Oil firms are to blame for the fuel crisis

By Frank Dobson MP

LONDON: Everybody knows that the taxes on petrol and diesel are lower in Europe than in Britain, yet the fuel price protests are not confined to Britain. Truckers and farmers all over Europe are protesting.

This confirms that the recent cost increases in Britain owe more to the rise in prices charged by the oil companies than to anything that the British government has done. It also demonstrates that whatever happens to fuel duties, we need to address the fundamental problems of unjustified fluctuations in world oil prices.

In 1990 in the run-up to the Gulf war, the oil companies pushed up the price of petrol and claimed it was because of inexorable market forces which had forced up the worldwide price of crude oil. As shadow energy secretary, I set up Labor's petrol price monitoring unit.

This exposed the truth, eventually accepted by nearly every commentator not in the pocket of the oil industry, that the increases owed little to a shortage of oil and a great deal to profiteering by the oil companies.

They are at it again. The impression the oil industry has created is that there is a shortage of oil which has increased the world price and that the companies are innocent victims of market forces. Oh yeah!

Let's look at the facts. Figures from the International Energy Agency show that the world production of crude oil in August this year was higher than in 1998. Yet in 1998 the average crude oil price was just US$12.52 per barrel compared with $34 per barrel today.

Over and above the August production figures, output is expected to rise by 1.7 million barrels per day or 2.2 percent of total world production. Some 0.8 million of these extra barrels have been promised by OPEC and a further 0.94 million extra barrels are expected from non-OPEC countries.

So production shortages, or fear of production shortages, can't be the explanation. The companies also claim that oil stocks are low. They don't mention that the stocks that are low are mainly their stocks and that it was they who decided to stock less.

The oil companies also claim that oil consumption has risen as a result of economic expansion. Surely an effective global oil system should be able to respond without needing huge price increases.

No one can safely say whether there is an oil shortage because although production figures are available worldwide, storage and consumption figures are not.

So the world is laid open to the effects of rumors and propaganda from speculators who usually lay the blame for price increases on OPEC. This badly managed cartel must take some of the blame -- but only some.

Most people have the impression that the world depends overwhelmingly on OPEC for its oil supplies. Not so. Only 40 percent of the world's oil supplies come from OPEC countries. They make up only four of the top 10 producers.

Saudi Arabia leads with 8.2 million barrels a day, but is closely followed by the US on 8.1 million and Russia on 6.5 million. Combined Norwegian and UK production from the North Sea totaled 6.3 million barrels a day in the first quarter of this year, although it had fallen to 5.7 million by August.

The North Sea also illustrates that the cost of producing oil hasn't risen much since 1998, yet the oil companies are getting nearly three times as much money for every barrel they produce there. And that is broadly true the world over -- it is the price of crude that has risen, not the cost of producing it.

So who is getting the extra money? The answer is the oil companies. They produce the oil. They transport it. They store it (or don't store it). They refine it. They retail it. Above all, they buy and sell it.

Oil trading is done by oil companies and speculators. No Martians are involved. The price of oil and oil products is what the oil companies pay and get paid. That is why they run up such huge extra profits during periods when oil prices are high. This is harming the rest of us because it means that the oil sector is taking a much bigger share from the world's economy.

The impact of this on Britain and Europe is there for all to see, but it pales into insignificance compared with its impact on Africa. Nigeria and Libya may benefit, but to meet the higher oil prices the rest of the African countries face ruinous calls on funds they don't possess.

They cannot do without oil. They need more oil to expand and prosper. Yet they simply can't afford it. Countries which were looking forward to better times, with debt written off and increased production and exports, now face being crushed by a mountain of new debt just to pay today's higher fuel bills.

Under the present system, consumer countries, both rich and poor, are suffering. Many producer countries, including some members of OPEC, suffer from the economic, fiscal and social uncertainties caused by wild fluctuations in oil prices. The only constant beneficiaries of the present system are the oil companies.

Clearly, the present global market in oil isn't working. It is doing the world more harm than good. Almost everyone would benefit from more stability. So I hope that when the G7 meet this weekend, they won't just pressurize OPEC to increase production. What they need to do is to work with oil producers and consumers around the world to develop a structure which provides more stability in the production, transport, storage, refining and distribution of oil and oil products.

The present system is unsustainable and needs to be changed. A worldwide, transparent and accountable system should take its place. It would not be perfect, but it would be better than what we have got. It might even be so successful that oil companies in the United Kingdom would do everything necessary to keep the forecourt properly supplied.

That'll be the day.

-- Guardian News Service