This week it was reported that British Gas were considering raising their prices by 9 per cent. This is frightening, as it means that the other companies may also raise their prices as well. Many people are increasingly finding themselves faced with a choice due to austerity, benefit cuts and stagnating wages. They can eat, and freeze, or stay warm and starve.
I don’t know what the reason given for raising the price of gas is. I suspect, however, from the behaviour of the oil industry, that any justification presented is spurious. William Blum in the chapter on capitalism in his book America’s Deadliest Export: Democracy, shows that the rise in oil prices aren’t due to rising costs. The cost of getting the stuff out of the ground has remained the same, despite all the guff about having reached peak oil. The real cause of the rise in fuel prices, including gas, is financial speculation, and quotes a US Senate report, The Role of Market Speculation in Rising Oil and Gas Prices. This states
The traditional forces of supply and demand cannot fully account for these increases [in crude oil, gasoline, etc.]. While global demand for oil has been increasing… global oil supplies have increased by an even greater amount. As a result, global inventories have increased as well. Today, US oil inventories are at an 8-year high, and OECD [mainly European] oil inventories are at a 20 year high. Accordingly, factors other than basic supply and demand must be examined…
Over the past few years, large financial institutions, hedge funds, pension funds, and other investment funds have been pouring billions of dollars into the energy commodities markets … to try to take advantage of price changes or to hedge against them. Because much of this additional investment has come from financial institutions and investment funds that do not use the commodity as part of their business, it is defined as ‘speculation’ by the Commodity Futures Trading Commission (CTFC). According to the CTFC, a speculator ‘does not produce or use the commodity, but risks his or her own capital trading futures in that commodity in hopes of making a profit on price changes.’ The large purchases of crude oil futures contracts by speculators have, in effect, created an additional demand for oil to be delivered in the future in the same manner that additional demand for the immediate delivery of a physical barrel of oil drives up the price on the spot market… Although it is difficult to quantify the effect of speculation on prices, there is substantial evidence that the large amount of speculation in the current market has significantly increased prices. (p. 248).
Blum goes on to make the point that the American financial regulators have been unable to combat these rises, because their ability to do so has been taken away from them by Congress. (pp. 249-50). As a result, although it still costs ExxonMobil $20 to get a barrel of oil out of the ground, the oil itself can trade at $40, $80 or $130 a barrel. (p. 251).
So if you’re worried about paying the gas or heating oil bill, the reason it’s gone up is due the financial sector. The very people that donate to political parties, especially the Tories and employ MPs when they leave.
Tags: 'America's Deadliest Export: Democracy', Austerity, British Gas, Capitalism, Commodity Futures Trading Commission, Conservatives, Corporate Donors, ExxonMobil, Financial Speculation, Heating Oil, Hedge Funds, MPs, OECD, Pension Funds, Starvation, US Congress, US Senate, William Blum