Monopoly capitalism and oil prices

7 February 2012

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Only a handful of monopoly capitalists control the international oil industry. The five biggest industry giants are Exxon Mobil, British Petroleum, Royal Dutch Shell, Chevron Texaco and Total. These five companies control the exploration, extraction and refining of crude oil, and the transport and retail of petroleum products in local markets in various parts of the world. "Free competition" in the local and international oil industry is an illusion.

Monopoly oil pricing involves setting market prices that are far divorced from actual production costs. In 2008, researches revealed that up to two-thirds of the price of each barrel of crude oil consists of profits of monopoly companies. A barrel of crude oil then cost $92 in the international market. Of this amount, exploration expenses accounted for $3-4, and drilling and refining $7-8. Royalty payments to oil-producing countries accounted for $13. The remaining $67-69 consisted of company profits.

Monopolies extract superprofits by depressing production costs and artificially raising product prices in the market. Monopoly capitalists are continuously able to raise oil prices because of their huge markets. Oil consumption grew by 2.65% annually from 1965 to 2010. Thirty-three percent (33%) of energy production worldwide is oil-based.

It is estimated that the five biggest oil companies earned a combined profit of $160 billion in 2011 (equivalent to 75% of the entire Philippine economy). Exxon Mobil raked in the biggest profits at $41.1 billion, or P3.5 million per minute. Royal Dutch Shell amassed $29.6 billion while Chevron-Texaco (mother company of Caltex) earned $26.9 billion.

The oil companies keep on invoking various global conflicts in justifying high oil prices, especially if wars break out in oil-producing countries. But even during years when there were no wars or conflicts in countries where oil is sourced, the prices of petroleum products continued to soar. This year, for instance, oil prices rose, even if Libya had resumed its oil production and tensions had already eased in Iran.

Supply was never an issue during times when there were huge and sudden increases in oil prices. Oil prices actually rise mainly because of speculation in the oil markets. The imperialist financial oligarchs (consisting of giant banks and finance capitalists like Goldman Sachs and Morgan Stanley) connive with the monopoly oil companies in causing oil prices to skyrocket. Some researches state that speculation accounts for up to 60% of oil prices.

Deregulation to provide profits for oil giants

The deregulation of the oil industry was one of the main policies pushed by US imperialism in the 1990s. It is among the neoliberal policies that aimed to further give free rein to big foreign capitalists to amass profits through plunder and exploitation in the Philippines.

The oil deregulation law was enacted under the US-Ramos regime. The latter justified the law by claiming that there was a need to cope with rising oil prices in the international market that had already depleted the Oil Price Stabilization Fund (a fund set aside to ensure the profits of oil companies at a time when oil prices were regulated in the market).

The Supreme Court junked the first law deregulating the oil industry in 1997, saying that there was no real competition in the oil industry. A new version passed by Congress in 1998 reduced taxes on oil companies, ostensibly to encourage the entry of new players.

The oil industry was deregulated that same year. The number of companies engaged in retailing petroleum products rose from three to 35. In fact, however, the three biggest oil companies (Shell, Petron and Caltex/Chevron) remained dominant, controlling more that 90% of the local market. They also control almost 100% of oil importation. It is these companies that set the prices of petroleum products in the market.

Since the oil industry was deregulated, prices of petroleum products have steadily risen. From P11.76 per liter (gasoline) and P8.25 per liter (diesel) in 1998, prices jumped to P29.13 and P26.02, respectively, by 2005. Prices have risen even more steeply, especially in the last three years, with gasoline now selling at P53.66 and diesel at P45.82 per liter. Thus, under a deregulated regime, the prices of petroleum products in the Philippines rose by close to 500%.

Deregulation is clearly a bankrupt policy that serves none other than the monopoly oil companies. The people are right on track in demanding state regulation of the oil industry, centralized oil importation, the nationalization of refineries and of Petron and limits on profits of oil companies in order to curb skyrocketing prices. Beyond this, they must expose and oppose imperialist control over oil and the obsequiousness of the puppet state to the dictates and whims of foreign and local cartels in all areas and at all times.