Gas
Prices Rise As Oil Companies Take In Record Profits
By Mark Rainer
15 May, 2007
World
Socialist Web
The
average price for a gallon of gas in the United States has surpassed
the $3.00 mark and is currently at $3.07 per gallon. The sharp rise
in gas prices has contributed to record high profits of the major oil
companies.
Rising fuel prices have put
an increased burden on working class families. The average American
household is expected to spend $2,600 on gas this year, a significant
jump from 2002 when gas expenses averaged $1,600.
According to the Energy Information
Administration, the US Department of Energy’s statistical agency,
the recent increase in gasoline prices has been due to a “rise
in crude oil prices, persistent refinery outages, and seasonal demand
growth.”
In fact, crude prices have
been fluctuating in recent weeks, but are about at the same level they
were one month ago. In the past week, they have actually declined significantly,
even as gasoline prices have continued to escalate. Analysts are already
predicting that the continued rise in demand will keep gas prices at
least at their present levels throughout the summer—the peak driving
season.
There have been indications
of decreased refining capacity. Refinery outages and a decrease in imports
have led to a sharp decline in gasoline inventories and are considered
to be largely responsible for most of the recent increase in gasoline
prices. Although gasoline inventories rose by 400,000 barrels last week,
for the previous 12 weeks inventories were in decline, down a total
of 15 percent since February.
Since the mid-1990s, due
to a deliberate policy on the part of oil companies, US refineries have
been operating near capacity. Outages like those that occurred in the
wake of Hurricane Katrina in late 2005 have a large impact on gasoline
inventories and have consequently driven up prices. Typically, refineries
are shut down in the spring, usually justified on the grounds of regular
maintenance and repairs. This spring has seen additional outages with
a fire at a major refinery in Texas and other major supposedly unplanned
outages.
Among the reasons given for
the rise in gas prices, one of the more plausible is the most simple:
price gouging. Direct manipulation of the energy market, including through
the manufacturing of “unplanned” refinery outages, has precedents.
During the 2000-2001 energy crises in California, Enron played a leading
role in the rolling blackouts and the $5.7 billion in price hikes that
afflicted California energy consumers. Enron’s manipulation of
the Californian market included forcing power plants to shut down, price
gouging, and over-scheduling the power supply.
In the run-up to the 2006
election, gasoline prices dropped an unprecedented 82 cents over a four-week
period. Many Americans felt at the time that the sudden drop was related
to the upcoming elections and the attempt to limit pessimism over the
economy by temporarily reducing gas prices. This would presumably have
had the effect of improving the chances of the Republicans in the elections.
The WSWS noted at the time:
“Large energy companies certainly feel they have an interest in
maintaining Republican control of the government. Not that they have
anything serious to fear from the Democrats, but there are divisions
within the ruling elite and no administration has been so closely tied,
personally and financially, to the interests of the energy giants as
the current one.”
The article concluded with
the prediction, “Regardless of the exact forces behind the present
decline in gasoline and oil prices, one can bet that by January or February
prices will be back to their ‘normal’ exorbitant levels.”
(See “US gasoline prices: the ‘free market’ and the
November election”)
As a result of a large number
of mergers since the 1990s, 10 companies control 81 percent of the nation’s
oil refineries. The nation’s top five oil companies—ExxonMobil,
British Petroleum (BP), Royal Dutch Shell, Chevron and ConocoPhillips—own
more than 40 percent of US refineries. With the absence of additional
refining capacity and no government regulation on gasoline prices, there
is ample opportunity to control gasoline prices.
The concentration of ownership
of gasoline refineries is such that unplanned refinery outages at one
or two corporations can have a significant effect. The Texas refinery
that caught fire in February supplies the US with 15 percent of its
gasoline.
Whatever the cause of the
present increase in prices, there is no question that refineries are
benefiting greatly as a consequence. On May 4, gross profit margins
on gasoline refining rose 57 percent from the start of April to $31.22
a barrel. This is the second widest margin recorded in history, according
to the New York Mercantile Exchange, and is double the margins from
a year ago. The profits per barrel nearly surpassed the record set on
September 1, 2005 in the aftermath of Hurricane Katrina, with a per
barrel gross profit margin of $31.71 per barrel.
The profits of the major
oil companies are presently at record levels. Of the five top oil companies
all but BP show an increase in first quarter profits from the previous
year. First quarter profits for ExxonMobil were $9.3 billion, up 10
percent from last year. Royal Dutch Shell reported $7.3 billion, up
6 percent; Chevron reported $4.7 billion, up 18 percent. ConocoPhillips
reported $3.5 billion, up 8 percent from last year. Over the past six
years the five top oil companies have taken in a staggering $440 billion
in profits.
These profits are coming
directly out of the pockets of the American population as a whole. Lacking
alternatives in transportation, workers have had to accept the higher
gas prices. According to the Labor Bureau of Statistics, transportation
costs account for 18 percent of average household expenditures—the
third largest component. From 2000 to 2005 average expenditures on gasoline
and oil rose by 56 percent to $2,013 in 2005. As a percentage of total
household expenditures the amount spent on gasoline and oil rose from
3.4 percent in 2000 to 4.3 percent in 2005.
The rising price of gas has
already shown its impact on consumer spending. Forced to pay higher
gasoline prices, workers have cut back on food, clothing, cars and other
consumer goods. As a result, retail sales declined by 0.2 percent in
April, the first decline in seven months.
The sharp rise in gasoline
prices and the corresponding profiteering of the large oil corporations
has led again to a series of symbolic measures and proposals from congressional
Democrats. Everything from investigations into refinery outages, bans
on price gouging, and windfall profit taxes has been suggested. This
is largely for show, and the Democrats have no intention of seriously
carrying through reforms that would alleviate the burden on working
people from the rise in gas prices. Similar measures were proposed a
year ago—and in the aftermath of Katrina—but were subsequently
dropped.
For its part, the Bush administration
has signaled that it will take no action on gas prices. In remarks yesterday
at the White House, billed as a statement on oil prices and global warming,
Bush made no mention of the rising gasoline prices. He proposed reducing
gasoline consumption by 20 percent over the next 10 years through the
increased use of biofuels and an increase in fuel efficiency. In other
words, nothing will be done to help those hardest hit by rising gas
prices.
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