This price surge has provided a cascade of superprofits to the biggest oil companies. Taking advantage of an increased global demand for crude oil and its derivatives in the past few years, the oil giants have used their domination of the industry, from wellhead to gasoline station, to keep supplies tight and prices up. In particular, their long-term decision to keep the construction of U.S. refineries frozen has helped them ensure that supply lags behind demand.

The increased demand has been fueled by the recovery of the U.S. and Japanese economies from the 2001-02 recession, as well as increasing consumption by China and India.

The oil “majors,” as the biggest outfits are known, have also jacked up prices in response to the conflicts and upheaval in the Mideast, and to Washington’s offensive against the government of Venezuela, which, like Saudi Arabia and other Middle Eastern producers, is a member of the Organization of Petroleum Exporting Countries (OPEC).

While U.S. companies buy more than half their imported oil from non-OPEC nations—part of Washington’s long-term strategy to weaken the oil cartel—their imports from OPEC producers rose by 31 percent in the past year. These facts highlight why the U.S. capitalist rulers place such a priority on using their military might to control the vast oil resources in Iraq, Saudi Arabia, Kuwait, and the rest of the Mideast.

Forced upward by these factors, crude oil prices reached a 20-year high at around $40 a barrel in late May..  
 
Profit bonanza
“Driven by soaring gasoline prices, ChevronTexaco Corp’s first-quarter earnings climbed 33 percent, continuing the oil giant’s recent run of gushing profits,” the Associated Press reported May 1. ChevronTexaco, the second-largest U.S. oil company, reported that the lion’s share of its profits came from oil refining and gasoline sales in the United States.

The number one U.S. oil firm, Exxon Mobil, reported its biggest first-quarter profit ever this year, while Royal-Dutch Shell—a combined Dutch and British firm that ranks third among the world’s oil and gas companies—reported a 9 percent increase in earnings for the first three months of this year.

Forbes columnist Daniel Ackerman reported May 28 that Exxon Mobil, ChevronTexaco, and British Petroleum “have seen their share prices rise by between 20 and 30 percent in one year.” By way of exception, Shell’s stock has dropped in the wake of revelations that it overstated oil reserves by about one-fifth in each of the last six years.

The sharp rise in gas and diesel prices, which has led to hikes in prices across the board, including increases in air fares, is putting growing pressure on the income of working people.  
 
Protests by truck drivers
Truck drivers in California put a spotlight on this issue on April 30 with a series of work stoppages and other protests to back up their demand for compensation for rising diesel costs. In Oakland, drivers stayed out until they had forced most trucking companies to agree to a 20 percent increase in payouts.

As owner-operators the truckers bear the burden of maintenance and insurance as well as fuel costs. The protesters explained that they are paying over 30 cents more for a gallon of diesel than they did a year ago—an increase of 17 percent.

The jump in the gasoline prices is even greater. According to the U.S. Department of Energy, the average price of a gallon of regular gasoline at the fuel pump has risen by 58 cents in the past year to $2.06.

Like the independent truck drivers, working farmers are feeling the sharp rise in the diesel price as a body blow to their livelihood.

“The higher prices are already being felt here,” C.R. Martin, a farmer in central Florida, said in a June 3 phone interview. “I have to use a lot of fuel just to get to and from the fields.”

Martin, who grows sweet corn and beans, said that the fuel used in tractors has gone up by 2-3 cents a gallon just in the past month. At 70-80 cents a gallon, it’s cheaper and more polluting than the diesel used on the road. The Florida farmer said he also anticipates a rise in the cost of aerial spraying of pesticides and applying fertilizer.

Stanley Bevers, an economist with Texas Cooperative Extension, part of the Texas A&M University system, told AP that “farmers have experienced a 20 percent to 30 percent increase in the price of fertilizer” because of the rising price of natural gas, used in its manufacture.  
 
Monopoly of oil industry
The rise in oil prices is not just a question of supply and demand. Oil consumption in the United States rose 16 percent between February 2003 and February 2004, yet prices have risen much more. Through their control of vast energy empires, the oil monopolies are in a powerful position to control supplies and thereby jack up prices.

Such monopolies are a classic feature of the imperialist stage of capitalist development. One hundred years ago the Russian revolutionary leader V.I. Lenin noted that “the enormous growth of industry and the remarkably rapid concentration of production in ever-larger enterprises are one of the most characteristic features of capitalism.

“At a certain stage of its development,” Lenin wrote, “concentration itself, as it were, leads straight to monopoly, for a score or so of giant enterprises can easily arrive at an agreement….

“A very important feature of capitalism in its highest stage of development,” added Lenin, “is so-called combination of production, that is to say, the grouping in a single enterprise of different branches of industry.” Lenin’s description of the normal functioning of imperialism is just as true today as it was when he wrote it.

Since the years following World War II, when U.S. firms gained the upper hand over their British rivals, the oil industry has been dominated worldwide by a handful of giant companies with the power to restrict supplies and set prices. Combining efforts at one moment and engaging in cutthroat competition the next, they form an infinitely more powerful oil industry cartel than OPEC, a grouping of semicolonial countries that together produce about 40 percent of the world’s oil.

In an Aug. 23, 2003, report on the energy crisis, the California Legislature’s Select Committee on Gasoline Competition, Marketing, and Pricing noted that “seven oil companies control 96 percent of the gasoline sold in California. Additionally, oil companies are operating more retail outlets themselves and the number of retail outlets is dropping.”

Taking a nationwide view, a report by the Consumer Federation of America (CFA) released last October observed that the oil industry “has become so concentrated in several parts of the country that competitive market forces are weak…. Because there are few firms in the market, prices hold above competitive levels for significant periods of time.

“The problem is not a conspiracy,” the CFA noted, “but the rational action of large companies with market power.”

The result is a profit bonanza. The report noted that “while profits were down in 2002, due to very low prices early in the year as a result of the severe economic downturn and travel slow-down following September 11, they were still just above the levels of the late 1990s…. Fortune reports return on equity of 25 percent in 2000, Business Week reports 22 percent. This is almost twice the historic average for the industry and about 50 percent more than other large corporations achieved.”

After a downturn in early 2002, by the end of the year “profits had increased dramatically,” said the CFA. With the sharp price increases of the following year, “the industry was seeing record profits once again.”  
 
Freeze on construction of refineries
A key chokehold for the oil monopolies is the refining of crude oil in the United States. For the past three decades, oil company bosses have frozen the construction of refineries in the United States, putting a tourniquet on the flow of refined products.

“We haven’t built a new refinery in this country for three decades. Refineries historically haven’t made money,” Exxon Mobil chairman Lee Raymond told reporters in late May.

The oil barons claim that environmental protections, like the installation of scrubbers to neutralize harmful byproducts, make refinery construction too expensive from the point of view of their profit priorities.

Refinery capacity has actually declined by 10 percent over the last 20 years. While refining has been made more efficient, mergers of the big oil companies have cut the number of U.S. plants from 301 to 153, reported the May 28 New York Times. Those that remain are working at more than 90 percent of maximum capacity. Ten percent of refined gasoline is imported, mostly from Europe and Latin America.

One extra factor in the higher prices and profits is the increasing cost of finding new oil deposits. While Middle East reserves lie under the desert within relatively easy reach, newer finds are often located in deep waters requiring much heavier, more sophisticated, and expensive equipment. Other deposits need new pipelines to be tapped, or are locked in bitumen-rich sands, which have to be processed at enormous financial and environmental cost.

These are big questions for companies forced to constantly find new deposits or face extinction. One of the reasons that Shell’s prospects look gloomy right now, reported the BBC on March 18, is its failure to find “new oil and gas anything like as fast as” Exxon Mobil and BP, the other two international giants. In 2003 Shell had a “reserves replacement ratio” of only 98 percent, said the report—meaning that for every barrel it pumps, it discovers one more. BP’s ratio is almost double that.

All these companies use their enormous leverage to jack up prices of crude and refined products in a world marked both by growing demand for oil and by the increasing instability of the conflict-ridden imperialist system.

In a typical comment on the current oil market, Business Week ascribed the rising price of the Texas International grade of crude oil to “a perfect storm of heavy demand from China and the U.S. and fears of Middle East violence disrupting supplies.”

Daily demand for crude will increase this year by almost 2 million barrels to 80.6 million, reports the International Energy Agency. “The world isn’t literally about to run out of oil,” stated a feature in the June National Geographic magazine. “But while demand, now 80 million barrels a day, continues to grow, production of conventional (easily extracted) oil will peak eventually, with production declining after that.” The article was titled, “The End of Cheap Oil.”

Growing demand for oil internationally is putting an upward pressure on the price of crude oil and adding to the volatility of international markets in oil and oil futures—essentially bets on the future price of this strategic commodity.

Adding to the pressures, the U.S. government is a big buyer on the oil markets right now, reported the May 28 New York Times. The U.S. strategic petroleum reserve, established in the 1970s to shield against wars and other potential disruptions in supply, “now holds about 660 million barrels, making it the world’s largest source of stockpiled petroleum,” it said. The article also noted reports “that China, which recently surpassed Japan as the second-largest importer of oil, is going ahead with plans to build its own petroleum reserve.”

These steps highlight the strategic place of oil in the modern world. Washington’s drive to control reserves to the detriment of its imperialist competitors is a powerful factor in its aggressive bipartisan foreign policy in the Middle East, Africa, Latin America, and elsewhere.
 
 
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