Oil's Well for Oil Wells

by Dan Jacoby

Two dollars a gallon!

Some of you may have noticed that gasoline prices have gone through the roof. The Saudi ambassador blames the U.S. for failing to build new oil refineries. Indeed, no new major refinery has been built in over 25 years, and many smaller ones have disappeared in the interim. The reason is that Republicans changed the rules in 1981, making it practically impossible for smaller refineries to make a profit. As a result, the major oil companies own most of the refineries, and they have no reason to build new ones.

But that's not the reason for high prices.

We have fewer refineries, but the ones we have are more efficient. For every barrel of crude oil that goes in, 40% more refined product -- gasoline, heating oil, jet fuel, etc. -- comes out. In other words, the same refineries, with the same capacity, can produce 40% more gasoline than it used to.

Worldwide demand for oil has grown in recent years. China's economy is booming. India's demand is rising as well. U.S. demand for gas-guzzling SUVs is still huge. Other developing countries are creating more demand.

But that's not the reason either.

There is plenty of oil. Current oil fields are capable of pumping all the oil we need. Saudi Arabia alone could ramp up production very quickly. But OPEC, which controls most of the world's oil supplies, isn't pumping that oil. Instead, led by Saudi Arabia, they're holding back on the supply.

But that's not quite it either.

Non-OPEC oil production has risen significantly over the past 15 years, and continues to rise. Total world oil production is up, despite OPEC's best efforts.

So why are prices so high?

Yesterday was the 89th anniversary of the breakup of Standard Oil. Today, as a result of recent mergers, five companies (ExxonMobil, ChevronTexaco, ConocoPhillips, BP and Royal Dutch Shell) control most of the domestic oil industry.

Five years ago, these companies began their quest to corner the market. Through mergers and takeovers, they gained more and more control. Today these five big oil companies have, for all practical purposes, succeeded. The following table gives some idea of just how much these five companies control*:

Five companies control:

Five years ago

Today

Global oil production

7.7%
14.2%

Domestic oil production

33.7%
48.0%

Domestic refinery capacity

33.4%
50.3%

Retail gasoline market

27.0%
61.8%

Domestic natural gas production

12.7%
21.3%
This table shows how quickly these companies have taken over the market. They control almost half of the domestic oil production, over half of the refinery capacity, and from about one-fourth of the gasoline market five years ago, they now control well over half.

This oil trust is good friends with George W. Bush and Dick Cheney. When Bush, Cheney and their friends invaded Iraq based on a series of lies, they created uncertainty in the oil market. And the "big five" oil companies have taken advantage.

That's why oil prices are so high.

And that's why you're paying $2/gallon at the pump.

 

Copyright 2004, Dan Jacoby

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* Source: Public Citizen, "Mergers, Manipulation and Mirages: How Oil Companies Keep Gasoline Prices High, and Why the Energy Bill Doesn't Help", March 2004.
Available online at
www.citizen.org/documents/oilmergers.pdf.