TJP
THE JETHRO PROJECT
O R G A N I Z I N G F O R E F F I C I E N T O U T P U T
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Given the current upward price trend for crude oil and the resulting higher profits accruing to Big Oil. It is imperative that the Obama Administration and Congress address the inherent price gouging and reverse the upward trend of crude oil prices. Otherwise, a double dip recession is likely. During the period of gouging oil prices, big oil raked in enormous profits at the expense of consumers. In 2006, Ellis' article, “Middle East instability drives crude oil prices,” warned that higher crude oil prices were due to market speculation. He also stated that traders, which are mostly from the oil industry, benefited from upward speculation. Traders use the New York Mercantile Exchange (NYMEX) for trading and clearing of crude oil, gasoline, heating oil, natural gas, propane, electricity, uranium, coal, and other commodities. NYMEX notes that futures prices are not price predictions. Rather, they are merely traders’ consensus on where prices appear to be heading. In other words, NYMEX prices are not determined by actual demand and supply. |
The price driven demand narrative, more often than not, is a bogus explanation used by government officials and pundits to calm public anger.
Higher energy price leads to real transfer of wealth from consumers to Big Oil, as reflected in Big Oil's windfall 2011 first quarter profit.
Conoco-Phillips 2011 first quarter profit was $3 billion, $900 million higher than the first quarter of 2010; Exxon-Mobil net income was $11 billion; Shell’s profit was $9 billion, 60 percent higher than 2010; and Chevron’s profit was $6.2 billion, up from $4.4 billion in 2010.
This price gouging pattern is similar to the one highlighted by Ellis in 2006 that reallocated consumers’ budgetary outlays from housing, entertainment, food and other necessities to energy. Such reallocations disrupt markets and often lead to economic slowdowns and unemployment.
Ellis in his 2008 article on “Crude oil price: Shortage or speculation?” indicated that there are two ways to reverse the rise in crude oil prices: The first is terminating the wars in the Middle East and stabilizing the crude oil producing regions, and the second is suspending futures trading for crude oil on the NYMEX when there is instability in crude oil producing regions and letting producers set prices.
It is, however, appalling that Congress and the administration, Republicans and Democrats alike, allow Big Oil to repeatedly gouge consumers. And, to tap it off, legislators use scarce government revenues to provide drilling subsidies to Big Oil.
If the current crop of politicians are incapable of defending the economic interest of voters and the nation, them voters must choose a third political party that will defend their interest and not allow Big Oil to wreck the fragile economy.
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