With crude oil price reaching a new peak of more than $ 95 (Rs. 3800) per barrel (1 barrel=159 litre), there is again talk of diesel and petrol price rise in the country. Petrol, diesel, LPG, kerosene, etc are produced from the processing of crude oil in the refineries of Reliance petrochemicals, Indian Oil Corporation and some other companies. The oil refineries are demanding an increase in prices of petroleum products and other measures to ensure maximum profits for themselves. The government of the capitalists is seeking to transfer the burden of the increased import cost of crude oil to the backs of the working people in various ways, while protecting the interests of the refinery monopolies.

Crude oil and natural gas are the largest source of energy for transport in the world. Their price affects the price of all goods. Crude oil price jumped from $ 25 per barrel in 2003 to more than $ 90 per barrel in 2007. Just since September 2007, the price per barrel has increased by $ 25. It is known that the cost of extracting crude oil or natural gas from earth hardly changes from year to year, once an oil or gas field is opened up for exploitation, until the particular oil field is exhausted. Why then is the price of crude oil increasing so rapidly?

Steep crude oil price increases are being justified on the basis of higher demand than supply. The truth is that there is no shortage of crude oil supply in the world today. Crude oil demand has been growing by only a little more than 2% per year. There is enough stock of crude around the world.

Rapidly growing demand of crude oil in the world’s two most populous countries, China and India, is given as another reason for increase in crude price. Crude oil demand of China is about 6 million barrels per day and that of India 2.5 million barrels per day. Together they account for only 10 percent of the world’s daily demand of 85 million barrels. The United States consumes 8 times more crude daily at 20 million barrels per day. Even a sharp increase in demand from India and China should not affect the global supply demand situation of the crude in the world to justify such sharp price increases.

Crude oil is a natural resource and therefore cannot be unlimited in supply. This fact is used to spread the fear that crude oil production will soon start falling as the reserves get depleted. Oil prices are steeply increased in anticipation of the likely shortfall in future and not due to any shortfall today. Ignored is the fact that alternative sources of energy could be developed.

Possibilities of technological improvements in future to increase crude oil exploitation both from existing fields, as well as the vast untapped and unexplored fields under land and sea, are ignored by those interested in pushing up oil prices. The fact that high oil price will make many oil reserves, uneconomical so far, attractive for exploitation in future is also ignored.

So, the speculators are controlling the market, driving crude oil price by forecasting a shortfall. They use every possible news like the crack in an oil pipe line or fire in a refinery, or escalation of war in Iraq or possible attack on Iran by United States of America to jack up oil price.

Oil prices have been manipulated right from the beginning by an oligopoly of oil companies or producers. First, it was the oligopoly of the seven large oil companies of the world, referred to as ‘Seven Sisters’, led by Exxon and Shell. The share of multi-national oil companies in crude oil production has come down over the years to around 12% of global crude production as more and more state owned monopolies took control of crude oil production of their countries. Multi-national oil companies, however, continue to control the global refining capacity and thus control the price of petrol and diesel. They also remain the largest buyer of crude oil and so exercise a major influence on oil price.

In the seventies, major oil producing countries formed a cartel, known as OPEC (Organization of Petroleum Exporting Countries) and pushed up the price. The impression created among people all over the world is that oil price is today decided entirely by OPEC. OPEC, however, now accounts for only 40% of oil production.

The largest influence on price today is exercised by the traders of New York Mercantile Exchange. This exchange trades in commodities and is equivalent of the stock market for shares of companies. Similar commodity exchanges for oil also exist in London, Tokyo and Dubai. At these exchanges, a trader enters into a contract to buy or sell a certain quantity of crude oil at a date in the future at a particular price. This is called ‘futures’ trading. If the traders anticipate that the price will go up, their future trade is at a price higher than prevailing today. The action of one trader is followed by another and very soon the whole market starts expecting the price increase. The physical trade is influenced by the trend in the ‘futures’ trade and the price of oil goes up.

Price of oil varies every hour due to very large volume of ‘futures’ trade. On 13 Nov, 2007, New York Commodity Exchange touched the new peak of 8,81,000 oil ‘futures’ contracts in one day. This means that 881 million barrels of oil was traded on that day in ‘futures’ as against daily production of 85 million barrels of crude oil in the world. So the daily ‘futures’ trade in New York alone is ten times of the whole world’s physical production. The actual daily physical trade of oil is a small proportion of the total production as a large part of oil is sold on long term contracts.

Traders treat oil like any other commodity for investment. Their investment flows to where they expect higher profit. Weakening of dollar and crisis in other finance capital markets has led to diversion of investments into crude oil ‘futures’. When investors hold a large number of ‘futures contracts’ to buy oil at a price of, say, $100, it acts like a magnet to draw the price to that level. It is believed that within last five years the speculative market for oil and gas has grown to mammoth size of $ 20,000,000 million (Rs 8,00,00,000 crore) annually. Big banks like Morgan Stanley are reported to have made one fourth of their profits recently by speculating on oil and gas in commodities market. Huge investments in oil ‘futures’ thus ensure that crude oil price keeps going up.

The price of crude oil and petroleum products has become the playfield of speculators. The role of parasitic finance capital is very visible in this. The economy of India, like that of other oil importing countries, is going to suffer as a result of this massive increase in crude oil price. India’s workers and peasants and working people will have to prepare for the impending onslaught on their livelihood, in the form of all round price increases. There will be a barrage of propaganda and games played by the bourgeois parties to convince the working people how the government of the capitalists is working to defend their well being. Working people must not allow themselves to be fooled by this. People must refuse to pay for the speculative profits of finance capital, whether domestic or global. Working people must demand and fight to ensure that the burden of the oil price hike does not fall on the people.