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Two cheers for the Saudis. Not so much for agreeing to boost oil production a bit -- a move that in the short term seems unlikely to ease summer gas prices. But because there's nothing like the Saudi version of straight talk to put in perspective the tongue-twisting of American politicians.
At the global confab of energy-producing and -consuming countries held in Jiddah over the weekend, Saudi Arabia -- the sole oil-producing nation capable of quick production increases -- said it would boost output in an effort to ease a global oil-price crisis. The sheiks gave a lesson in economics, insisting they will try to meet demand in their usual self-interested way: by boosting output just enough to quell a crisis, but not by so much that Saudi Arabia's own profits from high demand and correspondingly high prices are diminished.
This placing of Saudi cards face up on the table tends to infuriate American politicians and consumers. And that's a good thing.
For whenever spikes in energy prices lead to the inevitable upsurge in public demands that somebody do something, American politicians resort to nothing so much as self-defeating silliness. That is behind the call, embraced by Republican John McCain and, before her bid for the Democratic nomination ended, Hillary Clinton, for a summer gas-tax "holiday." Implementing this would cause people to drive more at the very time when high prices are prompting them to drive somewhat less -- that is, it would have precisely the opposite effect from what is really needed.
Democrat Barack Obama correctly opposes the gas-tax holiday as a blatant political pander. But what of his newest energy proposal? He seeks a crackdown on oil-market speculation, which might or might not be one of the causes of the current price surge.
I'm all for getting tough on nefarious traders who seek to profit from making other people's lives miserable. But be honest: Did the unraveling of Enron and the ultimate prosecution of those well-known wrongdoers spare us from the current energy price crunch?
At bottom, high energy prices are driven by high demand, and currently that demand is being driven by the rapidly developing economies in China, India and elsewhere. Politicians in the U.S. have historically feared telling Americans -- still the world's biggest consumers of oi l -- that they need to use less of it. This is why McCain has now promoted offshore drilling, a proposal that would probably take a decade or more, give or take a few lawsuits and state political upheavals, to produce a drop of oil. It's one reason why Obama is so devoted to ethanol subsidies, a supposedly virtuous way to replace oil with a biofuel -- even though the diversion of corn crops to fuel production already is contributing to rising food prices.
As usual when it comes to energy politics, we have failed to meet the enemy and conclude that it is us. Remember how Jimmy Carter was ridiculed and reviled for putting on a sweater and telling us to lower our thermostats? Well, what if we had done so three decades ago rather than a few months ago?
And what if we'd never had a love affair with SUVs? What are now symbols of energy profligacy were, only a couple of years ago, the ultimate suburban status symbols. All manner of rationalizations were cooked up to justify their purchase: The need to drive kids to soccer practice -- a trip that requires extra room for little but a ball and a water bottle -- was one of my personal favorites. In truth, you can't pass a suburban office park without noticing that their lots are packed from end to end with these behemoths, which are driven far more often for commuting trips than for camping excursions.
Those looking forward to a change of presidents to usher in a serious change in energy policy should consider this: It took Congress more than three decades to increase vehicle fuel-efficiency standards and eliminate a loophole through which SUVs had boldly driven. The inertia prevailed regardless of whether Democrats or Republicans were in charge of Capitol Hill and the White House.
Alternative fuels are indeed needed and so is government policy to promote them. But there is no miracle cure that can cut energy prices in the short or long term other than that rarest of commodities, a political and personal commitment to sacrifice.
--Marie Cocco
© 2008, Washington Post Writers Group
44 Comments so far
Show AllTurn your caps lock key off. *No one* reads meassages in all caps like yours.
WAIT A SEC! HAVE I MISSED SOMETHING? DIDN'T THR REPUGS ADMIT OUR OIL SHALE RESERVES EXCEED THE SAUDIS LIQUID OIL REMAINING INVENTORY. AND THE REPUGS WANT OFF-SHORE DRILLING WHICH WOULD TAKE AT LEAST TEN YRS TO BE EFFECTIVE IN CUTTING THE UMBILICAL CORD WITH SAUDI ARABIA. ALL BUSH'S BULL SHIT MEETINGS WTH S.A. TO GET THEM TO INCREASE PRODUCTION, WHICH WOULD GIVE SUPPLY AND DEMAND A CHANCE TO CAUSE A DROP IN PRICES AT THE PUMP HA! DREAM ON! I HAVE HEARD NO ONE SAY IT WOULD TAKE 10 YRS IF WE PURSUED OIL SHALE EXPLORATION AND PRODUCTION. WONDER WHY? BUSH, CHENEY AND THE REST OF THEIR COHORTS HAVEN'T BOUGHT THEIR SHARE OF THE LAND THAT IS THE SHALE REPOSITORY. HANG THE BASTARDS! AND LET US NOT FORGET JOHN, THE "VIETNAMESE SONGBIRD". WHY DID YOU FORGET "NAME, RANK AND SERIAL NUMBER", JOHN? PRESIDENT YOU ASPIRE TO BE, HOW ABOUT DOWNING A BEER AND TAKE A PEE!
Regardless of the question if OPEC manipulate the price or not (I say they do, based on the variant in production that jumps up and down only on the OPEC graph), we, and when I say we I mean humanity, need to develop cheaper and cleaner alternatives to Oil.
It could be bio-fuels (Not corn which is the least efficient source of bio-fuel). It could be a combination of renewable with better batteries, or even hydrogen.
I personally predict that once such an alternative will become available in competitive prices, OPEC, will drop the price in an attempt to kill it.
Letto, those two graphs show the reality. If you recall non OPEC production took off on the late '70's and early '80's. Why did this happen - simply because 3 major projects came online or were greatly enhanced at the same time; Cantarell, the North Sea, the North Slope (Prudhoe Bay Alaska) and more production increases in the Gulf of Mexico and other areas like Canada. At the same time OPEC production plunged - don't forget oil wasn't traded on the commodity markets until 1983 or '84. It was payback time and the West punished OPEC for the events of the 70's. Also, after the first oil shock of '73, the West got smart and started to conserve. Take a look at world consumption figures and you will see what I mean. We in the West were quite smug and pleased with ourselves.
The result was the price of oil crashed and except for the price blip around Gulf War I ('90 & '91, which greatly contributed to a recession) the price was so low we got lazy and extravagant in our oil consumption and the numbers shot up.
Leap forward to today, Cantarell is in decline, the North Slope is in decline and the North Sea is in decline and consumption is up due to emerging nations vastly increasing their oil consumption (China is a wonderful example but not the only one). Non OPEC producers are busy working their fields literally to death, hence the relatively speedy decline. Due to all of this it is natural for some to blame OPEC for a "conspiracy" and the cycle continues. These folks need only look in the mirror as we are the ones who blew it.
The dynamics are so vastly different today it is no wonder oil is where it is and why we are in a spot of trouble going forward.
"Non-OPEC producer (Such as Canada and Mexico) are not a cartel."
That doesn't maen that don't have production goals, some of which at times are "not to exceed".
"In a free market with many independent players - a producer will try to maximize profit, taking into account that the price is a given."
There are various ways to "maximize profit". They may think short term or long term, which may mean different strategies. The price is *not* a given, it is based on a whole spectrum of criteria that cannot all be foreseen. "Maximize production to maximize profit" is extremely simplistic.
BobBeaSea, OPEC is a cartel. There is no conspiracy behind the theory on how a cartel works.
Here is a graph that shows OPEC production vs. non-OPEC production. (It will also answer your question jakenewton)
http://www.wtrg.com/oil_graphs/PAPRPNT.gif
http://www.wtrg.com/oil_graphs/PAPRPOP.gif
You can see that the Non-OPEC production slowly and steadily increased.
On the other hand OPEC's production is swinging all over.
OPEC is a cartel. (Which is a group of producer bounded together in order to behave like a monopoly).
Non-OPEC producer (Such as Canada and Mexico) are not a cartel.
In theory, a monopole (or cartel) will try to maximize profit also by holding production and by thus increasing the price.
In a free market with many independent players - a producer will try to maximize profit, taking into account that the price is a given.
Mathematically, (There are many books and articles on the subject of monopoly and cartels) the price the consumer is paying is higher when the market is controlled by a monopoly or a cartel. (Hence, the anti-trust laws in the USA)
Letto, you need to check any sources you have regarding Saudi "manipulation". The Saudis are doing everything they can about the world oil situation and the part they play in it. The Saudis are the only source of any meaningful swing production in the world and even that ability is somewhat limited. It seems you are confusing swing production with manipulation - a dreadfully wrong conclusion.
BTW, checked Mexican production numbers lately? The fabled Cantarell oil field is in decline. You should know Cantarell is the world's second largest field. Is this also manipulation? The Oil Sands in Canada is scheduled to produce roughly 4.5 - 5 million barrels per day by 2020 - guess what? It won't happen, not enough energy and not enough technology. The Oil Sands may produce 1.5 - 2 million barrels per day with existing and near future technology but that will be it. Is this perhaps manipulation as well? We need to deal with reality, not supposed conspiracy theories.
"Canada and Mexico does not play with the supply to affect Oil price."
SOrry, I missed this. You have absolutely no way of knowing this.
"Any 1st year economics student, who leaned about supply and demand - would tell you that by manipulating supply you also manipulate price."
Any first year economics student can tell you that if you change one thing, participants in the market will react in various ways that you may not have foreseen. In this case you ignore "Elasticity of Demand" in your overly simple and wrong analysis.
And I am waiting for you to explain why Canada and Mexico "don't manipulate supply".
jakenewton ""Your first question (About how OPEC manipulate the price)" I was addressing an *assertion* that OPEC manipulates *supply*, not price."
Any 1st year economics student, who leaned about supply and demand - would tell you that by manipulating supply you also manipulate price.
The Saudis are manipulating the supply because they want to manipulate the price.
Canada and Mexico does not play with the supply to affect Oil price.
Oil prices are up because of a combination of:
- demand is increasing rapidly, particularly outside the US and Europe (but it is still going up in the USA)
- supply is more or less plateau'ed and oil producers are finding it increasingly difficult to sustain, much less increase production rates.
There isn't A solution - there are solutions that must be implemented simultaneously
- eliminate the access restrictions to oil in the US (ANWR, coastal drilling)
- embrace conservation (personal and industrial)
- development of alternative energy sources. Nuclear, solar, wind, biofuels. Our gov't needs to figure how to incentivize smart people outside of gov't to come up with smart, implementable ideas, and not come up with solutions by legislation (remember corn ethanol and the Big Food lobby).
Seems like so many people are overly focused on who is to blame ? Big Oil ? Speculators ? Bush ? Saudis ? Republicans ? Democrats ? Wall Street ? methinks WE ARE to blame. After all WE use the oil, WE make the individual decisions on conservation, WE elect (or don't elect) the legislators who can (or don't) come up with good legislation to incentivize alternative energy, and WE have done very little since the last oil crisis 30 years ago. Quit blaming someone else or getting in a lather about the next conspiracy theory (they're holding oil off the market - such drivel, please stop before it shorts out your keyboard)
OPEC is a popular target but it would be monstrously wrong to accuse OPEC of manipulation or any other bad behaviour. There is no single group of oil producing
nations more worried about what is going on. While OPEC currently provides about 38%-40% of world oil production, the reserves of just 5 OPEC countries (all in the Middle East) are 66% of the world's known reserves and these reserves are the conventional type, not shale, oil sands etc. No wonder they will become an even greater target.
To say there is no evidence of speculation in commodities markets, particularly oil, as high ranking U.S. government officials have claimed (including that idiot of an Energy Secretary after the Saudi conference), is naive at best - conspiratoral at worst.
My guess is about $30.00 - $40.00 per barrel is due entirely to speculation. Hell, its just business.
I also fully understand the long term problem we face with respect to world oil production. We are in for a ton of hurt folks and it is time for change in our consumption patterns, regardless of what happens in the rest of the world. U.S. society cannot exist as it is on $4.00+ /gallon gasoline. That is the simple hard truth.
"Your first question (About how OPEC manipulate the price)"
I was addressing an *assertion* that OPEC manipulates *supply*, not price. They try to manipulate price via supply, but they are not always successful, and the strategies can sometimes backfire. And the technique is hardly unique to OPEC as was also alleged.
Whatever the cause of the oil price bubble, it is doing the environment a favor. I tend to believe a lot of it IS the follow the leader speculator leaches who produce nothing and provide no services, but take home millions.
Its hard seeing the guys who use trucks and vans to make a living getting killed by $150 fill-ups, and next winter's heating oil is going to bankrupt many more families now on the edge. Thousands building large vehicles for Ford, GM and even Toyota may not have much work.
One positive effect for factory workers and and managers is it now costs $8000 vs $3000 last year to bring a container from China, and some companies are reversing the off-shoring trend.
Ford is retooling a truck plant to build subcompacts. So Mr. Contractor, only use the F-150 when you have to and keep it when its old, and drive a Focus out on bids. And Ms. Soccer Mom, only drive the Suburban when you have a car full, keep it for (mostly parked in the driveway)15 years, and get a Cobalt or Corolla to use every day.
It is ironic that we don't have the will to tax carbon and take the economic lumps, but our greedy speculators are doing it for us.
All great comments thus far.
This is a small and meager thought.
I know its wrong, but we are all sick of the greed and lies so lets end the game.
United States Armed forces ocupy Iraq. They are paid by our tax dollars and work for American tax payers.
Its our oil , and let Iraq become the next annexed state.
Cut out the oil companys and wall street.
Don't let either of these greedy entitys control the next new technologys for energy.
Done.
Of course I am assuming that our country is run by elected officials, our representaives, and not billionares and corporations.
Heil, mein Führer, Bush.
Heil, mein Führer Cheney.
Heil, mein Führer Banks.
Heil, mein Führer Wall street.
Heil, mein Führer Oil Companys.
Heil, mein Führer Billionares.
Heil, mein Führer Corporations.
Heil, mein Führer the Executive Branch.
Heil, mein Führer the Judicial Branch.
Heil, mein Führer Congress.( Warrantles Spying Immunity)
Will we ever wake up, I pray we are not to late.I pray with every fiber of my being,if Jews were delivered to the promise land by God, than Americans can save our Democracy if God wills it so.
Do you think it will take 40 years. Shoot, God made the earth in seven days.We might not be here in seven days if we attack Iran.
Come on you right wing repulican religious luntic fringe freaks,ask your God to save America from the clutchs of your greedy republican represenatives.
Ooops I forgot, your too busy knocking gay marriage and abortion.
The bible is the only book Christians will ever need,
The Koran is the only book that muslims will ever need,
Money is the only thing that Banks,Wall street,corporations, and oil compnays will ever need.
Who the hell are the terrorists again ???????
So,SO,SO,SO,So,SO,SO,SO,So,SO,SO,SO,So,SO,SO,SO,So,SO,SO,SO,
jakenewton, Your first question (About how OPEC manipulate the price) is answered within the video I published above. It's an hour and a half lecture, so your popcorn won't be wasted.
As for your second question:
Of course the US government is responsible. I never said they don't.
Letto - 100% in agreement on that. I just get furious when I hear the same lies repeated endlessly, like "Saddam threw the weapons inspectors out." we do not need to help the warmongers. Obviously I missed your point.
"The fact remains that only OPEC are actually manipulating production. Canada, Mexico (And other non OPEC oil producers) aren't."
What are you talking about? *Any* of the entities you listed can produce or not produce for any reason they see fit. Call *all of that* "manipulation".
"You don't think our own government has a thing to do with it?"
I'll go and make some popcorn for the group while *you* put together a detailed answer to this question of yours.
Here is one short term alternative to Oil dependency.
http://www.youtube.com/watch?v=NLRuGUPkyh4
opeluboy, I never said the Saudis are responsible for oil going from $11 a barrel to $140 in 10 years.
What I said is that OPEC are manipulating the price. However, if you are looking for someone to blame - I do think the BUSH policy has a lot more to do with the current crises than the Saudis.
What I was trying to say - is that there should be a policy change, we should develop alternatives to Oil.
No Letto, I DO NOT believe that the Saudis set the whole world's oil prices. But obviously it makes you feel good to think so. Wonder why?
Letto and jakenewton, go back up and read NancyH's post of Whitney's article. Then do some research. Gee, you can't imagine why anyone would want to blame the Arabs for our oil problems? You've got 2 fucking wars going on right now, with a 3rd being ginned up by the neocon creeps that run this country and our media. It doesn't help that ignorant liberals, and even people like RFK, Jr., parrot this bullshit incessantly.
Do you realy think the Saudis are responsible for the price of oil going from $20 a barrel to $140 a barrel just during the nightmare of the Bush presidency? You don't think our own government has a thing to do with it?
Jesus.
jakenewton - Saudi is the only oil producer who can and does manipulate the production in the short run. Is that OK?
The fact remains that only OPEC are actually manipulating production. Canada, Mexico (And other non OPEC oil producers) aren't.
opeluboy - Are you claiming that global oil price is determined only based on American consumption? It's a centralistic view point to think the USA is alone on this planet. Have you ever heard the term Global Village?
If Russia is selling to Europe oil for $140, do you think an Oil producer in Texas will sell his locally for different price?
Letto - sorry, that's absolute bullshit. Saudi oil is heavy and not nearly as in demand as most oil.
40% of the oil our country uses is domestically produced. The remaining 60% is imported, the bulk of it from Canada and Mexico. Saudi Arabia is a distant third followed by Venezuela and Nigeria.
If you think the Saudis are manipulating the price of Canada and Mexico's oil, then they are incredibly magical.
But like I said, it serves the media's purpose to blame the Arabs for our problems.
You don't think we could get around buying Saudi oil? It's not 11% of what we use, it's fucking 11% of what we import!
Think, please.
"Saudi is the only oil producer who can and does manipulate the production "
You forgot the "quick" part.
opeluboy: "But it's so much fun to blame the Saudis for our mess. All us liberals do it. It doesn't matter that we import 60% of our oil and only 11% of that comes from Saudi Arabia. We can't blame our biggest suppliers, Canada and Mexico. They're not enemies of Israel."
What do you want of Israel who is not an oil producer nor a significant consumer? Are you some type of racist?
Here is a quote from the article: "Saudi Arabia — the sole oil-producing nation capable of quick production increases"
Translation: Saudi is the only oil producer who can and does manipulate the production and by thus the price. OPEC in general, and the Saudis in particular, are manipulating oil price by manipulation production. Canada and Mexico don't.
sweeve: "wilmoor: solar, wind, and "other alternatives" will never amount to more than a fraction of the massive amounts of fossil fuel energy we use today."
Today, the global energy needs of humanity is about 1:10,000 of the solar energy hitting earth.
Although today renewable energy counts for a small percentage of the total energy output, it's growing up exponentially, and the price per Kwt is dropping. (It is still about 2 - 4 times more expensive than coal, but as solar panels price drops, and efficiency increases, it is expected to be cheaper than coal in less than 10 years)
If the trend continues, in about 20 years, all the energy needs of humanity will be met by solar alone.
But it's so much fun to blame the Saudis for our mess. All us liberals do it. It doesn't matter that we import 60% of our oil and only 11% of that comes from Saudi Arabia. We can't blame our biggest suppliers, Canada and Mexico. They're not enemies of Israel.
http://wwnorton.com/catalog/fall04/032647.htm
"Quit buying gas!!! "
Best idea yet.
"At least boycott it!!!"
Um, same thing.
Krugman had a good article on the oil "bubble":
http://www.nytimes.com/2008/05/12/opinion/12krugman.html?_r=1&oref=slogin
"The only way speculation can have a persistent effect on oil prices, then, is if it leads to physical hoarding — an increase in private inventories of black gunk. This actually happened in the late 1970s, when the effects of disrupted Iranian supply were amplified by widespread panic stockpiling.
But it hasn't happened this time: all through the period of the alleged bubble, inventories have remained at more or less normal levels. This tells us that the rise in oil prices isn't the result of runaway speculation; it's the result of fundamental factors, mainly the growing difficulty of finding oil and the rapid growth of emerging economies like China. The rise in oil prices these past few years had to happen to keep demand growth from exceeding supply growth."
Enron manipulated electricity in California by forcing plants off-line. Where is the evidence that speculators are forcing oil production off-line or storing massive quantities of ACTUAL crude oil?
People who think supply is not constrained don't know what's going on. When I read an article that claims there is no supply problem, that's my clue the author doesn't know what they are talking about. Just look at production numbers for the last 5 years.
People who don't understand why there are no lines at gas stations need to take Econ 101.
People are upset at gas prices and how hard it is to pay for food, bills, etc.
I have an idea!!!
Quit buying gas!!! Yeah, i know, you're thinking, "how am i gonna live?"
Well, this is where your neighbor(s) comes in.
At least boycott it!!!
And if you don't have a neighbor, then you're a recluse and should be living off the land anyway.
Riddle me this: "Is anyone able to suck human blood from a rock, physically, leaving all the meta... responses in the dictionary ?".
sweeve June 24th, 2008 3:40 pm
"wilmoor: solar, wind, and "other alternatives" will never amount to more than a fraction of the massive amounts of fossil fuel energy we use today."
Could be a big fraction though. We've got lots of wind power coming on line in West Texas. We'd have more up, but the Dutch company that manufactures the units is working flat out. Wouldn't it be nice if we made them here?
NancyH June 24th, 2008 3:40 pm
Hit that nail squarely on the head!
The USA has been printing 2 billion dollars a week and spending it to stay in Iraq.
That is why oil is at 140 per barrel.
WW1, WW2, Korea, Vietnam, lots of examples of similar economic problems after wars
Marie Cocco is either knowingly spreading propaganda to divert attention away from hedge fund/investment bankers who are gaming the system (which has been deregulated by Clinton -- see repeal of Glass-Steagall Act), or she is extremely niave and uninformed. The hedge fund/investment banks lost a bundle in the mortgage bubble they created. Those banks keep 900 billion to cover losses, but they lost a bundle in the mortgage bubble collapse and now only carry 20 billion (huge, huge losses). They're now turning to oil and commodities, creating a bubble there so they can recoup their losses fast at the expense of people around the world. Here is a good article. Another one is an interview with former chief economic adviser to the Dennis Kucinish campaign for president, who is also a former Wall Street broker. These speculators have driven up the market by 70 percent. The hedge fund guys are the wealthiest on the planet -- moreso than the top CEOs who rake in hundreds of millions. These guys annual earings are in the billions -- they like to keep below the radar, so as not to attract attention and thereby invite scrutiny about their siphoning of trillions of dollars to their pockets.
Don't Blame the Saudis
Gas Price Gouging
By MIKE WHITNEY
"I've seen this bad movie before. It's the Enron movie, which hit the West Coast power-markets like a bomb because the federal government was asleep at the switch. Now it's happening again with oil prices."
--Rep. Jay Inslee, D-WA
There is no oil shortage, not yet at least. The reason oil has skyrocketed to nearly $140 per barrel is because of rampant speculation. The peak oil doom-sayers are simply confusing the issue. This is not about shortages or scarcity; it's about gaming the system to fatten the bottom line. The whole scam is being executed by the same carpetbagging scoundrels who engineered the subprime fiasco; the investment bankers. The Wall Street Goliaths are using the futures market to recapitalize their flagging balance sheets after sustaining huge losses in the mortgage-backed securities boondoggle. That's the whole thing in a nutshell. Now they're on to their next swindle; distorting the futures market with gargantuan leveraged bets on food and oil.
MarketWatch summed it up like this on Monday:
"NEW YORK (MarketWatch) -- Speculators now account for about 70 per cent of all benchmark crude-oil trading on the New York Mercantile Exchange, up from 37 per cent in 2000, according to congressional findings cited in a Wall Street Journal report Monday. The report comes ahead of a House oversight subcommittee hearing slated for later Monday on Capitol Hill to study the role of financial investors in the crude futures market. There has been much discussion recently about how big a role so-called speculators have been playing in the sharp rise in energy prices, though no consensus has emerged on this point.
"Congress, however, has grown increasingly concerned over speculative investors' role in the energy market in comparison with those buying futures contracts to hedge against risk from price changes. Lawmakers are expected to consider legislation to set strict limits -- or in some cases, an outright ban -- on speculative trading in energy futures in some markets, the Journal reported.
In 1991, the Commodity Futures Trading Commission authorized the first exemption from position limits for swap dealers with no physical commodity exposure, the report said. This began what Dingell said was "a process that has enabled investment banks to accumulate enormous positions in commodity markets," according to the report. (MarketWatch)
So its not really Big Oil or "greedy Arabs" after all? Nope, it's the cutthroat banksters again.
Over the weekend, Saudi Arabia's King Abdullah convened an emergency Oil Summit in Jiddah, Saudi Arabia to deal with the disastrous effects that oil prices were having on the global economy. Rising prices are responsible for everything from food riots in Haiti to truckers strikes in Spain, Portugal and France. US Energy Secretary Samuel Bodman delivered a prepared statement supporting the Bush administration's position on the issue:
"Market fundamentals show us that production has not kept pace with growing demand for oil, resulting in increasing -- and increasingly volatile -- prices. Even despite higher global production for oil so far this year, inventories have been drawn down and current world production (spare) capacity is below historic levels -- at fewer than two million barrels per day."
Baloney.
Demand is not out-pacing supply. That's a myth started by the people who are profiting by betting up oil futures; investment bankers. They're led by their chief defender and former G-Sax scalawag, Henry Paulson.
Consider the remarks of Philip Davis in a recent post at Seeking Alpha:
"Now we have the Saudi oil summit this weekend and Saudi Arabia took 1.5M barrels a day off-line since July of '05 in a series of cuts and is currently producing just over 8Mbd out of their estimated 10.5Mbd maximum capacity. It is forecast by the EIA that next year OPEC alone will have over 3Mbd of spare capacity so this would be a terrible time for global demand to take a nose dive or there are going to be a lot of idle wells… Should global demand drop another 5 per cent in the next 12 months, we could be looking at 8Mbd less demand than there was just a year ago.
"As the London Telegraph points out, not only does OPEC have a current production surplus of 2M barrels a day but that surplus will rise to 3.5M barrels a day by next year. Also, non-OPEC production is rising fast with a 1.5Mb gain in non-OPEC production coming down the pike next year. ...Iraq, by the way, is no longer included as OPEC or non-OPEC production, a very clever way to hide 2.4 million barrels of production by the energy apologists." (Philip Davis, "The Oil Shortage, and Other fairy Tales" Seeking Alpha).
There's no shortage, no scarcity. In fact, oil is being deliberately kept off the market to keep prices high. Consider this: if supply isn't keeping up with demand then why aren't there any lines at the gas stations like there were during the '70s?
Because it's all a fabrication. Prices are up because of speculation; that's all. Here's what Saudi Arabia's King Abdullah said on Sunday: "Among other factors behind this unjust increase in oil prices is the abhorrent acts of speculators seeking to undermine the market." That's why he called the meeting to begin with. The King insists that "speculators" have played a key role." (AFP)
How about Kuwait?
The Kuwaiti Oil Minister Mohammed al-Olaim insisted that "there is enough oil to supply the market....We believe that the market is in equilibrium. The price is disconnected from fundamentals. It is not a problem of supply. Why would you have a supply problem when demand is going down". (AP)
Of course, demand goes down in a recession.
What about Libya?
"We believe speculation has its impact," the OPEC chief said. Libya may reduce its oil production because there is more than enough oil on the market, according to Oil Minister Shokri Ghanem. "We may have to cut production.... We don't see any need for more oil. There is plenty of oil in the market,'' Ghanem said, commenting on Saudi Arabia's decision. (Bloomberg News)
How about Iraq? Can we at least count on our brothers in Iraq to maintain the administration's falsehoods about supply problems?
According to Reuters: Iraq's Oil Minister Hussain al-Shahristani said, "Any increase in world oil output would not have a significant impact on record-high crude prices that are being driven by speculation... Regulations needed to be introduced to stabilize oil markets. I do not think increasing any amount in the international market will have a significant impact on the prices. It is up to the stock exchange and the regulations in the industrialized nations. It is not something OPEC can contribute to. We did not see any impact on the prices from the Saudi's previous increase." (Reuters)
Venezuela?
Venezuela Oil Minister Rafael Ramirez refused to join the weekend conference because "We believe it is not necessary to increase output...Oil production levels aren't behind the increase in prices," Ramirez said, adding that soaring oil prices were caused by 'speculative interest, a falling dollar and global inflation'. (Reuters)
So, are all the oil ministers lying or is the Bush administration intentionally misleading the public about supply problems?
It's always easy to point the finger at Big Oil or "greedy" Arabs for price gouging, but that's not what's really going on. The Bush administration is colluding with their Wall Street buddies to fleece the public by inflating another bubble; this time in commodities.
Congress could end this charade in a minute by passing legislation that would close the Swaps Loophole and require steeper margin limits on oil futures (repeal the repeal of the Glass-Steagall Act). But don't hold your breath. Wall Street is the biggest contributor to political campaigns which explains how we got into this pickle to begin with. It also explains why Congress's public approval rating has shriveled to 12 per cent.
Do Bush and Bernanke know what the banks are up to? Do they know that billions that are being loaned to the banks via the Fed's "auction facilities" are probably being diverted into the commodities market and driving up the prices of raw materials and oil, while pushing the world towards global recession?
You bet they do and they're probably doing everything in their power to keep the banking system from buckling beneath the weight of its own massive debts (incurred by fraudulent practices made legal by Congress).
Here's an excerpt from Spiegel Online's "Are Pension Funds Fueling High Oil? which explains the whole scam:
"Commodities exchanges limit the number of positions an investor can take in the market, but Michael Masters, of Masters Capital Management, says the Commodity Futures Trading Commission has allowed unlimited speculation in these markets through a loophole. This so-called swaps loophole exempts investment banks like Goldman Sachs and Merrill Lynch from reporting requirements and limits on trading positions that are required of other investors. The loophole allows pension funds to enter into a swap agreement with an investment bank which can then trade unlimited numbers of the contracts in futures markets."
"Some experts fault the CFTC, charged with regulating commodities markets, for allowing such loopholes. "Congress has provided the CFTC the power to control this unlimited [speculation]; the law is very specific about establishing position limits," says Steve Briese, author of The Commitments of Traders Bible and CommitmentsOfTraders.org, a site that focuses on US futures markets. "The problem is they have abdicated this role." The dramatic surge in energy prices has helped to spark inflation across the economy and, as others at the hearing testified, has cut into profits of most in the supply chain. Briese points to Treasury reports that the top five users of swap agreements are investment banks, four of which dominate swap dealing in commodities and commodities futures: Bank of America, Citigroup, JP Morgan Chase, HSBC North America Holdings, and Wachovia. (Spiegel Online)
Citing the harmful impacts record high crude oil prices are having on consumers, US Rep. Bart Stupak (D-Mich.) introduced a bill to close regulatory loopholes:
"The numbers back this up: Between Sept. 30, 2003, and May 6, 2008, contracts held by traders jumped from 714,000 to more than 3 million, a 425 per cent increase. Since 2003, commodity index speculation has increased 1,900 per cent from an estimated $13 billion to $260 billion invested. Stupak said CFTC data show that in 2000, physical hedges that airlines and other businesses use to ensure a stable price for fuel in coming months and actually imply delivery, accounted for an estimated 63 per cent of the total futures market, while speculators represented about 37 per cent. "By April 2008, physical hedgers only controlled 29 per cent and speculators had taken over a whopping 71 per cent of the oil futures market."
He said 85 per cent of the futures purchases tied to commodity index speculation come through swap dealers—investment banks that serve as intermediaries for their pension fund and sovereign wealth fund customers. One report found that $55 billion of total worldwide commodity trading over 55 days came in as swaps. "The CFTC has allowed 117 exceptions to swaps. When that many exceptions are allowed, they are not really subject to oversight. We have a CFTC that's supposed to be doing its job. I'm not certain that it is," he said.
Another Smoking Gun
On May 20, 2008 Michael Masters, testified before the Senate Committee on Homeland Security and Governmental Affairs, on the role that speculation has played in recent commodity price movements. He said:
"In the popular press the explanation given most often for rising oil prices is the increased demand for oil from China. According to the DOE, annual Chinese demand for petroleum has increased over the last five years from 1.88 billion barrels to 2.8 billion barrels, an increase of 920 million barrels. Over the same five-year period, index speculators demand for petroleum futures has increased by 848 million barrels. The increase in demand from Index Speculators is almost equal to the increase in demand from China!"
Masters is right; there is massive speculation which is distorting the market, but who is responsible? Clearly, the pension fund managers aren't to blame. After all, the largest US pension funds, which is the California Public Employees Retirement System (CalPERS), has only invested about $1.1 billion in commodities swaps contracts. That's a far-cry from $260 billion. The investment giants and hedge funds are probably leveraging the money they receive from the pension funds many times over to increase the size of their bets. Keep in mind, oil futures can be purchased for a mere $.06 on the dollar; that's a lot of potential leverage.
Masters again: "Commodities prices have increased more in the aggregate over the last five years than at any other time in U.S. history. We have seen commodity price spikes occur in the past as a result of supply crises, such as during the 1973 Arab Oil Embargo. But today, unlike previous episodes, supply is ample: there are no lines at the gas pump and there is plenty of food on the shelves. Today, Index Speculators are pouring billions of dollars into the commodities futures markets, speculating that commodity prices will increase."
Index Speculators have now stockpiled, via the futures market, the equivalent of 1.1 billion barrels of petroleum, effectively adding eight times as much oil to their own stockpile as the united states has added to the Strategic Petroleum Reserve over the last five years:
"We calculate that Index Speculators flooded the markets with $55
billion in just the first 52 trading days of this year. That's an increase in the dollar value of outstanding futures contracts of more than $1 billion per trading day.
Doesn't it seem likely that an increase in demand of this magnitude in the commodities futures markets could go a long way in explaining the extraordinary commodities price increases in the beginning of 2008?"
Yes, it does. And it also explains where billions of dollars from the Fed's "auction facilities" are going. After all, they're certainly not going into mortgage-backed securities anymore, and MBS represented nearly 70 per cent of bank revenue. So, where would a desperate banker turn if his main revenue-stream had dried up and the corporate bond market was frozen solid?
How about oil futures and commodities; the only game in town? As the MarketWatch article suggests, oil prices are inflated by about 70 per cent.
Mike Whitney lives in Washington state.
wilmoor: solar, wind, and "other alternatives" will never amount to more than a fraction of the massive amounts of fossil fuel energy we use today.
How difficult is it to "speculate" on "oil futures" when we all know that oil is running out? What's to speculate? The price will continue to rise until the wells have dried up. Period.
Is anyone speculating a different scenario? Like, the price will fall because... suddenly the entire industrialized world sees the light and, virtually overnight, switches to hybrids and solar? Or that maybe God will stop by and refill the oil fields?
It's like speculating on whether the sun will rise tomorrow. Anyone wanna bet it won't?
And the price of gas will remain up until people not wanting to pay the high price push the Democrats in Congress to cave and allow the Anwar exploration and the off shore drilling, "clean" coal production, and nuclear power.
There's no way the oil companies, coal mining companies, and the nuclear companies will stand for a shift to solar, wind, or other alternatives. That would be killing their golden goose. And Cheney has been in close touch with his Arab buddies to make sure the price of gas remains high. No doubt it'll dribble down enough since Bush talked to them that many here will believe we should stick with republicans come November.
This article is rather naive. We've plateaued on world oil production since 2005. Wait until supply DROPS. China and India continue to grow. Forget about 'demand destruction'--the US doesn't matter as much as the growing needs of China.
http://www.theoildrum.com/
Don't be fooled by those who blame the "speculators"--the price of oil is still very cheap. The reason the price is going up is the same reason ANY commodity is going up--it is increasingly scarce and everyone wants it.
Cheney & Co. didn't invade and occupy Iraq because of WMD now did they?
The whole "war" was staged--from start to finish. They are desperate to keep the machine greased and they don't have a Plan B because the amount of energy used in the most profligate ways here is beyond the pale of any alternative, conservation, or simple fix.
Just wait until they start bombing Iran.
$4 per gallon will seem dirt cheap.
Mission Accomplished (for the oil guys).
Sure better conservation and efficiency and so on are badly needed; however, Mike Whitney's article at Counterpunch shows this Washington Post article to be basically wrong about oil prices. First, the financiers ripped off people via housing; now they're ripping off people via oil:
"There is no oil shortage, not yet at least. The reason oil has skyrocketed to nearly $140 per barrel is because of rampant speculation. The peak oil doom-sayers are simply confusing the issue. This is not about shortages or scarcity; it's about gaming the system to fatten the bottom line. The whole scam is being executed by the same carpetbagging scoundrels who engineered the subprime fiasco; the investment bankers. The Wall Street Goliaths are using the futures market to recapitalize their flagging balance sheets after sustaining huge losses in the mortgage-backed securities boondoggle. That's the whole thing in a nutshell. Now they're on to their next swindle; distorting the futures market with gargantuan leveraged bets on food and oil."
...
"Demand is not out-pacing supply. That's a myth started by the people who are profiting by betting up oil futures; investment bankers. They're led by their chief defender and former G-Sax scalawag, Henry Paulson."
...
"There's no shortage, no scarcity. In fact, oil is being deliberately kept off the market to keep prices high. Consider this: if supply isn't keeping up with demand then why aren't there any lines at the gas stations like there were during the '70s? Because it's all a fabrication. Prices are up because of speculation; that's all."
...
"It's always easy to point the finger at Big Oil or "greedy" Arabs for price gouging, but that's not what's really going on. The Bush administration is colluding with their Wall Street buddies to fleece the public by inflating another bubble; this time in commodities. Congress could end this charade in a minute by passing legislation that would close the Swaps Loophole and require steeper margin limits on oil futures. But don't hold your breath. Wall Street is the biggest contributor to political campaigns which explains how we got into this pickle to begin with. It also explains why Congress's public approval rating has shriveled to 12 per cent. Do Bush and Bernanke know what the banks are up to? Do they know that billions that are being loaned to the banks via the Fed's "auction facilities" are probably being diverted into the commodities market and driving up the prices of raw materials and oil, while pushing the world towards global recession? You bet they do and they're probably doing everything in their power to keep the banking system from buckling beneath the weight of its own massive debts."
...
"Index Speculators have now stockpiled, via the futures market, the equivalent of 1.1 billion barrels of petroleum, effectively adding eight times as much oil to their own stockpile as the united states has added to the Strategic Petroleum Reserve over the last five years...[which] explains where billions of dollars from the Fed's "auction facilities" are going. After all, they're certainly not going into mortgage-backed securities anymore, and MBS represented nearly 70 per cent of bank revenue. So, where would a desperate banker turn if his main revenue-stream had dried up and the corporate bond market was frozen solid? How about oil futures and commodities; the only game in town? As the MarketWatch article suggests, oil prices are inflated by about 70 per cent."
Read the full article at Counterpunch: http://counterpunch.org/whitney06242008.html