ANALYSIS
Oil Squeeze

The country is again facing the prospect of oil price spikes.  Why? Can nothing be done about it?

BY BENJIE OLIVEROS
Bulatlat

The country, and the world, are again being threatened with the probability of run-away increases in the prices of oil, gas, and its derivatives.  New York’s main contract, light sweet crude for June delivery, reached a peak of $73.69 per barrel in U.S. trade Thursday before easing down by 84 cents at 72.85 dollars a barrel. Brent North Sea crude peaked at $74 per barrel in London trade Thursday before going down to $73.28 dollars per barrel.

Governments are again scrambling for alternative energy sources.  Aside from this, the IMF, characteristically, proposes an increase in taxes, such as an emission fee for vehicle owners and operators, to lower the demand for oil. 

These solutions have been tried but it lowered neither the price of nor the demand for oil. The frantic searches for alternatives have been going on for years although these come intermittently with increases in oil prices. Vehicle owners and operators already carry the burden of numerous taxes and fees such as excise tax on petroleum products, road users’ tax, taxes on automobiles, the recent 12 percent E-VAT (Expanded Value-Added Tax), etc.

But time and again, countries and peoples have to swallow bitter increases in the prices of oil.

Oil and gas are perhaps the only commodities that have constantly increasing prices. The prices of gold and other minerals fluctuate as more sources are identified and technology lowers the cost of extraction and processing. The prices of cars, appliances, computers, and other consumer durables become more affordable as technology lowers production costs.

But the price of oil just keep on increasing even if more sources are identified, processing methods are modernized, and transport costs are minimized as more pipelines are laid out. Oil is not even the main component of production.       

Apologists of oil companies say that production capacities are barely able to cope with demand and any disruption caused by natural and man-made disasters such as hurricanes and earthquakes, wars and embargos will trigger a supply shortage.  They also claim that the sources of oil are limited and eventually it will dry out. 

While there may be an element of truth to these dire predictions, fears of shortages never happened except in the 1970s when the Organization of Petroleum Exporting Countries (OPEC) decided to limit production and exportation to be able to increase prices. But now even an increase in production by OPEC does not lower prices.

The effects of Hurricane Katrina; the civil war in Iraq and tense relations with Iran, which is being instigated by the U.S. anyway; restlessness in Nigeria, Sudan, Saudi Arabia; the invasion of Kuwait; threats of attack by Al-Queda; the growth of the economy of China; the onset of summer, spring, winter, or fall have been given as reasons for oil price increases.  These events happened without having a critical impact in the balance between supply and demand. And yet prices of oil increased. World oil consumption was less than projected in 2005 but oil prices increased.  In the Philippines, prices of oil products increased by an average of seven to twelve pesos per liter in 2005.        

The April 20 editorial of the Philippine Daily Inquirer (PDI) attributed this to the insatiable greed for profits of oil companies who cash in during times of crisis. The worst part of it is that oil companies profit not only from real crisis or disasters but also from probable, instigated, and invented ones.     

Monopoly pricing by oil companies dominated by three big corporations, Chevron Texaco, Exxon Mobil, and Royal Dutch Shell, enable them to increase prices at will. They set, dictate, and standardize prices from bulk purchases up to the level of gasoline pumping stations.

Wars are conducted to tighten the stranglehold of these companies over the supply and distribution of oil and gas. Afghanistan was invaded to be able to lay down a pipeline to Europe while Iraq is the second richest source of oil. The Middle East is an important and critical region for the U.S. design for world domination contained in the 1992 Defense Policy Guideline and the 1997 Project for a New American Century.  

Oil companies are not the only ones that profit from crisis and disasters, both real and imagined.  Traders and speculators in oil also profit from price spikes. 

Hedging and speculation take place at the New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange (ICE), formerly the International Petroleum Exchange (IPE).  These are two commodity future markets where light sweet crude and Brent North Sea Crude are traded in New York and London, respectively. The NYMEX is a registered U.S. corporation.  The IPE, based in London, was bought and absorbed by ICE, also a U.S. corporation, in 2001.  Negotiated prices in these two exchanges are benchmarks for world oil prices.

While organized to protect companies from price fluctuations of necessary commodities, such as oil in this case, profit-taking, or buying oil in bulk when the price is low and selling it when the price is high, is common in these markets. In fact, speculation and profit-taking is so common that prices overheat, meaning prices increase to a point where there are no more buyers. This is the only reason for reductions in oil prices.

The Filipino people are more vulnerable to profiteering by oil companies and speculators because of the Oil Deregulation Law of 1998.  Oil prices increased by 400 percent from 1996, before oil deregulation, to 2005. Below is a table of average oil prices supplied by Ibon Foundation.     

The Arroyo government is kowtowing to oil companies and speculators by claiming that nothing can be done to mitigate the impact of oil price spikes. 

In the immediate, it can scrap the Oil Deregulation Law and set the price of oil based on a study of world oil prices and a reasonable rate of profit for oil companies. The P11.8 billion combined profits of Petron Corp. and Pilipinas Shell in 2005, representing an 88 percent increase compared to 2004, is scandalous considering the hardships and poverty made worse by oil price increases. 

In the medium-term, the government can buy the country’s oil needs in bulk to be able to negotiate for a better price and organize a local exchange where it can sell and distribute the oil products it purchases.

In the long-term, it can nationalize the oil industry, to include the extraction, refinery, allocation, and distribution of oil.

To be able to put these measures into place, the Filipino people must have a government that is truly sovereign, pro-people, democratic, transparent and accountable. Bulatlat

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