Oil firms should be investigated for string of price increases

The Senate minority leader, Aquilino Pimentel Jr., said oil companies should be investigated for the string of price increases in fuel despite the stabilization of world oil supplies. Pimentel said he made the proposal after learning from the Paris-based International Energy Agency (IEA), the central collection points for world oil information, that there is no worldwide oil crisis.
In fact for the first quarter of 2004 world oil supplies were in the range of 82.3 mm bpd with consumption ranging from a low of 80.5 mm bpd to a high of 81.5 mm barrels, he said. Pimentel said the data indicated an oil surplus during the first 90 days of the year. Yet, he said, world oil prices leapt by $ 7 a barrel during the period.

Pimentel said he cannot understand why the prices of petroleum products in the country have risen so high when world oil production is not diminished. He said some people surmised that China’s seemingly insatiable thirst for more oil to fuel its huge economy is one reason.
"Butmore critical views than mine argue that the answer is financial speculation or greed that is fuelled by a collusion of leading banks, financial institutions and big conglomerates to cartelise oil pricing and distribution worldwide," Pimentel said.

Locally, gasoline pump prices shot up by P 21 a litre of crude and P 26 a litre of unleaded gasoline; P 380 plus for every container/tank of LPG and kerosene, P 21 plus a litre. Pimentel said he would not have been surprised if oil production had dropped significantly or consumption had risen steeply. But they have not.
For a long time, he said, long-term contracts-good for 24 or 36 months-at fixed stable prices were the way oil was generally traded in the world. But beginning in 1974, long-term contracts were replaced with oil sales at the spot market based in Rotterdam and the futures markets as a result of the oil embargo imposed by OPEC.

By "spot" is meant that one buys oil at a market only 24 to 48 hours before one taxes physical delivery, as opposedto buying it 12 or more months in advance, he said. Pimentel said that today, oil prices are largely set in the futures market, with two principal locales dominating the futures trading-the London-based International Petroleum Exchange (IPE) established in 1980, and the New York Mercantile Exchange (NYMEX), which is more than a century old, but first started trading oil futures in 1983.
He said traders call futures contracts "paper oil" -- the contracts are a paper claim against oil, which is far in excess of the volume of oil produced and actually delivered at oil terminal on behalf of those contracts.

"The traders in IPE and NYMEX, for instance, transact large volumes of these so-called ‘oil futures contracts’ which are also called ‘bets,’ a word that is usually associated with gambling but is now used in oil trading for the reason that oil speculators gamble on these ‘paper oil purchases,’" he said.
"Each contract, I am told, is bet on 1,000 barrels of oil. More than 100 mm of these oil derivative contracts were traded on these exchanges in 2003, representing 100 bn barrels of oil. In the year 2000, a study showed that in the IPE, for every 570 ‘paper barrels of oil’ traded each year, there was only one underlying physical barrel of oil,” Pimentel said.

He said the 570 paper oil contracts pull up the price of underlying barrel of oil and, thereby, manipulate oil prices all over the world. If the speculators bet long-that the price will rise-the mountain of bets pulls up the underlying price. Pimentel said oil prices have also been pushed up by the oil cartel by limiting production capacity and consolidating cartel control.
He said the oil companies are also busy gobbling up one another and this, in turn, has caused oil prices to rise. Given this global oil situation, Pimentel urged the government departments concerned to bring about, cause or support the execution of bilateral, long-term agreements by concerned domestic importers of oil with petroleum-producing countries with scheduled deliveries at reasonable, fixed prices. He stressed that the power problem the nation faces requires an understanding of its nature and causes through diligent study and the concomitant courage to do what is right regardless of what powerful, vested entities might have to say on the issue.