Our readers write: $200 a barrel oil?

Submitted by WW4 Report on Thu, 02/28/2008 - 00:56

Watching the Shadows

Our February issue featured the story "Oil Shock Redux: Is OPEC the Real Cartel —or the Transnationals?," by Vilosh Vinograd, which argued that the unprecedented $100 a barrel is due less to OPEC production levels than the correct perception that since the Iraq invasion a struggle has been underway for mastery over the planet's most critical oil reserves. Contrary to the conventional wisdom, the military grab for the Persian Gulf oil is raising prices—and may have been designed to do so. It is not about securing low oil prices for US consumers, but imperial control of oil as a tool of political power. Wrote Vinograd: "An effective anti-war position must entail deconstructing the propaganda of 'national security' on the oil question, and breaking with the illusion that elite concerns and consumer concerns coincide." Our February Exit Poll was: "Will oil hit $200 a barrel by year's end?" We received the following responses:

From Margery Coffey, Rosalie, Nebraska:

If the little weasel in the White House has his way. The Saudis must be laughing their asses off. They successfully "bombed" the US with our own airplanes and now they are getting paid for the job. All it cost them was a few evenings with the weasel draped in furs and jewels. And not only are they getting top dollar for their oil, they have eliminated the competition in Iraq and with luck in Iran as well not to mention Afghanistan whom everyone seems to have forgotten that we are still at war with over there.

World War 4 Report replies: We agree that the Bush agenda has been one of high oil prices, so as to fuel both expansion of the oil industry and military adventures (in a vicious cycle). But, as we have argued, the situation may have now taken on a life of its own, with prices higher even than what is useful to Bush. (Although not necessarily Cheney...) We also must take issue with the notion that the US is being played by the Saudis. We're not convinced the Saudi government was behind 9-11 (although the Saudis are certainly arming the Sunni insurgents in Iraq—in part, to prevent the US from consolidating control over Iraq's oil so as to use it as a lever against OPEC). Don't forget that this oil shock has also meant record profits for Exxon and its ilk. (Also, there is no oil in Afghanistan, tho it is strategically important for encirclement of the Caspian Basin oil.)

From Bill Halverson, somewhere in cyberspace:

Only if a Democrat gets elected ....

But not for the reason you may think ...

World War 4 Report replies: Ah, the opposite conspiracy theory heard from. OK, do you think Cheney and his pals will instrument a price hike so as to undercut President Obama? Explain yourself, sir.

From Joseph Wetmore in Ithaca, NY:

You should not worry too much about the price of a barrel of oil unless you are in the futures business or the refining business. The price of a barrel of crude oil has little to do with the price of its products such as gasoline. Let's look at a little history:

date price of oil price of gas

1994 $15 $1.20
1997 $26 $1.40
1999 $11 $1.20
2001 $35 $1.60
2002 $20 $1.50
2003 $30 $1.60
2004 $31 $1.90
2005 $41 $2.30
2006 $60 $3.10
2007 $62 $3.00
2008 $100 $3.25

(not adjusted for inflation)

Notice how the price of a barrel of oil can almost double and the price of gas only goes up a tiny amount? If you followed crude oil prices v. gasoline prices from June 2007 to December 2007 you could watch crude prices go up while, at the same time, gasoline
prices went down.

There are many reasons for this. One is that refinement and delivery are significant parts of the price of a gallon of gas, so as these prices fluctuate, so does the price of the final product. Another is that you have two different markets here. The oil companies are pricing gas at the point where they get maximum return. Oil producers are doing the
same.

So in the end, following the price of a barrel of oil will tell you about as much about the price of gasoline as following the stock market will tell you how the price of consumer goods is changing.

World War 4 Report replies: We also noted that Exxon's profits started to level off a little late last year, as the price of crude accelerated faster than the oil companies could get away with passing the costs on to the consumer at the gas pump. But now, a month after we passed the $100 a barrel mark (and as the economy hits the skids), gas prices are soaring again. Reports the New York Times Feb. 22:

Gasoline prices, which for months lagged behind the big run-up in the price of oil, are suddenly rising quickly, with some experts saying they could approach $4 a gallon by spring. Diesel is hitting new records daily, and crude oil rose above $102 in trading Wednesday after settling at a record high of $100.88 a barrel on Tuesday...

According to the latest forecast by the Energy Department, gasoline prices should peak near $3.40 a gallon this spring.

But many analysts consider the government's forecast conservative, foreseeing a sharper spike as refiners come out of the seasonal maintenance period and start producing summer-grade gasoline in March and April.

"We've gone this high without the normal summer dynamics," said Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service. "That's when I think we will have the big jump — of 50 cents to 75 cents a gallon."

Mr. Kloza said he expected gasoline to peak around $3.50 to $3.75 a gallon nationwide. Geoff Sundstrom, AAA's spokesman, echoed that view and added that gas at $4 a gallon is possible this summer. "We've gone from a worrying situation for gasoline to one that is quite alarming," Mr. Sundstrom said.

So while the relation between crude and gasoline prices isn't a strictly mechanistic one, when crude prices are this inflated it is obviously going to be felt at the pump. The oil companies have a responsibility to their shareholders to pass on the costs to consumers—and we are, after all, an almost 100% captive market.

From Kim Alphandary, San Diego: