Aug 15, 2005
Almost in unison, the oil companies present the same reason for why gasoline prices have been skyrocketing. They claim the world is running out of oil. One advertisement from Exxon Mobil says, "The world faces enormous energy challenges. There are no easy answers." Chevron, the U.S.'s second-largest energy group, went even further, calling for help and ideas from oil industry critics about how to deal with the so-called energy shortage. "One thing is clear: The era of easy oil is over. We call upon scientists and educators, politicians and policy-makers, environmentalists, leaders of industry and each one of you to be part of reshaping the next era of energy. Inaction is not an option."Of course, behind this campaign, the oil companies, news media and government officials trot out the usual villains, especially the OPEC countries, which supposedly have a vice grip on the dwindling oil supplies.
There's only one problem with this story: it's not true. The world is not running out of oil, and there is no oil shortage.
On the contrary, production is rapidly increasing worldwide. As Daniel Yergin, a prominent oil energy consultant, author and government advisor wrote in the Washington Post on July 31, "between 2004 and 2010, capacity to produce oil... could grow by 16 million barrels a day – from 85 million barrels per day to 101 million barrels per day – a 20% increase."The high price of crude oil is not due to any real shortage. Instead the price of crude oil is being driven up by oil speculators, among whom are the big oil companies themselves, as well as enormous investment funds run for the capitalist class, like hedge funds, which are calculating that the few oil companies that dominate the international oil market will be able to keep driving up oil prices.
That is not to say that there is no real shortage in this country. However, the real shortage is not in crude oil, but in gasoline, heating oil and other products from crude oil, after it is refined and processed. The reason for this shortage is not lack of crude, but the policy of the oil companies, most of which are based right here in the U.S.
No oil company has built a major new refining facility in the U.S. since 1976, that is, in nearly 30 years. Instead, they have all systematically closed them. In 1980, there were over 300 refineries here. By 2004, there were only 149, a drop of more than 50%. So, the refining industry, which used as little as 70% of its capacity as recently as the early 1980s, in recent years has reached as much as 97% of capacity. Refineries in the U.S. have been operating at full steam, since some capacity is always down for maintenance or retooling. This puts the oil companies in a much better position to use any little excuse to boost prices – if a single pipeline bursts, or there is a refinery accident, or if a winter is a bit colder than usual, or if people drive a bit more during the summer. The oil companies even immediately raise prices on gasoline, hours after the news of a price hike in crude oil – even if the gasoline they are selling was made from crude that cost a lot less.
This, of course, is no secret. At an energy conference in Houston in February, according to the June 27 Kansas City Star, Edward Galante, a senior vice president of ExxonMobil admitted it. "In tighter markets, one can expect higher margins," Galante said.
In other words, just as during the fake energy crises of the early 1970s and early 1980s, a handful of oil companies that dominate the world market are claiming oil shortages as an excuse to boost prices. The result has been ever more spectacular profits. Last year, the top 10 international oil companies made profits of more than 100 billion dollars. The profits of the biggest oil company, Exxon-Mobil, hit 25 billion dollars, a record for any publicly traded company. And this year is even worse – with big oil company profits running at levels that are one-third higher still. Of course, oil company profits are shared with the rest of the capitalist class in the form of ever higher stock prices, dividends and even Board salaries. It's why the other companies don't complain much.
No, there is no shortage – especially when it comes to the growth of oil industry profits, and the increasing wealth of the capitalist class which it serves.