By themselves, the three big oil companies, which are all vertically integrated, can control every aspect of their oil business. Together, they can push the price of oil up or down. And with the cooperation of the minor players, these oil companies can regulate the supply and distribution of petroleum products and dictate the price regardless of supply and demand. So when they claim that the supply is low or that world oil prices are increasing to justify the increase in pump prices, they have only themselves to blame because they actually create these conditions. Almost all oil companies in the country, except a few small players which buys petroleum products to sell here, are subsidiaries of big oil companies.
Even without any formal agreements, these companies set the price of petroleum products. Have you noticed how they increase their pump prices one after another? Usually, the big oil companies announce an increase in pump prices to be followed by the small players the next day. And do you know that these oil companies also dictate the retail price of petroleum products to be sold in service stations? Service station owners and managers are told to set the same price as, and not to undercut nearby service stations which are supplied by other oil companies.
The insidious speculators
More insidious and parasitic are speculators, called hedge fund managers, who push prices of petroleum products up at the New York Mercantile Exchange (NYMEX) and ICE Futures of London, formerly InterContinental Exchange which acquired the International Petroleum Exchange.
The New York Mercantile Exchange describes itself as the largest commodity futures treading market dealing with energy and precious metals. It began trading energy futures in 1982.
ICE Futures started trading the whole range of energy products, including Brent Sea Oil, natural gas, electricity and carbon. Both these futures market greatly influence the prices of oil in the world market.
The purpose of commodity futures is to enable companies to plan their operations and finances, and protect it against probable losses caused by price fluctuations of the commodities it needs for its operations. In the trading floor, in the case of NYMEX, and also in the internet, in the case of ICE Futures, buyers and sellers enter into contracts for the purchase and delivery of petroleum products and other commodities months ahead. Stipulated in the contract are the agreed price and the quantity for future delivery. For example, as of this July, contracts for the purchase of petroleum products for delivery in September are entered into, with the corresponding price agreed upon. The negotiated price is based on estimates by both buyer and seller taking into consideration the current price and projected fluctuation.
Much like the stock market, trading in commodity futures is being dominated by speculators. Those “investing” in the stock market are not there to invest in companies to earn dividends in the future. They buy shares in the hope that its value increases. If the value of the shares does increase, the “investor” will be able to sell the shares he bought at a higher price thereby earning some profit. But if the “investor” was not able to sell when the price was high and the value of the stocks nosedives then he loses. This is the game of speculators.