Big Oil, High Prices and Profits
Gasoline prices are now around $2.00 per litre across Canada, pouring literal and figurative fuel on skyrocketing inflation. But oil companies throw their hands up, crying that the cost to fill your tank is not of their doing. “It is the market forcing up the price of a barrel of oil,” they insist, even though first quarter profits have skyrocketed in 2022. And, largely, they are correct.
The conventional media do not seriously challenge that claim and add that the war in the Ukraine is helping to drive market speculation wild. And, largely, they are correct.
The government, whom many blame because of the carbon tax, insists that the tax only adds a few pennies to the cost of a litre and that their hands are tied because of global issues. And, largely, they are correct.
But all of them are misleading us, either intentionally or inadvertently. Those of us who see a conspiracy (or, more politely, a plan or strategy) to rape us at the pumps are not largely correct. We are entirely correct.
So what is the truth? While none of us can say, with certainty, what goes on behind closed doors in the media, government, or big oil offices, there are facts that can lead us to the truth. And that truth supports our belief that there are schemes to keep prices high, and complacency or complicity in government and the media to allow it.
Let us focus on Big Oil, and the Big Three: Exxon, BP and Shell. These forces dominate the market, and others follow. To develop a clearer picture, we will focus, more narrowly, on British Petroleum, since the other two operate and are structured similarly.
BP is a publicly traded company. That is, its shares are available on the open stock market, although much of their shares are held by a handful of companies. So, as a for-profit company, its duty is to increase (or at least maintain) the share value for its stockholders. Every company has, as its primary goal, making a profit for the owners. BP wants to use whatever legal and effective means there are to drive profits.
In the eyes of the law (particularly in the USA), a corporation has almost exactly the same rights as a person, but not always the same responsibility. There are laws, under the Combines Act, in Canada, that restrict trade practices and unfair competition, but, as the 2008 economic crisis revealed, there are companies that are “too big to fail,” as espoused by the US government. That is, they are too powerful and impact the economy too much to make them truly accountable for their actions. That is dangerous, and almost dictatorial, arbitrary and authoritarian.
BP is a composite company, made up of numerous components and other companies. More dangerously, it is vertically integrated, from beginning to end of the oil production and supply chain.
BP companies explore and discover oil reserves. Other divisions and companies under their umbrella drill. Others transport and store. Others refine. Others distribute while others retail the products. Still others convert the raw product into myriad petroleum and natural gas-based consumer goods. In this way, from the very start to the very end, BP is in control of all parts of the oil business.
So, the price of a barrel of oil rises. Who profits, aside from speculators (more on this later)? The company that owns the raw oil: BP. Now, when BP refines that oil, it must pay a higher price, according to what the media wants us to believe, for that oil. To whom? To a BP company or division.
But now, the product has to be transported. And the transport company pays more for its truck fuels, or the rail line more for its diesel. But who owns the trucking companies? Often, BP. So the transport firms pay BP suppliers more for diesel and pass that cost on. But BP refiners have made more money. The truckers have not lost any. But the price for the “increased cost” is borne by the end user. Three times, because the oil must make it to the refiners, from the refiners to distribution, from distribution to the pumps.
Yet, western oil conglomerates claim that OPEC or Russia is a prime villain in oil prices. However, BP partners with OPEC countries and companies and with Russia and its oil companies. When they profit, BP profits.
At the pumps, things are a little more complex, but still simple. Some retailers are franchises, some are owned by BP. In fact, BP owns a huge chain of gas retailers.
Franchisees are little more than sharecroppers. They cannot set prices, they cannot carry products that BP does not authorize, and they are obliged to maintain the precise requirements of their retail operation. They are often guaranteed a return on their investment, but the operations are so tightly restricted that, if a small business owner claimed he was a contractor operating under similar rules, Canada Revenue Agency likely would insist that he was an employee, not a contractor. Yet, companies like BP are given great latitude to set their own rules.
Corporate retailers operate almost precisely the same way as the franchises, which, again, throws into question the franchise status. But the end result is that BP controls the profit that they make at the pumps, too.
So why, again, are we paying $2.00 plus for our gas? Let us look at how BP has performed over the past five years, through the pandemic when they sold gas for $0.69 per litre, and compare it to 2008, when oil prices hit their prior record highs.
Remember, a company’s objectives are to make money for the owners and shareholders. In theory, if BP sold gas for $0.69 per litre, it should have lost money. They didn’t. If they have exorbitantly high wholesale prices, profits should not increase. They did.
In 2008, oil averaged $147.50 in June ($184 in today’s dollar), while gas was $4.16 per gallon in the USA. In May, 2022, oil is averaging $123.70 per barrel, while gas costs an average of $4.19 in the USA. That is a 23.8% increase in the price of gas on the same barrel—profits for the oil companies.
In 2021, BP’s gross profit was $22.86 billion, with $7.5 billion going to shareholders. In 2020, prior to the peak of the pandemic, their gross profit was $10.18 billion. In 2018, their gross profit was $19.38 billion and in 2008 it was $35.23 billion. In difficult times, BP made money, In more difficult times, they made more money. Even the Deepwater Horizon fire failed to extinguish their profits, in spite of government penalties.
But BP has another ace up its sleeve. Speculators. Three things are the primary causes of increased (or decreased) prices: supply, demand and speculation. Others, like market dynamics and consumer preferences, play a role, but the big three are supply, demand and speculation.
Look at supply first. BP controls their supply. They are, after all, vertically integrated. It is a polite way of saying they own the whole show, like the lords and barons of the era of peasants and serfs in England. So, the oil industry comes up with creative reasons (excuses) for short supply. Imminent hurricanes (even if they do not materialize), worldwide political instability, unexpected (?? They plan the maintenance) maintenance issues, labour issues and so on. Short supply pushes up prices.
BP doesn’t create demand, but, when they manipulate prices over time so that the consumer sees a need, or an opportunity to buy, he does. Since BP also is involved in other industries that use crude oil and natural gas to make other goods like plastics and PVC, they can dictate supply and create demand at the same time.
Speculation looks like the wild card in the pricing equation, but it is not.
Speculators in the oil arena bet on the price of oil either rising or falling over a given period. The publicists and apologists for big business often suggest that speculators are everyday investors, like you or me. The problem with that theory is that oil futures are bought in units of 10,000 barrels or more, so that a speculator betting that the price of oil will rise buys a position that may cost upwards of $1,100,000 per unit. That is hardly the realm of the “small investor.” Yes, small timers can buy into a share of a company buying and selling futures, but few of us have over a million dollars to risk, and, as the due date of a futures contract approaches, the value of that contract mostly is worth less and less.
BP, though, invests in oil futures. That is interesting, because it is saying that BP gets to bet on whether it will force prices up or down through supply manipulation. Isn’t that similar to a football team or a fighter betting on whether it/he will win or lose a fight? If it isn’t insider trading, is it closer to fixing a fight or game? But buying futures is perfectly legal for BP. After all, corporations, in the eyes of the law, are almost people, with the same rights. So, BP gets to make money if it is right, but not lose money if it is wrong on the futures. It wins either way, with little risk to its profits regardless of where prices of a barrel of oil go.
Now, who are BPs shareholders? There are six investment firms that hold vast swaths of shares in the major oil companies of the world. At least three of those investment firms also hold substantial shares in each other’s companies. This looks an awful lot like the hold that the Mafia has on each other’s operations! But because, like the Cosa Nostra secrecy pact, a private investment firm often keeps its list of who owns its shares a deep secret. Do the oil companies also own shares in the firms that own them?
Big Oil likes to give us “reasons” for high prices, but they are more excuses than reasons. The reason prices are high has less to do with government taxes than it does with governments allowing Big Oil to take advantage of consumers, Big Media looking the other way and Big Oil looting the meagre earnings of we, the serfs and peasants who are forced to endure what the three powers involved in fuelling the world allow and encourage to happen.
So is this a conspiracy? It certainly looks like a covert strategy. It seems like a plan that borders on pushing the limits of the law. It sounds like a plot to raise prices. If the companies and their investment agencies have consulted or tacitly agreed, it smells like collusion. These are the dictionary definitions of conspiracy. Yet, none of it has been dealt with as illegal. The media do not delve deep enough to be willing to publicize results to support what seems to be happening. The government is unwilling to make the oil companies accountable. All of that has the appearance of a scheme or schemes. So, we won’t call it a conspiracy. It is just damned convenient for Big Oil, inconvenient for us!