BY SUE BOLAND
Blockades and protests against rising petrol prices by truck drivers, farmers and fisherpeople have spread through 14 European countries. In Australia, the Transport Workers Union is planning blockades. Governments, from the United States, Britain and Australia, are blaming the Organisation of Petroleum Exporting Countries (OPEC) for the increases in the price of oil.
Meanwhile, the protesters have focused on their governments' role in maintaining high petrol prices through exorbitant excise and consumption taxes.
Britain is the worst offender: 72% of the price of each litre of petrol goes to the government in taxes (down from 76% in 1997). Motorists in Britain pay more than A$2 per litre. The average component of the price of a litre of petrol collected by European Union governments is 68%. In Australia, it is 47.2%.
While the abolition of excise and consumption taxes would provide immediate relief, it would not end fluctuations in international oil prices.
Oil production
Seizing on this fact, imperialist governments claim that the situation can be solved simply by OPEC countries substantially increasing production. US President Bill Clinton met with Saudi Arabia's Crown Prince Abdullah in early September to press this point.
OPEC on September 14 announced that it would increase production by 800,000 barrels per day (bpd) from October 1. This will be the third production increase of the year. However, there is uncertainty about whether it is possible for OPEC countries to produce this extra amount.
Andrew Main in the September 9-10 Australian Financial Review wrote that the US investment bank Merrill Lynch had recently halved its estimate of how much surplus capacity there was in OPEC outside Saudi Arabia and the United Arab Emirates (UAE).
Apparently, the poorer OPEC countries, such as Nigeria and Mexico, were unable to meet the higher quotas they voted for at the previous OPEC meeting. This is because crude oil was fetching extremely low prices (as low as US$10 per barrel) for long periods during the 1980s and '90s, leaving the poorer OPEC countries unable to reinvest in oil infrastructure.
Saudi Arabia, the world's biggest oil producer, used to have about 2.5 million bpd of excess capacity, but it has been pumping an extra 600,000 bpd over its quota since July, so its spare capacity may be less than 2 million bpd.
Iraq has even bigger oil reserves than the UAE but UN sanctions in place since the 1991 Gulf War limit it to producing 2.5 million bpd. Iraq could pump twice as much if sanctions were lifted and it received assistance to rebuild infrastructure destroyed during and since the war.
The realisation that OPEC has only limited capacity to lift production is a factor in the increasing oil price. OPEC's announcement of an increase did result in the international price of crude oil coming down slightly from the 10-year high of US$37 a barrel reached on September 19.
Oil companies
In Britain, big oil companies responded to the international price decrease by increasing retail prices two pence a litre. Because this politically stupid move coincided with the fading of the massively popular fuel blockades, the British government convinced the oil companies to back down.
In Australia, people are familiar with the big oil companies jacking up the price of petrol just before holiday periods. This practice occurs regardless of how high or low the international price of crude oil happens to be.
These examples illustrate that OPEC production quotas and government excise taxes are only two factors affecting the price of fuel. The main culprits are the big oil companies.
Just 12 months ago, oil companies were bemoaning low oil prices. At that time, many oil industry analysts predicted that low prices would be around for a long time. The low oil price and low profit margins for refined fuel prompted a wave of rationalisation and restructuring, in Australia and internationally.
Since oil prices began to rise at end of last year, oil companies around the world have increased their profits. Three of the major oil refining companies in Australia — Caltex, Mobil and Shell — reported large profit increases after tax for 1999.
OPEC scapegoated
OPEC is being made a scapegoat for high oil prices. This lets both Western governments and big oil companies off the hook.
Mobil (now merged with Exxon) acknowledged in an August 25 press release that "crude oil is only one factor influencing the import price of gasoline, albeit a major input cost". Mobil said: "Over the last 12 months while the price of crude oil has been rising, gasoline prices have not been rising as fast. It's only been in recent months that gasoline prices have started to catch up. Demand has outstripped supply in the market, particularly because some refineries [such as the large refineries in and around Singapore] have not been operating at full capacity."
Even if OPEC massively increased oil production, it would not prevent the oil monopolies manipulating prices. There are a lot of factors affecting oil prices over which OPEC has no control.
Kuwait's oil minister told the September 29 Bulletin, "There's no shortage of crude in the world market ... The issue is the refineries which are not supplying the market with what they need. The refineries claim they are operating at 100%, but I don't think so. Because as oil prices rise, refineries usually reduce their capacity."
Australian refineries at December 31, 1998, were operating at about 85-88% of designed capacity, and Singapore's large refinery was operating well below capacity.
Recent consolidation and tightness in the oil-storage and tanker-shipping businesses mean that even if OPEC produces more oil, it may not be possible to get it to market quickly. There is currently a shortage of vessels for shipping oil.
Another factor is the oil giants' "just-in-time" management of stocks and deliveries. Firms keep far lower inventories than they did a decade ago.
Instead of being focused on volume and market size, the industry is now more focused on returns on capital. Exxon Mobil spent only US$2.4 billion on exploration and production in the second quarter of this year, compared with US$35 billion in the same period last year.
Profits
At the retail level, the big oil firms charge petrol prices as high as they think they can get away with. The highly monopolised nature of the oil refining and petrol retail industries gives oil companies a lot of latitude.
For several years, the oil giants have been complaining about the low rate of return from refining. The American Petroleum Institute (API) complains that profit margins in oil are lower than in other industries.
The API states that the profit margin of the fuel industry averaged just 3.6% for the first six months of 1999. For the first six months this year, a tighter world crude oil market has led to higher prices and profits for oil companies, increasing the average profit margin to 6.8%, almost on a par with the average profit margin of all other industries, which is 7%.
A comparison of the profit rates in the Energy Information Administration's sample of oil companies with those of the Standard and Poor industrials since 1977 shows oil company profit rates averaged 9.7% compared to 11.5% for all industries.
From 1994 to 1998, oil company profit rates have been even lower, averaging 7.2%, half of the 14.2% average of the Standard and Poor industrials. A similar situation is being experienced in Australia, Caltex claiming that in 1997 it had a return on equity of just 4.3%.
Elizabeth Knight reported in the Sydney Morning Herald (July 21, 1998) that "the [Australian oil] industry is overcapitalised". With four major companies (Caltex, BP, Mobil and Shell), it had a combined return on equity of only 2% in the previous year.
Prompted in part by the collapse in oil prices during the 1990s, a wave of mergers swept the industry, producing giants such as Exxon Mobil and BP Amoco (now BP again). Since the 1980s, the number of oil companies in Australia has declined from nine to four, the number of distributors from 1700 to 400 and the number of retail sites from more than 20,000 to fewer than 9000. The industry work force has been cut by more than 30%.
The Australian federal government, in its Downstream Petroleum Products Action Agenda (released on November 30) stated that refining in Australia is in crisis because of falling profitability and the need for up to $100 million investment in infrastructure. It warned that there would be a further rationalisation of the industry, which may result in a duopoly in Australian oil refining. Many industry analysts predict that four refineries will close.
Monopolisation
While there are thousands of oil companies in the world, a few super companies dominate the industry. Fully integrated corporations such as Exxon Mobil (the world's biggest oil company), BP, Royal Dutch Shell, Chevron and Texaco have a vested interest in all stages of the oil industry, from exploration and production to transport, refining and marketing of final products.
According to Greenpeace's Greenhouse Gangsters vs Climate Justice (1999), most of the oil produced by the Saudi Arabian state-owned Aramco corporation is refined and distributed in Europe, the US and Japan by Exxon Mobil, Chevron and Texaco. Similarly, BP, after its acquisition of Arco, controls 59% of US refining and marketing and 28% of Europe's refining. Exxon Mobil has 22% of the US petrol market and BP has 16%.
Structural adjustment programs imposed by the World Bank and IMF are also aiding the giant oil companies by forcing the widespread privatisation of national oil companies. The oil giants are making a killing as they snap up formerly government-owned oil companies in the Third World and eastern Europe. With Russia having been the world's largest oil supplier as recently as 1980, the privatisation of Gazprom would have been a rich prize.
OPEC was formed by Iraq, Saudi Arabia, Kuwait and Venezuela in 1960 (Algeria, Nigeria, Indonesia, Qatar, Libya and the UAE joined later) to limit the influence of the cartel of oil companies known as the "Seven Sisters" (Exxon, Shell, BP, Gulf, Texaco, Mobil and SOCAL). The Seven Sisters had a history of manipulating oil prices to their advantage. In 1949, they controlled 92% of world hydrocarbon reserves, 88% of world production, 77% of refining capacity, 66% of oil tankers and all pipelines.
Some OPEC countries tried to exert more control over their oil reserves by nationalising the industry. However, even with nationalised oil companies, Third World economies are still dominated by the oil monopolies, which have vertically integrated operations. Sometimes state-owned oil companies enter joint ventures with big oil companies to secure funds to invest in new projects or upgrade infrastructure.
Imperialism
The oil monopolies work hand-in-glove with the imperialist states in which they are based. For example, Rockefeller gained enormous assistance from the US government to establish, and then maintain, his Standard Oil monopoly. Similarly today, US oil giants receive great assistance from the US government, in the form of subsidies, tax breaks, favourable government regulations and a foreign policy which favours the interests of US oil companies.
The oil companies fund both the major US parties. Corporate Watch (<http://www.corpwatch.org>) reported on July 3 that the US oil industry had pumped more than US$1.5 million into Republican George W. Bush's campaign for president. Democrat Al Gore has received $100,000.
Greenhouse Gangsters vs Climate Justice (1999) noted that in 1997, the oil industry spent US$62 million on lobbying the US Congress, the fourth largest of any industry. On top of this, between 1991 and 1996, the oil and gas industry contributed more than US$53 million to candidates and political action committees.
Why are imperialist governments focused on getting OPEC to increase production when it is responsible for only 40% of world oil production? Why is there no pressure on other countries (such as the US) to increase production?
The cost of producing oil in OPEC countries is far lower than in the US. According to an International Energy Agency statistical report on oil prices and taxes released on September 20, the cost of producing a barrel of oil in Saudi Arabia ranges from less than US$2 to slightly over $2.50. In contrast, production costs in the US range from between US$6 and $12.
Production costs are kept even lower in the Middle East and countries such as Nigeria because governments repress unions and people living in oil-producing regions, pay low wages and do not have adequate or fail to enforce environmental regulations.
The low cost of production in many Third World countries, and the resulting high profits, come with a high human price. Four major oil companies are being sued for their roles in human rights abuses in the countries in which they operate: Texaco, Shell, Chevron and Unocal.
OPEC is being scapegoated for high oil prices, when it is the big oil monopolies which have far more influence over the price we pay for petrol.
Oil is an essential commodity, and a finite one. It is too valuable to be left in the hands of the oil monopolies. We won't see an end to oil price manipulation until the oil industry, at each phase of the production process, is removed from the grasp of the giant oil companies and nationalised.