Oil and Overproduction

David Schanoes dmsch at attglobal.net
Fri Jan 10 06:28:12 MST 2003

The following is an excerpt from a letter sent to a friend in Europe at the
end of 2000.  The source for the numbers is the EIA industry reviews.  The
issue was the manifestation of overproduction in the US growth of the 1990s
and the repercussions.

 Prior critical moments in the US and global economies were heralded in the
oil shocks of 1973 and 1979.  The current slowdown is anticipated in the
problems confronting the oil industry.  Between 1973 and 1998, total crude
oil requirements of US domestic refineries increased only 16 percent.
However, the proportion of domestic to imported inputs changed from 3:1 to
3:4.  Between 1993 and 1998 alone imports increased by 25 percent.
 More important are the financial flows experienced by the oil industry.
For 42 major international petroleum companies, net annual income between
1973 and 1980 increased from 11.8 billion dollars to 32.9 billion only to
collapse to 19.4 billion in 1985 and collapse again to 12.1 billion in 1992.
In 1993, net income began a steady increase, reaching 39.7 billion in 1996
before declining slightly to 39.4 billion in 1997.  The growth in net income
during this period included a real increase in oil prices of  10 percent.
Still, in constant 1992 dollars, the price of oil in 1997 was only forty
percent of the 1980 price.   Extensive technological innovation in oil
extraction techniques reduced the costs of production for the industry and
yielded greater profits.   Annual capital and exploratory expenditures by
these companies had previously peaked in 1980 at  62.1 billion dollars.  The
amount had fallen to 51.5 billion by 1994 and then accelerated to 81.5
billion dollars in 1997.  As a consequence, the ratio of net income to total
average capital in 1997 was 11.4 percent, below the 12 percent mark of 1973
and the 17 percent level of 1980.  Oil was on the downside of the rate of
profit again, after the ten year period, 1985-1995, of single digit returns,
and only two years of double digit returns.  The markets were no longer able
to keep up with production, providing a rate of return capable of sustaining
reproduction.  The oil bourgeoisie saw the future as it had been in the
past.  If OPEC hadn't existed, the bourgeoisie would have created it.  OPEC
did exist and the bourgeoisie still had to recreate it.
 The rapid increase of the price of oil provides the oil industry with an
offset to its problems of reproduction by, in effect, transmitting that
failure to all the capitals in the market.  Expanded reproduction becomes an
impossibility.  Since the predicament of capital is international in its
origin, every attempt at resolution presses forward, and downward, on an
international scale.
 Price, more precisely, the disequilibrium in price is one mechanism a
particular capital employs to preserve itself in its own failure to sustain
its reproduction. Yet, this mechanism propogates the failure of capitalist
reproduction.  More mechanisms are employed by capital as a whole against
the sum of its parts. Among these techniques are interest rate fluctuations,
forced purchases of military equipment, and currency speculations.  All
serve to flush wealth from less developed,  poor capitals, to the more
developed and powerful capitals.  The extraction of wealth in all its
manifestations requires increasing and intensifying levels of poverty.  Wage
rates are reduced by limiting the level of payment and the breadth of
employment.  More than wages are slashed as capital turns on every
manifestation of its previous expansion.  The decade of the 1980s is known
throughout Latin America as the "lost decade," as the meager progress of the
previous two decades was burned for firewood in the ovens of debt service.
Simultaneously, that financial austerity was part of an assault on living
standards, and the living,  that spent money lavishly on death squads and
counterrevolution in Central America.  It's always about the money, the
money is always about property, and property is always about class.

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