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Wall Street Oil Speculation Driving Surge in Gas Prices
The price of Brent Crude, the world's most traded category of oil, dipped slightly today after reaching a nine-month high earlier in the week. Overall, US gas prices have continued to surge despite declining demand, and the airwaves and national media are flooded with worrying headlines about consumers furious over out-of-control prices.
That speculators have a huge impact on oil and gasoline prices is not news to anyone paying attention to the subject over the years, but it is an aspect that most media outlets rarely mention -- even when spiking gasoline prices dominate the news cycle. And legislatively, efforts to bring damaging speculative practices under control have continually stalled in Congress. (Image: Bloomberg) "On Tuesday," according to reporting by McClatchy's Kevin G. Hall, "Oil [prices] rose past $106 a barrel and gasoline averaged $3.57 a gallon — thanks again in no small part to rampant financial speculation on top of fears of supply disruptions."
Hall's report highlights the fact that despite rising prices at US gas pumps, demand in the US was so low it has "become a net exporter of gasoline, unable to consume all that it generates."
This fact contradicts the familar refrain from GOP politicians and operatives who claim that a 'Drill Everywhere' agenda would solve US energy woes or lead to lower prices for consumers.
Hall acknowledges that the "ostensible reason" for the climb in prices is accurately ascribed to increased tensions and fears about a "military confrontation with Iran," but writes that the deeper cause is that financial speculators are "piling into the market, torquing the Iranian fear factor into ever-higher prices." He continues:
... oil's price shot up because it trades in financial markets, where Wall Street firms and other big financial players dominate the trading of oil, even though they have no intention of ever taking possession of the oil whose contracts they are trading. [...]
And he quotes Fadel Gheit, a 30-year veteran of energy markets and an analyst at Oppenheimer & Co., who is convinced "oil prices are inflated" due to speculation, saying:
The U.S. average gasoline price rose half a cent overnight 3.570 a gallon, according to AAA's daily survey of fuel retailers, conducted by Oil Price Information Service. In California, the average price was $4.042, up about a penny overnight. (Getty Images)
"Speculation is now part of the DNA of oil prices. You cannot separate the two anymore. There is no demarcation."
So how much has speculation inflated prices? Hall writes:
Defining what percentage of today's high oil and gasoline prices is due to excessive speculation, driven by Iran fears, is something of a guessing game.
"I put the Iran security premium at about $8 to $10 (a barrel) at this point, which still puts crude at about $90 or $95," said John Kilduff, a veteran energy analyst at AgainCapital in New York.
Historically, financial speculators accounted for about 30 percent of oil trading in commodity markets, while producers and end users made up about 70 percent. Today it's almost the reverse.
The fear premium is the froth above what prices would be absent fears of a supply disruption -- somewhere in the $80 to $85 range for a barrel of crude oil. It means that even with the extra cost put on oil from Iran fears, prices are at least another $10 higher than what demand fundamentals would dictate.
Why? Financial speculators.
What should the price of oil be if left to conventional supply and demand market fundamentals? Canada's the largest supplier of imported oil to the United States, which now actually produces more than half of the oil it consumes. Production and delivery costs for a barrel of oil from Canada are about $75 a barrel. The market-fundamentals cost for a barrel of oil is in that ballpark; above that, speculation sets the prices.
"It's as simple as that," said Gheit, who has testified before Congress and called for regulatory limits on speculation in commodities markets.
Historically, financial speculators accounted for about 30 percent of oil trading in commodity markets, while producers and end users made up about 70 percent. Today it's almost the reverse.
Because speculators dominate the market, writes Hall, their predictions of higher oil prices -- which were rampant on Tuesday -- can make their "prophecies self-fulfilling."
"These people are not there to be heroes. They are there to make money. It's our fault because we are allowing them to do that," said Gheit. "Obviously these people are very strong, and the financial lobby is the strongest of any single lobby. I've been in this business 30 years, and I can tell you I think this is smoke and mirrors."
***
That speculators have a huge impact on oil and gasoline prices is not news to anyone paying attention to the subject over the years, but it is an aspect that most media outlets rarely mention -- even when spiking gasoline prices dominate the news cycle. And legislatively, efforts to bring damaging speculative practices under control have continually stalled in Congress.
Last year, Sen. Sanders introduced a bill titled the "End Excessive Oil Speculation Now Act of 2011 (pdf)", which would force the Chairman of the CFTC (Commodity Futures Trading Commission ) to impose strict limits on the amount of oil speculators can trade in the commodity and futures markets. The bill found little traction.
Here is Sanders talking about oil speculation on MSNBC's the Ed Show in August of 2011:
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Show AllI agree that gasoline taxes need to be re-directed to maintenance and development of public transportation. In the short run, we cannot in good conscience cripple millions of people who have no choice but to drive to work.
Businesses do not locate in poor minority communities. They locate in the newer neighborhoods, where housing for poor working people cannot be found.
As jobs get scarcer, and homes more difficult to maintain, people are forced to go greater distances to find work and have fewer housing options.
Yes, affluent suburbanites drive more. But increases in gasoline prices disproportionately affect the most desperate among us. It would be the proverbial "straw that broke the camel's back" for millions of families.
Liberals and progressives have had decades to lobby for stopping sprawl, for reigning in the developers and speculators, to advocate for public transportation. Rarely have I heard any of that discussed over the last 30 years.
Raising gasoline prices is not a serious solution to the energy crisis nor the environmental crisis. Immediately redirecting gasoline taxes to public transportation rather than to more highways is, though, without crushing the half of the population living on $35,000 a year and below.
Here in Pittsburgh, lower income people rely on public transportation, as well as most of the well-off who work downtown. It is WHY Pittsburgh's downtown and most neighborhoods are, for now, reasonably vibrant and get high ratings in livability surveys, while Detroit's is rotten and abandoned. But this is about to change if the proposed virtual disnmantling of public transit goes through. ONLY high gasoline prices is going to convince our politicians to fund public transit better.
Poeple only use less of something if the price is higher. Europe has good pubic transit _becasue_ gasoline is more expensive. Employers and retailers only locate on public transit routes, and build compact, walkable nieghborhoods _becasue_ gasoline is more expensive. There are no short cuts. Offset the higher fuel prices with tax credits for other household expenses, but higher gasoline prices are absolutely necessary.
How about we jubilee our elite banker US debt, outlaw commodity/financial speculation, and make printing money a public US gov't affair instead, a la Argentina/Iceland...Greece (in waiting?)
Chris Martenson succinct explanation of Peak Oil:
http://www.chrismartenson.com/crashcourse/chapter-17a-peak-oil
The Nation magazine series on Peak Oil and Climate Change:
http://www.thenation.com/article/157434/peak-oil-and-changing-climate
WAKE UP FROM YOUR AUTO ADDICTION!!
Perhaps, having smaller and energy efficient automobiles (eliminating cars running on gas) at least available to those in rural areas. Make it more cost effective for business AND citizens to build up our public transportation infrastructure especially for those in the urban areas. If the only solution is to "wake up from your auto addiction", you will pit urban vs rural areas and not bring about a real solution. Also keep in mind that we have over a hundred years of people driving automobiles in this country. Some may be resistant to that change and that is another reason for finding better energy sources for automobiles. If you can convince those who are most resistant to change, you will have won half the battle.
How come Europe, Japan Taiwan and increasingly China can have alternatives to Auto Addiction and the US cannot? The oft-repeated argument since 1922 and the GM/Chevron/Firestone conspiracy which destroyed the trolley systems all across the USA that the US is "too rural" for public transit is a canard. In 1930 the US had 122 Million people and yet Trolleys were everywhere ( http://www.railroad.net/forums/viewtopic.php?f=100&t=61869 ).
Today 80% of the US population lives in a Metropolitan urban area way more than lived in rural areas when trolleys and trains provided more efficient and ecological public transit all over the USA from the Northeast Kingdom in Vermont, to Wisconsin, to even the auto nightmare of today Los Angeles.
In May, 2011 Brookings issued the results of a 2 year study of Census Data, Transit stops and jobs which showed that 70% of working age Americans in 100 US Metro areas ALREADY live only 3/4ths mile from a Transit Stop!! The problem is their other finding - even during peak hours only 30% could reach jobs in less than 90 minutes! This is for well-known reasons to anyone who tries to use Green public transit - first off there is no frequency of service, buses are stuck in the same traffic as cars, Rail is not fully utilized, there is generally no coordination of connections between trains/buses/shuttles, there is no Local/Express service, and the last mile is almost impossible.
See http://www.brookings.edu/reports/2011/0512_jobs_and_transit.aspx for more details on the Brookings study which has gotten zero coverage including Commondreams.
There is a conspiracy involved and it is the same one which destroyed the trolley system in the US - the Auto companies, Big Oil, Auto suppliers like Firestone and your major LOCAL campaign contributors - highway pavers and their Unions. Look at TV, listen to Radio, read your local newspaper and you will find their biggest advertiser is Auto addiction. Cars, trucks even special Auto sections.
For more on that you can read "Stop Signs: Cars and Capitalism on the Road to Economic, Social and Ecological Decay" http://www.amazon.com/Stop-Signs-Capitalism-Economic-Ecological/dp/15526...
Is it convenient to just walk a few feet to your driveway, hop in your car at any time and drive right to your destination? Sure? But face the facts people - it is DESTROYING THE PLANET!
Besides Peak Oil production, oil demand is going up because of the disastrous lust for cars by a billion people in China and India.
You can attack phantom oil speculators or you can attack the Teabag Republicans who are proposing the HR-7 Transportation Bill which would cut ALL Federal funding for Green Transit( not just commuter trains, light rail or Amtrak but also bikeways and safe walking!!)
http://t4america.org/blog/2012/02/21/the-more-they-see-the-less-they-lik...
These are the same Teabag Republicans who cut Lightrail in Wisconsin, Hi-speed Rail in Florida from Tampa to Orlando, regular Rail in Ohio to restore service from Cincinnati to Dayton to Columbus to Cleveland,etc etc funded by the Koch Brothers.
Yes there should be a transaction tax to dampen speculation, yes we should be protesting the Keystone XL pipeline but we have to attack this problem at its roots- Auto Addiction and its destruction of huge swaths of American land, waste of resources and destruction of the planet!
But, I am not a supporter of rail transit improvements except on the long term. The only transit service that most cities can afford and that can be put in place on a short time frame is buses. If the service is frequent (at least every 10-15 minutes), and available 24 hours, and fares are cheap (no more than $2), buses work just fine and people will use them. Except for a couple light rail lines serving the southern suburbs, transit in my city is entirely bus-based, and until the service cuts, it worked just fine and everybody used them, from janitors to lawyers. But with the ongoing deep service cuts, the system is on a death spiral. The viability of downtown and the livability of many city neighborhoods will follow .
But in the long term as explained at great length in "Transport Revolutions: Moving People and Freight without Oil" ( http://transportrevolutions.info ) we need to move towards grid electrically powered transit via Rail/LightRail/Trolleys which can move 10-12 times more people than cars and 5 times more than buses, which can be directly powered by wind/solar/tidal/micro-hydro produced electricity rather than fossil fuels and without the inefficiency and huge expense and material costs of batteries. The sooner we invest in this new Green Transit the better!
Remember that every gallon of gasoline or diesel running bulldozers for highway expansion or maintenance is up in smoke and gone forever except the CO2 Greenhouse gases which will last for decades. We need to invest this preparing for the Green Transition NOW when we still have 50% of our oil left not when it is down to the increasingly expensive 30%/25%/20%!
Furthermore as I mentioned before the US has vestiges of its 233,000 mile Rail system all over the country and in all likelihood close by 90% of the population. That Rail or at least right of way already exists and needs to be restored to service. Where it does not instead of more highway lanes we need to begin NOW to build key links down Highway medians. Ironically the original plan of the Interstate Highway system was for the median to serve this purpose which only recently has begun to be activated.
White middle class people GOT to get over their racist/classist aversion to riding the bus.
Is steel wheel on steel rail less efficient than rubber tire on pavement? No.
Are dedicated rights of way less efficient than shared rights of way? No.
Is rail a less efficient use of land than buses? No.
Is rail a less efficient use of labor than buses? No.
Are flexible consists less efficient than fixed consists? No.
Is flexible use of prime movers less efficient than inflexible use? No.
Is rail easier to electrify then buses? Yes.
Is rail safer than buses? Yes.
Is rail less polluting than buses? Yes.
When you say "expensive" are you taking into account all costs? When you say "impractical" is that not a matter of public policy and priorities?
Iceland bank crash execs charged
http://www.icenews.is/index.php/2012/02/22/iceland-bank-crash-execs-char...
[snip]
Iceland’s special prosecutor into the banking crash is pressing charges against four former top executives at the now-defunct Kaupþing Bank. The charges relate to market manipulation in co-operation with a Qatari sheikh in the autumn of 2008. It has today been revealed that charges were last Friday laid against Sigurður Einarsson, the bank’s former chairman; Hreiðar Már Sigurðsson, former president; Magnús Guðmundsson, former boss of Kaupþing Luxembourg; and Ólafur Ólafsson from the Samskip transport company, who was a board member and major owner at Kaupþing. The alleged breach of the law concerns Qatari Sheikh Mohammed Bin Khalifa Al-Thani’s purchase of around five percent of the entire bank shortly before its collapse.
Hound your local politicians to get frequent Transit, bikeways and sidewalks. The US still has 233,000 miles of Rail all over this country from what was once the greatest Rail and Trolley system ever built. Chances are good anyone reading this will find a Railroad track if they walk a few miles in any direction. We need to get those Rails going. This is NOT an individual lifestyle choice. It requires organization and concerted and repeated activism. You cannot "choose" to take a train which doesn't run even though the tracks may be there. Nor can you "choose" to take a bus which doesn't run or shuttle or bicycle safely when there is no bicycle lane or shoulder. Call your Representative and howl about HR-7 and its proposed total elimination of all Green Transit:
http://t4america.org/blog/2012/02/21/the-more-they-see-the-less-they-lik...
A trip to a country auction can be a learning experience. Often, planted among the crowd are SHILLS. They get paid by auctioneers to bid on items for sale, merely to create =competition= and drive the price up. I learned this fact of life at the age of ten.
Trylon
"I want to point out what "WTI Benchmark" pricing means to most of the oil patch. When buying/selling oil on long term contract you typically don't set a price of $X/bbl for a simple reason: you don't know what that bbl will be selling for in the market place, say 6 months from now. So I may have a contract that says I'll sell my Gulf Coast Texas oil to Sunoco for the next 12 months at WTI + $4.50 per bbl. Or maybe WTI - $8 per bbl. The adjustment is a function of the specific quality of my oil and transport consideration. And, of course, free market conditions. BTW: I'm actually selling my Texas oil based on the La Light Sweet benchmark. A refiner in Houston might have a contract for someone's oil in Cushing at WTI - $25 per bbl due to the transport bottleneck of getting from there to here.
"If folks want to equate WTI pricing to other benchmarks that's fine. But it's also not very relevant IMHO. Actually WTI oil (which actually doesn't really exists per se) price is just what someone is selling oil for under a certain set of circumstances. One can sign a contract to buy west Texas oil based on the Brent benchmark price or any other benchmark in the world. But the idea is to use a benchmark that's sensitive to conditions in the area that oil is being marketed. BTW: there is virtually no more "Brent" crude being produced in the N Sea...the Brent Field is close to being abandoned. "Brent" prices are now based on a basket of various N. Sea oils.
"And I think that most here now understand that the "price of WTI" that the MSM puts out has nothing to do with the price any oil is sold at in the US. It's the price used to value a future oil contract at some specific time interval. The price I sold my oil at last month had no relationship with what oil futures prices were on any one day that month. And never will. In fact, it's just the opposite: whether one makes a profit or loses money on the "WTI" futures contracts they bought will be determined by what WTI is actually selling for when the contract matures. I think a lot of folks are still confused as to what is the dog and what is the tail. The futures market doesn't determine what profit I make when I sell my oil. And if I'm not invested in the futures market it has no bearing on my net income at all. But me and the rest of the oil patch determine who makes/loses money in the futures market based on what we ultimately sell our crude for when those contracts come due. When I sell my crude there are a limited number of potential buyers in my area. I may be selling on a long term contract based on some adjusting benchmark. Or if my oil isn't contracted I can sell on the spot market. But there's no negotiating there: the buyers in my area post the price and I either accept it or let the oil sit the oil sit in my tanks and make no revenue from that production until I eventually sell. And in the meantime I may have to stop producing when I run out of tankage at the well. And if i were to do that with all my current oil production I would lose $170,000 of revenue PER DAY. Like I said: there's not much negotiating with the spot market. The buyers know it's very unlikely I would shut my wells in."
http://www.theoildrum.com/node/8970#comment-875104
Oil Tanker Tracker ‘Oil Movements’ Sees Continued Fall in OPEC Exports
If you thought OPEC would ‘make up’ for any fall in sanctioned Iranian oil exports, well, think again. Since the start of the year OPEC oil exports have been in a gradual, but sustained, downturn. This may be somewhat surprising as Libya has made a swift post-war recovery – up to 80% of pre-war export rate – which should have resulted in increased, not decreased, overall OPEC exports.
In addition, the major media has told us that since the December 2011 OPEC meeting that OPEC had ‘failed’ to restrain oil production, that Saudi Arabia would ‘ramp up’ oil output at the first sign Iranian exports were lagging, and in general, oil was ‘over-priced’ and Saudi Arabia wanted to restrain the price of oil from rimming past $100.
OPEC oil exports are about 23.27 mbpd level, down about 400,000 bpd from the level that prevailed about two months ago. In general, OPEC exports are now running about 800,000 bpd less than a peak about one year ago - which is a significantly greater amount than the 300,000 bpd fall in Libya’s oil exports in the same time period. http://www.businessweek.com/news/2012-02-23/opec-shipments-drop-as-sprin...