The Price of Oil

You can’t get away from it. Even if you don’t drive you’re going to be affected by the price of gas. Not only is the high cost found at the pump but it’s also to be found in the cost of food along with services. No matter what you are affected by the rising cost of oil and gas.

Everyone from the local barbershop to the TV commentators to the politicians is talking about the causes of the price of gas. People blame the high prices on OPEC, the executives of Big Oil, or government regulations. It’s safe to say that to some degree supply and demand is indeed an issue. China, India, and the US are consuming more and more every day. Plus, there’s good reason to accept the Peak Oil Theory. Originating in the 1950s the Peak Oil theory predicts that at some point the amount of available cheap crude oil would eventually be used up.

But the rise of “third world” economies, American addiction to oil and Peak Oil can truly account for the rise in gas prices. The real reason for the high prices of gas is actually the product of the very nature of globalized corporate capitalism.

The Low dollar And Corporate Earnings
Part of the problem is the dramatic drop in the value of the dollar. A weak dollar means that it cost more for Americans to purchase a barrel of oil than much of the rest of the world. As much as a third of the price of gas in the US is the result of the drop in the dollar. (Dallas Morning News, 5/25/08, page 10A)

While most politicians say they support a strong dollar little effort is actually spent to increase its value. The reason is because the low dollar helps to increase corporate profits. Kathy Lien of the investment web site “Seeking Alpha” wrote, “The further the dollar drops, the more that it will help corporate earnings.” http://seekingalpha.com/article/72708-good-news-for-earnings-dollar-hits-record-low

The reason it helps corporate profits is that it helps exports by making US products cheaper. So those US industries that are heavily reliant on free trade benefit from a declining dollar.

Corporate Obligations to Shareholders
This benefit to the corporate bottom line by the depressed dollar leads to the next major reason for the high cost. Corporations are legally obligated to their shareholders to maximize their profits. It’s in the nature of corporations to take steps to maximize their bottom line regardless of the consequences to society. This is why that even though they could reduce their prices and still make large profits for their shareholders they won’t.

Commodities market
The biggest influence on the price of oil is activity by capitalists who invest directly in oil through the commodity and futures markets. According to that same article in the Dallas Morning News the Cambridge Energy Research Associates, “estimates that crude oil trading is up 350 percent since 2002. And the daily average trading volume in energy futures contracts on the New York Mercantile Exchange rose 53 percent for 2008 from last year.”

So who are these investors? They’re primarily large hedge funds, which are investment partnerships that often prefer high risk trading strategies. The average hedge fund doesn’t consist of small time investors. Instead, many of them require enormous personal investments in the range of millions of dollars.

What’s driving these hedge funds is the Peak Oil theory. With the likelihood that the Peak Oil theory is correct the capitalist predators are seeking to turn this into an opportunity to make a profit. To show that the capitalist hedge fund investors are listening when T Boone Pickens, a prominent oilman and hedge fund operator, recently went on television to promote the Peak Oil theory the next day oil futures hit an all time high. Capitalists are driving the prices up by speculating that the prices would go up and are therefore creating a self-fulfilling prophesy.

Conclusion
As we have seen it’s in the structural nature of capitalism that largely responsible for the current rise in the price of oil. In each element listed here there is one common theme, which is the insatiable drive to reproduce capital for the capitalist class.