention, the U.S. government's Energy Information Administration reports that world oil production hit an all-time high of an average 88.15 million barrels per day in the first quarter of 2011, a 2.6 percent increase over the first quarter of 2010.
Over the same period, world oil consumption increased at a slightly faster pace, by 3.1 percent--though consumption overall trails production. Yet during roughly the same timeframe, the price of a barrel of crude shot up 32 percent, peaking at $112.29 on April 22, 2011.
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THE PRICE of crude oil always increases during times of political instability in the Middle East, the main oil-producing region of the world. But this is only one aspect of a central reason for the current spike in oil prices, as it was when prices skyrocketed in 2008: Wall Street speculation in commodity futures.
Futures are contracts in which buyers and sellers of commodities, ranging from food to precious metals to oil and gas, arrange a price for a future sale.
In theory, futures are supposed to help producers lock in a sale in advance to guard against sudden swings in prices. For example, wheat farmers worried about a surplus crop that would drive prices down could buy a futures contract to guarantee a price now, while buyers of wheat could product themselves against a bad harvest that would drive up prices.
But like all of Wall Street's operations, there's an element of gambling involved that has existed since futures were first developed. Originally, though, the role of speculators was restricted by law. Most trading in commodities futures took place between actual buyers and sellers of the commodities the contracts were based on. Speculators played a role in helping to fill in gaps or counter imbalances in the market, but their role was minor.
This changed beginning in the 1990s with the deregulation of the financial markets. The Commodities Futures Trading Commission, the government agency charged with regulating this market, granted exemptions to Goldman Sachs and other big Wall Street firms that removed limits to speculation in commodities.
Today, the vast majority of all trades involving commodities futures don't involve the actual physical transfer of commodities. Most are purely speculative bets on changes in the prices of underlying commodities--bets made by people who don't intend to produce or consume anything.
Because most of the speculative money flowing into the commodities futures market are bets that prices will rise, the speculation itself drives up prices. During bubbles like the one that developed in 2008, prices become completely detached from supply and demand or the production costs of real commodities.
In 2008, speculation in commodities futures drove food prices to record highs--with the result that hundreds of millions of people were plunged into hunger, and dozens of countries experienced food riots. The price of oil was subject to a similar speculative bubble in 2008--and a similar dynamic seems to be at play today, with speculators betting that the uprisings in North Africa and the Middle East, as well as their own gambling, will drive up the future price of oil.
According to Sen. Al Franken's (D-Minn.) office, speculation in oil futures has increased 35 percent since January.
Yahoo! Finance reports that Goldman Sachs told its clients that it estimates as much as $27 of the increase in the price of a barrel of crude oil is the result of speculation. As Yahoo reported, "That translates into 70 cents per gallon at the pump, according to Tyson Slocum, director of Public Citizen's Energy Program."
Whatever the exact numbers, the role of speculation is clear from the volatility in the price of a barrel of crude oil. Though there have been no dramatic shifts in oil production or consumption, the price of crude oil increased 40 percent from December through April, before dropping 15 percent last week. Notably, this sudden price drop mirrors what happened in the fall of 2008, which saw several dramatic declines after a summer where oil hit a record price of over $145 per barrel.
Whether oil prices will continue to decline remains to be seen. While some analysts contend the trend will continue, with somewhat lower prices at the pump as a result, "Goldman Sachs, which in April predicted this week's major correction [decline] in oil prices, said on Friday that oil could surpass its recent highs by 2012," according to the Economic Times.
Food prices are also experiencing an increase, due to a combination of high fuel prices, speculation, poor harvests and the diversion of food crops for use as biofuels. The World Bank's food price index jumped by 15 percent between October 2010 and January 2011 and is only 3 percent below its 2008 peak"--and analysts expect food prices to continue to rise through 2011. The World Bank estimates that the spike has caused "a net increase in extreme poverty of about 44 million people in low- and middle-income countries since last June."
The financial speculation on necessities like food and oil serves no useful purpose except to swell the pockets of the minority of investors who profit at the expense of the rest of us. Prices are driven through the roof and billions suffer because they have to pay more--while the already wealth elite laugh all the way to the bank.
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RISING GAS prices are finally starting to have an impact in Washington politics.
With his approval ratings falling due to public frustration over gas prices, Barack Obama has announced the creation of a task force to look into possible fraud or illegal manipulation of oil prices. Similarly, House Minority Leader Nancy Pelosi and even Obama administration officials have floated proposals to reduce or eliminate subsidies and tax breaks for the oil giants, which total about $4 billion per year. Even Republican John Boehner has hinted that he is open to ending some of these handouts.
But none of the proposals will address the root of the problem--oil company greed and the gambling of the Wall Street speculators.
After the financial meltdown in 2008 and their sweeping election victory that gave them control of the White House and both houses of Congress, the Democrats had an opportunity to impose new regulations that would rein in the financial markets. But the financial reforms passed last year do almost nothing to limit the gambling on Wall Street, and Obama's Justice Department shows little inclination to go after cases of fraud.
As for the $4 billion in tax breaks and subsidies for Big Oil, they should have been ended long ago--but they're a drop in the bucket. If the politicians really wanted to do something about gas prices, they could impose tough controls on prices--and impose a high tax on the oil companies' super-profits.
But you'll never hear those solutions in a political system where officeholders claim they care about ordinary people to win votes, but then serve the interests of Corporate America once in office.
The anger at soaring gas prices is beginning to find some expression in acts of collective resistance. For example, students and professors at Worcester Polytechnic Institute in Massachusetts are planning on walking out on the commencement address by ExxonMobil CEO Rex Tillerson and instead attending a lecture by an advocate of clean energy.
More such protests are needed. The first step in building a movement that can challenge the oil profiteers is to expose the rip-off--and make sure that everyone understands that the pain we feel at the gas pumps is the result of corporate and Wall Street greed, not wars and revolutions in the Middle East or environmental regulations at home.
We need to build a movement that links the defense working-class living standards to the defense of the environment and other social justice questions. Our demands for clean energy and affordable, reliable public transportation are an indispensable part of the struggle for a better world--because until there is a fundamental overhaul of our energy and transportation infrastructure, when it comes to being squeezed at the pump, working people will remain at the mercy of big oil and big finance.