What to Do About the Price of Oil


Is Big Oil ripping off consumers? Are Wall Street speculators manipulating oil markets? What should be done?

Whether or not Big Oil is improperly restricting refinery capacity, whether or not Wall Street traders are driving up the traded price of oil to heights completely disconnected from supply-and-demand fundamentals, a few things are clear about gas prices — and so is the most appropriate, immediate policy response.

Current pricing arrangements are generating profit gushers for the large, integrated oil companies — ExxonMobil, ChevronTexaco and the like. While the price of oil is going up, these companies’ drilling expenses are not. Oil can trade at $40 a barrel, $90 a barrel, or $130 a barrel. It still costs ExxonMobil and the rest of Big Oil only about $20 to get a barrel of oil out of the ground.

The oil companies’ staggering profits are a windfall of the purest sort (Websters’ definition: "an unexpected, unearned, or sudden gain or advantage"). This is not a moral judgment about the oil companies, it is just a description of what’s happening.

A windfall profits tax could generate substantial government revenues. Allocated to investment in renewable energy, it could significantly increase funds directed to renewables, and be a small but important down payment on the massive investment needed in mass transit, energy efficiency and renewable energy.

Beyond the immediate future, it is important to get a better fix on energy markets. What’s clear now is that the U.S. refining market is very concentrated, thanks to a series of mergers permitted by antitrust authorities; and that oil and energy futures markets are dangerously unregulated.

Just five large oil refiners now control over half of the U.S. market, and the top 10 control over 80 percent, according to Public Citizen. There is very good evidence that the refiners have worked in the past to limit supply and drive up price. Whether this is an ongoing issue is perhaps less clear, given that independent refiners are now facing profit squeezes.

Still, for the medium term, either the government needs to scutinize refinery activity much more closely, adopt new regulatory authority and aggressively enforce antitrust laws, or it must intervene to deconcentrate the market.

Meanwhile, oil and energy markets have mutated in dangerous fashion over the last decade. At Enron’s instigation, these markets have become largely deregulated in the United States. Leading Wall Street firms like Goldman Sachs have subsequently bought up oil transport and storage operations — not because they are looking for new business outlets, but because they want insider knowledge about oil and gasoline markets. Meanwhile, investors large and small are pouring money into oil as a tradable commodity.

Are these markets being manipulated? Perhaps. But even with no manipulation, the intensified financialization of oil trading subjects the market to speculative frenzies characterized by sudden and severe price fluctuations. These prices swings have real impacts at the pump and in the overall economy (and much more ominous impacts for oil-importing developing countries than rich nations).

Re-regulating energy markets, imposing margin requirements and lessening investors’ ability to trade with borrowed money, and cracking down on market manipulation will all slow the Wall Street frenzy and limit price spikes.

For the long term, however, oil demand will continue to shoot up — though higher prices and the U.S. recession will moderate this tendency — and supply cannot keep up. Ultimately, new sources of oil may become available, including from deep water sites and tar sands and shale, but these will be more expensive to obtain.

The world is likely witnessing a long-term, steady (if bumpy) and permanent rise in oil prices. (More on the causes of oil price increases tomorrow.) This price increase will impose major economic hardships, unless there is a massive effort to shift to oil-displacing technologies and renewable energy.

That exactly this shift is needed to address the even more pressing threat of climate change, makes it all the more urgent that Washington adopt a windfall profits tax (and end governmental subsidies for Big Oil) and invest the proceeds in renewables. This is very unlikely for 2008. Will things be different in 2009?

ROBERT WEISSMAN is editor of the Washington, D.C.-based Multinational Monitor and director of Essential Action.


Your Ad Here




November 24, 2015
Dave Lindorff
An Invisible US Hand Leading to War? Turkey’s Downing of a Russian Jet was an Act of Madness
Mike Whitney
Turkey Downs Russian Fighter to Draw NATO and US Deeper into Syrian Quagmire
Walter Clemens
Who Created This Monster?
Patrick Graham
Bombing ISIS Will Not Work
Lida Maxwell
Who Gets to Demand Safety?
Eric Draitser
Refugees as Weapons in a Propaganda War
David Rosen
Trump’s Enemies List: a Trial Balloon for More Repression?
Eric Mann
Playing Politics While the Planet Sizzles
Chris Gilbert
“Why Socialism?” Revisited: Reflections Inspired by Einstein’s Article
Charles Davis
NSA Spies on Venezuela’s Oil Company
Michael Barker
Democracy vs. Political Policing
Barry Lando
Shocked by Trump? Churchill Wanted to “Collar Them All”
Cal Winslow
When Workers Fight: the National Union of Healthcare Workers Wins Battle with Kaiser
Norman Pollack
Where Does It End?: Left Political Correctness
David Macaray
Companies Continue to Profit by Playing Dumb
Binoy Kampmark
Animals in Conflict: Diesel, Dobrynya and Sentimental Security
Dave Welsh
Defiant Haiti: “We Won’t Let You Steal These Elections!”
November 23, 2015
Vijay Prashad
The Doctrine of 9/11 Anti-Immigration
John Wight
After Paris: Hypocrisy and Mendacity Writ Large
Joseph G. Ramsey
No Excuses, No Exceptions: the Moral Imperative to Offer Refuge
Patrick Cockburn
ISIS Thrives on the Disunity of Its Enemies
Andrew Moss
The Message of Montgomery: 60 Years Later
Jim Green
James Hansen’s Nuclear Fantasies
Robert Koehler
The Absence of History in the Aftermath of Paris
Dave Lindorff
The US Media and Propaganda
Dave Randle
France and Martial Law
Gilbert Mercier
If We Are at War, Let’s Bring Back the Draft!
Alexey Malashenko
Putin’s Syrian Gambit
Binoy Kampmark
Closing the Door: US Politics and the Refugee Debate
Julian Vigo
A Brief Genealogy of Disappearance and Murder
John R. Hall
Stuck in the Middle With You
Barbara Nimri Aziz
McDonalds at 96th Street
David Rovics
At the Center of Rebellion: the Life and Music of Armand
Weekend Edition
November 20-22, 2015
Jason Hirthler
Paris and the Soldiers of the Caliphate: More War, More Blowback
Sam Husseini
The Left and Right Must Stop the Establishment’s Perpetual War Machine
Mike Whitney
Hillary’s War Whoop
Pepe Escobar
In the Fight Against ISIS, Russia Ain’t Taking No Prisoners
Ajamu Baraka
The Paris Attacks and the White Lives Matter Movement
Andrew Levine
The Clintons are Coming, the Clintons are Coming!
Linda Pentz Gunter
Let’s Call Them What They Are: Climate Liars
Paul Street
Verging on Plutocracy? Getting Real About the Unelected Dictatorship
Nur Arafeh
Strangling the Palestinian Economy
Patrick Howlett-Martin
The Paris Attacks: a Chronicle Foretold
Vijay Prashad
Rebuilding Syria With BRICS and Mortar
Brian Cloughley
Why US Defense Secretary Ashton Carter is the Biggest Threat to World Peace