WHAT CAUSES PETROL PRICES TO RISE AND WHAT MUST WE DO ABOUT IT?
Petrol prices have been rising steeply for many years now. US author Les Leopold of “The looting of America: How Wall Streets Game of Fantasy Finance Destroyed Our Jobs, Pensions and Prosperity and What We Can Do About It” wrote an article a few days ago titled How Wall Street Drives Up Gas Prices, in which he state that for every penny/cent increase at the pump, $1.4 billion per year leaves our collective pockets, creating a drag on the sluggish recovery. Where does it go and what caused the price explosion at the pump?
He further informs us that it is a common belief that oil prices are set on the world market by supply and demand; less supply and/or more demand causes prices to rise. There is a belief that oil is getting harder to find; OPEC is holding back supply; China and India are guzzling it up; Iran is threatening to blow it up. And regulations are getting in the way of drill etc.
Leopold continues, “but this fixation on blind market forces ignores the fact that Wall Street is financialising the commodities markets, especially oil as it seeks new ways to pick our pockets. The same greedy swindlers who puffed up the housing bubble and then milked it dry are now hard at work doing the same with gasoline”.
Petrol prices have been rising steeply for many years now. US author Les Leopold of “The looting of America: How Wall Streets Game of Fantasy Finance Destroyed Our Jobs, Pensions and Prosperity and What We Can Do About It” wrote an article a few days ago titled How Wall Street Drives Up Gas Prices, in which he state that for every penny/cent increase at the pump, $1.4 billion per year leaves our collective pockets, creating a drag on the sluggish recovery. Where does it go and what caused the price explosion at the pump?
He further informs us that it is a common belief that oil prices are set on the world market by supply and demand; less supply and/or more demand causes prices to rise. There is a belief that oil is getting harder to find; OPEC is holding back supply; China and India are guzzling it up; Iran is threatening to blow it up. And regulations are getting in the way of drill etc.
Leopold continues, “but this fixation on blind market forces ignores the fact that Wall Street is financialising the commodities markets, especially oil as it seeks new ways to pick our pockets. The same greedy swindlers who puffed up the housing bubble and then milked it dry are now hard at work doing the same with gasoline”.
What is financialising? He explains it thus: Financialising is a process whereby financial markets, financial institutions and financial elites gain greater influence over economic policy and economic outcomes. Its principal impacts are to (1) elevate the significance of the financial sector relative to the real sector, (2) transfer income from the real sector to the financial sector, and (3) increases income inequality and contributes to wage stagnation. In short, it is the spread and growing supremacy of financial gambling – the ability to bet on the prices of goods produced in the real economy without actually owning those goods.
The vital activities of manufacturing, resource extraction and agriculture are turned into financial instruments that can be rapidly bought and sold. To cut to the chase, financialisation allows financial gamblers to extract profits from the real economy to enrich themselves without producing any real economic value for our economy.
When markets are financialised, they offer a myriad of ways for Wall Street firms to bend or break laws to manipulate markets and haul in enormous profits. In effect financialisation extracts a hidden tax from the real economy which is then passed on to the consumers in the form of higher prices, economic hardship and then government bail-outs when it all comes crashing down. The oil markets have become just another profitable Wall Street casino because that is where the money is.
A few years back former Cuban Presidency Fidel Castro addressed the South African parliament in Cape Town in which he said, the world has been turned into a huge casino. It seems not a single MP paid attention to or took interest in what Castro said. The ruling ANC which invited Castro to address a joint sitting of parliament did not take heed of Castro’s message. The ruling party is pathetic.
Our mineral resources are being bought cheaply and come back as finished products. The ruling ANC cant even learn from Venezuelan President Hugo Chaves who said he slaps more than 50% levy on his country’s oil.
For more than a century, about 30% of commodity markets involved speculators and 70% of the participants in terms of volume were real producers, distributors and users. That is what a healthy commodities market looks like. But with the rapid change of financialisation, the proportions flipped. Now 70% of the action comes from speculators while only 30% comes from those who really produce, distribute and use the actual commodities. The casino has taken over.
This speculative invasion is why petrol prices are climbing rapidly. The question is how much of the price rise is due to excess speculation. The experts say that 15% of the rise in petrol prices is due to Wall Street speculation. Up to 30% of the rise may be due to speculators. Even experts at Goldman Sachs say that excessive speculation is causing oil prices to go spike by up to 40%. Saudi Arabia, the largest exporter of oil in the world, told the Bush administration in 2008, during the last major spike in oil prices, that speculation was responsible for up to $40 of a barrel of oil.
Leopold says that this flip in the balance of real economic activity and speculation is precisely what John Maynard Keynes warned us about more than 75 years ago. Speculators may do no harm as bubbles on a steady stream of enterprise become the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of activities of a casino, the job is likely to be ill-done.
“The measure of success attained by Wall Street, regarded as an institution of which the proper social purpose is to direct new investment into the most profitable channels in terms of future yield, cannot be claimed as one of the outstanding triumphs of laisser-faire capitalism”, says Leopold.
US Senator Bernie Sanders is said to have released classified documents revealing the names of the largest speculators in the oil markets as of 2008. A look at the top 20 speculators reveals that only five are actually involved in producing, shipping, refining and consuming oil (Vitol, CMA, ENA, Semgroup and Emirates Oil). The other 15 are banks and investment houses a virtual who’s who of Wall Street firms that puffed up the housing bubble and took down the economy, Goldman Sachs, Morgan Stanley, J.P Morgan, Chase, Merrill Lynch, Citigroup they all make the list.
Those who are old enough will remember that in the early 1970’s five litres of petrol was less than 70 cents in this country. Right now a litre is more than R12.00. In Botswana a litre is P8.60, quite a remarkable difference, isn’t?
In 1973/74 the US government created a bogus oil crisis in order to raise the price of oil. The whole world became suckers and bought into this bogus oil crisis. We had petrol not being sold on weekends because of this bogus oil crisis. Even the obstinate Apartheid regime was duped.
Leopold says when Wall Street turns a market into an enormous casino, prices skyrocket and the economy is threatened. Wall Street did it to housing and now they are doing it again to commodities, especially oil.
When Wall Street jacks up petrol prices through its speculative activities, it has two job-killing impacts. First, it sucks money out of consumers pockets to pay for petrol, which in turn means consumers have less money to spend on other goods and services in the real economy. It is the equivalent of an anti-stimulus tax. As petrol prices go up, economic demand falters and workers in the real economy are laid off.
The second impact is more complex but just as real to unemployed oil workers on the East Coast of the US where several refineries in the Phildelphia area are being shut down even though the price of refined petrol is rising.
The best way to check speculation may be through a financial transaction tax that makes it less profitable to speculate in commodity markets. A relatively small tax on all financial transactions would likely reduce the number of bogus speculators.
What should South Africa do? Students of Commerce, Economics and Political Science must be taught about speculation because it is real. We may think we are not affected by speculation on oil, but we are. When the US sneezes the whole world, including South Africa, catches cold. Wall Street is also fleecing us. Let us fight rising oil prices like we did the e-tolling system and bring them down to the level of the price in Botswana or below. This country is the only one on earth where gasoline prices have gone bonkers. In Venezuela a gallon, about 5 litres of petrol is about 18 cents…a litre is about 5 cents and an increase of even a cent in petrol price sparks riots in Venezuela. In Libya before Muammar Gaddafi was toppled and killed the price of petrol per litre was 25 cents. In Angola the price of petrol per litre is also reasonably cheaper, about 43 cents. In Canada the price of petrol per litre on average it is about 143.0 cents. In the US it is even cheaper than in Canada because there is no tax on petrol sales in that country unlike in Canada. Why should petrol be expensive in this country when there are so many countries on the continent that produce oil? The US is bullying the wimpish ANC government not to import oil from Iran and the ANC government is acquiescing. The West is deciding the strengths of our currencies and the prices of our commodities willy-nilly without even consulting us. We must fight against this domination and decide the strengths of our currencies and fix the prices of our commodities ourselves. I don’t have faith, though, in COSATU in the fight against the ANC as they are running with the hares and hunting with the hounds.
By Sam Ditshego
(The writer is a senior researcher at the Pan Africanist Research Institute (PARI) )
Related articles
- Wall Street’s oil scam – AlterNet – Salon.com (mbcalyn.com)
- Wall Street starves, KILLS CHILDREN by fraudulent food “trades;” where are the arrests? (washingtonsblog.com)
- The real hunger games: How banks gamble on food prices – and the poor lose out (antiworldnews.wordpress.com)
- Wall Street’s oil scam (salon.com)
so far there hasn’t been any comment on a vexing topic such as rising petrol prices and speculation?
It is all a cruel scheme by the greedy and anti people syndicates. They have done the same with the price of wheat, thus the ever increasing price of bread which is a staple food for so many poor people around the world. These ugly people will continue with their cruel schemes as long as we are wallowing in ignorance despite all the information right before us. The onslaught is never ending. Look how they are destroying public education in the name of privatization. Anything that benefits the poor people they will always destroy and re-invent for their own profit. Our continent is very vulnerable because of the collapsing social structures
at the hands of the corrupt, inept and handpicked political individuals and their neocolonial political structures. Let us continue to organize.
Kea go utlwa nkgonne, ebile relebogela tshedimosetso yotlhe e o re fatlhosang ka yone. Now i think we should take a lift and look at the real problem of all these symptoms that are appearing before us, day in-out. And afterwards, hold/build on to the following words of wisdom:The collective vision
It seems to me that people who are bent on changing their world require courage of principle. Courage of principle implies three fundamental and interconnected patterns of behaviour. The one is a vision, the other entails concrete steps to pursue and realise the vision. And the third is the preparedness to pay the price for a rigorous pursuit of the vision.
by the Deputy Chief Justice, Dikgang Moseneke. Now going back to the issue of noticing the real problem, if you had the opportunity to watch one of the Zeitgeist videos, would realize that all this casino(speculations) are perpetuated by a single system(real problem), Monetary system. As i was getting to know all these economic dilemmas(as explained on the 2nd paragraph of the article), could not still understand what it really meant by the word “economy”, because someone can still go to bed with an empty stomach. Again looking at words by the D. Moseneke, I realize that the way to deal with the enemy (ruling party) of the poor, ought to play your game differently, i.e. avoid vague rhetoric at the public gathering and distancing yourself from the communities. for instance, we are only cared for during the elections(manifestos) and when books are not delivered, President Zuma defend not the government,but his cadres, saying; we can not put blame to minister so and so ( cheap and incoherent excuse). secondly, we should also realize that people appreciate basic things than money, and without missing point, I am not saying that money is of no importance, yes it is, and worse, the ANC(incl. US federal reserve bank) has painted a false picture that implies that money can make the world go round and it comes before life. As we continue, A party like PAC(Izwe lethu i Africa) has big role to play as it did during CODESA.There is a great need for a mind shift from the voters. Here, you only need to take care of areas were the ruling party is too busy to reach. These include amongst others, Batho Pele principles etc. We are all aware that this document is not being used to its utmost, hence we notice strikes day in-out. In conclusion, the above principle could be table into a questioner like platform( community satisfaction survey) accompanied by few other points such as basic service questions. We can always engage further on the above, particularly the survey part, to provide more regarding the possible fundamental processes and outcomes.