"Producers and consumers should “wrest control” of trading in the oil by agreeing to restrict prices, Chidambaram told energy ministers in Jeddah, Saudi Arabia, according to speech notes e-mailed from his ministry.
Crude oil touched a record $139.89 a barrel on June 16 as investors bought commodities to hedge against a weakening dollar and concern mounted that demand is growing faster than supply. Chakib Khelil, president of the Organization of Petroleum Exporting Countries, said today there isn’t a supply shortage.
“Surely demand and supply cannot explain what has happened over the last 12 months,” Chidambaram said. “Oil prices were $70 a barrel in August 2007 and how is it that they’ve doubled when there has been no dramatic change in demand?”
Oil prices surged as financial institutions invested in the commodity through “unregulated and highly opaque” transactions, he said. " Bloomberg
———————————————————-
Chidambaram is a socialist to be sure, but his emphasis on the role of "concern" in this matter is well placed. Engdahl’s article is good background on this whole business. pl
http://www.bloomberg.com/apps/news?pid=20601080&sid=a1soSwhkWDkI&refer=asia
This hate fest on “speculators” as of late is getting out of control.
Why are oil prices so high? Ask Bernanke. Oil is denominated in dollars, and in case no one has been looking, the dollar isn’t doing so great.
People that blame speculators for the price of oil clearly don’t understand markets.
If the speculators are all so wrong, and so evil, just take the other side of their trades.
Actually, you CAN have explanations, based on classic supply and demand, for the very fast runup in prices. [1]
When supply oustrips demand, the price is effectively the marginal price of production: hwo much does the last barrel cost.
But if demand ever exceeds supply, then the price rises to balance supply and demand: how much is a person willing to pay.
If demand is elastic, prices won’t rise much (instead, usage will drop).
But demand for oil is VERY inelastic, which means you can get nasty pathologies when supply crunched, including, among other things, non colusive market manipulation (where some suppliers, acting independently, withhold production to increase prices still further, a’la Enron), massive price increases (especially when short term demand is REALLY inelastic, but long term demand is more elastic), etc.
It is of concern for the Saudis etc, however. A good drug dealer doesn’t want to price the victims into sobriety and, if demand dropped enough to return to the demand-constrained mode (which could be as little as a few percent, supply is constrained but not by much), price would collapse.
Likewise, there is a lot of technology (solar, wind, nuclear) on the electricity side which has huge capital cost but very low per-watt production cost, so they don’t want the competition to build up, because thees competing energy sources, once built, are cheap to keep running. The last thing the saudis want is GigaWatt solar projects in the California desert.
[1] I’m largely in the Krugman/CaluclatedRisk/etc “Speculation can’t do (much) to a spot market without storage” camp.
The official U.S. standpoint:
US energy chief says ‘speculators’ not forcing up oil prices
The U.S. is trying to make the world pay to for repairing the balance sheets of its banks.
The so-called analysis you reference by Engdahl is clueless and misses the point entirely. In trying to prove everything is manipulated, he proves only the depth of his paranoia.
I suppose if you are a firm Marxist, then railing against those “evil speculators” is the easy road to take. If they were shorting oil and drove the price down to $20, would you then cheer them?
I noticed the silence was deafening during the years when the price of oil was falling or stable. It is only when the price rises that all of a sudden the “forces of evil” are to blame.
Either we are in a free market, or not. If it is OK for the price to fall some times, then it has to be OK for the price to rise as well. There is no “one-way” capitalism.
I think many here bring their innate prejudices to a discussion on what is a business transaction – every sale requires a willing buyer at that price.
There are a host of factors now combining in a “perfect storm” for energy and commodities, and it would take many pages to enumerate them all. Perhaps the greatest portion of “blame” should be assigned to incompetent Government in Washington. The policies of the FED in encouraging bubble-blowing, prime example.
The fact is that we passed Peak Oil in 2005, and are now on the back side of the slope. The price will only continue to rise, and supply will shrink. These are the underlying fundamentals.
In fact, everyone in the West is to blame, for building a civilization on cheap easy energy that could not last. Every SUV and Hummer driver. Every consumer who buys cheap plastic (oil) goods from China, or a salad that was trucked 1740 miles to your table. That guy in the mirror.
Simplistic “blame” just proves to me proper analysis was not done. Spend some time reading up on the actual state of the world energy supplies, and you will realize how deep the problem is.
I recommend ‘The Oil Drum’ as the best source of unbiased info from industry insiders. No superficial blame, just the unpalatable facts.
Engdahl calims that speulators and traders have moved the price of oil far above where it would be on fundamentals of supply and demand. The implication is that in bidding up oil traders are making huge profits.
Take a look at Morgan Stanley’s most recent quarterly earnings. Were it not for a gain on the sale of a Spanish brokerage business and its interest in the Barra index business. They lost money on trading. If Morgan Stanley has not made much money taking oil from $60 to $135, why would they be manipulating the price of oil?
The reasons for high oil prices are a tight supply demand situation. a weak dollar, and fear that Iran will disrupt supply if it is attacked.
ok. so the big guy are start preparing for the big implosion. The Iran war talk start to get serious. (And this is truly dangerous since the global financial system can’t take it.)
The minute pentagon gives Israel “friend or foe” electronic key. The entire shebang will collapse. (oil spike, dollar run, large financial house collapsing, major trading pattern change.)
http://www.leap2020.eu/GEAB-N-26-is-available%21-LEAP-E2020-Summer-2008-Alert-July-December-2008-The-world-plunges-into-the-heart-of-the-global_a1800.html
5. Latin America: Difficulties increase but growth remains steady in most parts of the region, Mexico and Argentina in crisis
6. Arab world: Pro-Western regimes go adrift / 60 percent risk of socio-political explosion on Egypt-Morocco axis
7. Iran: 70 percent probability of an attack by October 2008 confirmed
8. Banks/Speculative bubbles: When bubbles collide
Uncle ‘S’ on She-Who-Must-Be-Obeyed’s side of the family retired from Lehman Brothers. He advised a few years ago that Wall Street is shorting everything to maximize their returns in this cruddy environment.
So, until long-term returns become attractive again, what will be the next bubble if they successfully pop this one?
It will be greatly appreciated if someone could let me know…I want to retire at 55 and those prospects have been dwindling the last 4-5 years!
I suppose Chidambaram is a socialist – I really don’t have insight into Indian politics – but so will all the other oil and finance chiefs from the different countries if they agree to price controls. But Chidambaram has a good point – supply & demand have been evenly balanced for couple years.
Speculation I believe is a convenient whipping boy to explain high prices. No doubt it has a role to play but I think the situation is more complex. What role does the Fed and its policy of trashing the value of the USD have? What role does the US deficits have? What role does Cheney’s Middle East bellicosity have? What role does perception of lack of swing capacity for light sweet crude have? What role does the perception of increased demand from China and India have? What role does large fuel subsidies in China, India, etc have?
If the cause is just speculation it should be relatively easy to knock prices down a bit – reduce fuel subsidies, increase margin requirements, reduce ME oil disruption perceptions by categorically stating no attacks through the end of this year, and of course, IMO, the big elephant, get the Fed out of the “crony capitalism” Wall Street bail out business and raise rates. Speculators will run for the hills!
In the news today there is an article regarding this so-called summit with U.S. Energy Secretary Samuel Bodman stating that insufficient production, not speculation is the cause of high oil prices, and practically DEMANDING the Saudis increase production. He claims “There is no evidence that we can find that speculators are driving futures prices..” for oil.
I guess not when its OUR speculators running up the prices. Geesh, is he TRYING to piss off our so-called ally, the Saudis? Who sent this idiot over there anywa, oh, thats right, Georgie did, will we be hearing a “Nice job Sammie” when the SA’s get ticked off and decide that it’s the U.S. that needs to get its house in order, and not the producing nations increasing production to satisfy their “Most Spoiled Customer”?
God, I can’t wait until we see the backs of these clowns.
I’m mostly with verc on this issue. I appeal to the authorities that have studied these issues most of their lives, such as:
Michael T. Klare: Anatomy of a Price Surge http://www.theoildrum.com/node/4189
As far as opacity in the market place its my understanding that Saudi Arabia hasn’t had outside analysis done on their reserves for quite some time. There are good reasons why such a large oil supplier, in this part of the world, would want people to believe they have move reserves than they actually do–power first comes to mind.
Look at other large suppliers that are post peak, the US, Mexico, Britain, for example and you realize these fields are finite. They may vary by 20-50% in their productive life but not 200-500%.
Oil isn’t running out but “easy” clean oil doesn’t seem to be keeping pace with demand. This though will change, the big story in three months will be demand destruction, and the price will follow.
“If the speculators are all so wrong, and so evil, just take the other side of their trades.”
Great idea, I’ll just take the billions of dollars at my disposal and do just that, rather than joining the speculators to make a quick buck.
verc’s rant is the ugly Janus head of the investment community that only occasionally shows itself–publicly, people are wooed with shiny brochures, ads and promises galore; privately, they are stupid marks who deserve to have their money taken. Anybody who disagrees with this assertion would likely have you believe that Enron was an isolated incident, a few bad apples, etc.–uh huh.
The shiny utopia of Wall Street bears little resemblance to its reality; free markets are supposed to run on information, transparency and accountability, yet unregulated ICE trading, hedge funds and Fed bailouts tell a much different story.
verc’s elitist insider advice is the kicker; cabdrivers, truckers, and the middle and lower classes who are suffering needlessly due to unregulated speculation by insider leeches simply need to call their broker and short oil futures–brilliant!
What if all this speculation is totally justified? The question becomes: what are speculators speculating about? What if “those in the know” have been led to believe that Bush will bomb Iran? That event would certainly trigger a dramatic price rise, which could be factored into today’s futures pricing.
I have yet to see this explanation explored anywhere, but from where I sit, it looks totally reasonable.
One of the major “unknowns” for the Bush administration is determining how high the price of oil might go in the event of an attack and then, how much damage it might do. If the current speculation addresses both issues to the satisfaction of the Bushies, they might well determine that the damage might not be so bad after all.
In fact, the more dire scenario–from the view of Bush’s cronies–would be to not attack Iran, which would lead to the bubble bursting, leaving these beloved cronies holding the bag.
If this scenario is correct, you still have to wonder how well the markets can really price in an attack on Iran, and how much further oil prices might rise, and how much additional damage might be incurred by industrial economies.
the label ‘speculators’ is nothing more than a pc term for ‘bookies’.
Oil speculation seems largely a bet on U.S. foreign and economic policies. And the smart money indicates low expectations in both departments. This is especially so in the waning days of the Bush administration.
Colonel,
The Oil Bubble grabs our attention when filling up. But other unexpected price shocks strike daily when shopping. Your home is worthless when no one will buy it. Flying is an ordeal, Failing Airlines, Failing Government. One can relive a never ending neo-colonial war, all over again.
The unifying theme is the failure of the American Federal Government. The instant the USA has a national transportation policy, establishes a 10 year program of Energy Independence, withdraws from the Middle East and balances the budget; the price of petroleum will plummet.
Worth a read.
Why is oil so high? Pick a View.
Wait a sec, the “ten dolla me luv u long time” is in the gutter v the Euro, why am I paying $8.50 over here for a gallon?
PS: PL, I tried to tip the host via credit card, didn’t work, I’ll try later.
I agree with Vietnam Vet.
U.S. economists, U.S. Federal politicians, U.S. Federal Government, U.S. media, U.S. industry and U.S. consumers all operate on the premise that both world resources and American power are infinite. To argue otherwise is to be labelled Un-American, lefty and tree-hugger. I do not care whether the price of oil is manipulated since eventually the manipulation falls apart. What I care about is the strength and resilience of our U.S. society where our fiscal, environmental and societal/social/legal resources are shared and responsibly husbanded.
The majority of Europe is dealing almost aggressively with peak-oil, global-warming, resource contention while all we are interested in is resource exhaustion. (Europe is sharing in our growing xenophobia, though.)
So, instead of all this finger-pointing, instead of listening to these fleeting grandstanders in the Treasury Dept, in POTUS, in the house of Saud,… none of whom have any one’s interest at heart other than their own, cannot we not find a leader who will turn this country from one of rampant consumption into one of sustainable production for ‘we the people.’
Summary: If it is a ‘bubble’, it will burst. If it is peak-consumption, then WE need to adapt. I believe we need to start adapting now. We are trailing the world.
India’s energy policies are even worse than the U.S. Even now Naxalite (sic) party strength grows in over 1/3 of India. India subsidizes energy but fails to understand where that leads. Possible that open challenges to India’s government will be led over energy issues, demands for even more subsidies even though destructive in short and long run for India. Just as US politicians don’t want to or can’t adopt toughminded energy policies even worse for Indian politicians.
For various reasons, insiders I know put the floor at $80 bbl for reserve replacement with costs going up due to a lack of infra structure (guess how many petroleum geologist graduated last year? A few hundred, but thousands are set to retire.) lack of boats, other exploration platforms, etc. If growth slows down in China and India, then supply could catch up in five to ten years. Maybe.
Looking,looking for a greater fool. Until!
I have to say I find it a bit odd that while a good number of people here will write with their hair on fire about how Bush and/or the Israelis are intending on attacking Iran, we then also see so much of the sentiment here that no, the fundamentals of the oil business don’t account for the current prices.
In essence, isn’t this a bit like saying “oh yeah believe me the apocalypse is coming, but damn those who not only agree with me but also then actually act on same”?
Put it this way: Not long ago a few nasty remarks appear to have been all it took to send Pelosi scuttling to pull a pending resolution saying that Bush needs Cong. authorization before he attacks Iran. And then Olmert comes to town just a week or so ago and talks embargo on Iran, which of course is an act of war. And, seemingly obligingly, no less than 90-some Republicans and 70-some Dems in the U.S. House of Representatives promptly co-sponsor H. Con. Res. 362 (a sense of the House resolution that could come up for a vote as early as next week some say), that essentially calls on Bush to organize and institute an embargo and makes no mention even of first getting a U.N. resolution supporting same.
So if your livelihood were on the line just how sanguine would you be about the prospects of calm future sailing over there?
Seems to me you can’t have it both ways saying aha, Bush is responsible for introducing extreme uncertainty in the Middle East of a possible conflagration, but then at the same time saying no, those evil oil people really got nothing to be scared about in the future (when their oil contracts are to be filled) and are just simply gouging.
If anything, the current price might give pause to those (like moi) who don’t think there will be any attack on Iran by the U.S. or Israel in the near future. Certainly the market seems to think something’s in the air.
Cheers
Good god please let these silly summit’s take a nice chunk out of the oil market. I’ve got cash to put to work and if these fools want to pretend they can make a difference all the better.
Pick one: The price of oil stays high and keeps rising, or the global economy crashes. That’s what will lower the price. Not jawboning.
The Nigerian guerrilla group MEND, which has been conducting attacks on Nigerian oil facilities, has declared a unilateral ceasefire.
According to CNN:
Fairy tales (from so-called socialists and capitalists) about abstract “markets” and “economic models” notwithstanding:
Speculative activity involves financial transactions. Such transactions as undertaken by institutions such as hedge funds, banks, etc. can be observed and traced. People execute these transactions and they, and their places of business, can be traced and tracked. This is a matter of economic and financial intelligence collection and analysis.
We do this in counterterrorism and in counternarcotics work. Sophisticated high tech forensic capabilities are available to deal with “financial crimes.”
Glance over the US Department of Treasury FinCen website for an orientation to this area:
http://www.fincen.gov/
Its mission: “FinCEN’s mission is to enhance U.S. national security, deter and detect criminal activity, and safeguard financial systems from abuse by promoting transparency in the U.S. and international financial systems.”
There are national security issues here involving our national economic wellbeing. It is not just about networks of 20 and 30 something traders with grams of coke up their noses working for some “offshore” cosmopolitan gnomes and their allies and business partners in the US government.
News item from the conference:
“The transparency and regulation of
financial markets should be improved through measures to capture
more data on index fund activity and to examine cross-exchange
interactions in the crude market,” the statement said, according
to AFP.
TomB
That is, indeed, a possibility – but it would require an accompanying accumulation of crude oil inventories to be substantive; at present, there’s a good deal of crude oil inventory shedding going on if the EIA/IEA is to be believed.
Of course, it’s also possible that Mr. Market is telling us, among other things, that if we want lower oil prices then the US will have to get off its high geopolitical horse and accept that it’s no longer feasible to dictate preconditions before cher Condi will sit across the table from the Iranians.
“Jeddah Summit fails to end oil price uncertainty”
http://www.ameinfo.com/161328.html
“The hastily-convened summit on the global oil price situation, held in Jeddah on Sunday, failed to lessen global markets’ anxieties over the continuing increase in the price of oil. Despite being well attended the meeting left leading Opec member nations at odds over how to deal with the situation.
the two facets to the oil price debate. The US and the UK, among others, are desperate for Opec to raise output, hoping that this will calm market fears and allow prices to settle.
The major producers, on the other hand, place the blame for the soaring prices on speculators, saying that simply increasing output will have no effect – it is the markets which need to be controlled.
The meeting ended with no new announcement by delegates. The official Saudi confirmation of a 200,000 bpd increase was swallowed by the news that renewed attacks by Nigerian rebels had forced the closure of pipelines in the country’s delta region.
As though to prove this, the price of crude oil rose above $136 a barrel, close to last week’s high mark.
The increase was accentuated by Venezuela, Algeria, Iran and Qatar all saying that they would not raise production, on the grounds that the global supply was enough to meet market demands.
Libya went so far as to announce that it would consider reducing its own production in response to the Saudi increase.
With major oil companies forced to cut down Nigerian production, increased tensions between Israel and Iran, and no common agreement on what the next step for global economies in response to the crisis could be, the price of oil looks set to continue rising in the short and medium term.
When asked if he thought that prices looked likely to fall following the meeting, Opec President Chakib Khelil summed his feelings up with one succinct phrase: ‘I don’t think so.’ ”
Neither do I.
Spot Crude Oil, as at 10:32AM EDT Mon June 23 = $136.67 +1.31 +0.97%. One year forward price prediction = $177.67
http://www.oil-price.net/
In response to a post of mine essentially suggesting that we’re not seeing … “undue gouging” (for want of a better term because, after all, speculation goes on all the time with any number of commodities without gouging) but instead simply the market’s collective judgment about the future supply of oil given the tensions in the ME, londanium wrote:
“That is, indeed, a possibility–but would require an accompanying accumulation of crude oil inventories [except that] there’s a good deal of [] inventory shredding going on….”
Interesting, but I’m a little confused about what you’re saying because if inventories are down doesn’t that *support* the idea that traders are just that much more concerned about the future? (And that it’s therefore even *more* likely that the current prices are indeed simply a reflection of their uneasy collective judgment about same?)
But then there’s that “but” in your sentence, so I’m confused.
(And if you are indeed saying that there is a lot of undue gouging going on and it’s not just the market, then where and how do you see it as not working/being subverted? Given that it’s the producers in Jeddah trying to get the prices down (to their more usually desired, admittedly “artificial” cartelized price), it doesn’t seem to be them, so how’s this being done exactly? I see a lot of people just blaming “speculation” generally, but I sure ain’t seeing any descriptions of just how exactly this is supposedly working—although of course that’s not to say that it ain’t. But without at least some explanation and evidence I don’t see why it isn’t just exactly what one would expect given especially the uncertainties that exist in the ME.)
Cheers,
The laws of economics apply in the present case — they just get a bit muddy because there are many factors in play simultaneously (break out the multivariable calculus!), and because several of these factors conspire to create a perfect storm for price hikes.
The main problem is the lack of alternatives to light sweet crude. McCain wants to build dozens of new nuclear power plants, but crude supplies and nuclear electricity supplies are almost completely uncoupled in the marketplace (the latter provides base load electrical generating capacity, the former provides liquid fuels for transportation, primarily for motor vehicles and for aircraft, including the military).
So until we start fueling everything from B-2 bombers to family SUV’s with electricity, all the nuclear power in the world won’t help reduce U.S. demand for crude oil.
The lack of accessible alternatives drives down the elasticity of demand for crude (think “monopoly” for the general idea), while the tight supply drives up the price. And since the relationship between demand and price is nearly vertical (i.e., small increases in demand produce very large increases in price), increasing aggregate demand at the global scale yields both high prices, and an obvious incentive to speculate.
The answer, as is always the case in such economic circumstances, lies in developing alternatives to increasing use of crude oil, including the ultimate fall-back alternative of demand destruction (which we’re beginning to see now). A good passenger rail system, hybrid vehicles (especially plug-in versions), better land-use planning to encourage alternatives to driving, reining in the profligate use of fuels by the military.. all of these things will help greatly in removing the windfall profits from speculation, and in reducing demand to the point where we don’t see people at the margins (both in the U.S. and abroad) being forced to choose between gasoline and food.
Solving the problem of world energy use is going to be really hard, but fixing what’s wrong with the current mess isn’t — it doesn’t require rocket science.
It just takes leadership, and not of the kind you get from oily men like Bush and Cheney.
The Nigerian story remains open. Despite MEND’s announcing a unilateral ceasefire, Nigerian oil workers now are going out on strike.
The timing of all this is, of course, very interesting.
Supply of oil will remain constant and then fall gradually.
Demand will plummet.
Prices will go down.
If you don’t have a job, you can’t buy much gasoline.
Sounds simplistic. Ask the thousands being laid off every day. They’ll tell you exactly how simple it is.
i agree fundamental are involved
but
just look at the ratio between consumption and oil futures contracts
this year, running at over 5 to 1
http://blogs.reuters.com/globalinvesting/2008/06/06/growth-in-oil-futures-outpaces-oil-consumption-2/
Just an interesting download from the NeoNutties which may explain why the markets are going crazy:
http://www.washingtoninstitute.org/templateC04.php?CID=292
Since we’re talking about oil, can we revisit some previously held assumptions? I’m interested to hear reactions about the new Iraqi oil deal, especially from those (ahem, cough, PL) who have maintained the Iraq invasion wasn’t really about oil:
http://www.nytimes.com/2008/06/19/world/middleeast/19iraq.html
http://www.tomdispatch.com/post/174947/finally_the_oil_
Tom hits on an interesting point, that these are ‘no bid’ contracts, which are in vogue with only one well-known political group; Is this really happenstance?
Anent speculators and perpetrators of fraud and assorted financial crimes:
Current FBI investigation into mortgage scams.
“Some of the leading investment banks on Wall Street and their senior executives are now thought to be in the frame over the collapse in the market for mortgage-backed securities which has left them with hundreds of billions of dollars in losses.”
http://news.bbc.co.uk/2/hi/business/7470381.stm
Remember the salad oil swindle?
http://en.wikipedia.org/wiki/Salad_oil_scandal
How about Mike Milken and the junk bonds?
http://en.wikipedia.org/wiki/Michael_Milken
And Tiny Tim tiptoeing through the tulips?
http://www.tinytim.org/
“One of the major “unknowns” for the Bush administration is determining how high the price of oil might go in the event of an attack and then, how much damage it might do. If the current speculation addresses both issues to the satisfaction of the Bushies, they might well determine that the damage might not be so bad after all.” JohnH
But the NeoKlowns don’t realize that the current prices will just be the ‘base’ from which prices will rise if there is a strike against Iran. Can you say $300/bbl oil? Can you say $9.00/gl gas? Can you say Economic Train wreck? The economy will hit the wall real hard.
“So until we start fueling everything from B-2 bombers to family SUV’s with electricity, all the nuclear power in the world won’t help reduce U.S. demand for crude oil.” Cieran: Nuke power would help, but not in the short term because it will take about 10 years to build the plants. The reason is because we have many oil & LNG fired power plants in this country (I don’t have the exact figures at hand, sorry), altho I think that if they were all replaced with nukes it would only make a slight difference in
our oil consumption, which is mainly for transportation. Conserving is really the only option, but “Not MY gas guzzler!”
Here is a a basic summary about speculators and what they are not doing from the Institute For Energy Research:
http://www.instituteforenergyresearch.org/wp-content/uploads/2008/06/oil_speculators.pdf
i was checking wikipedia as part of background reading in trying to understand yesterday’s doubling of the price of iron ore and i encountered this paragraph
“Iron ore reserves at present seem quite vast, but some are starting to suggest that the maths of continual exponential increase in consumption can even make this resource seem quite finite. For instance, Lester Brown of the Worldwatch Institute has suggested iron ore could run out within 64 years based on an extremely conservative extrapolation of 2% growth per year.[3]”
i think lester brown’s phrase “maths of continual exponential increase in consumption can even make this resource seem quite finite” may well be the “phrase of an emerging era”
the current and fantasized chinese economy is a behemoth
this change in the world order encourages the use of “maths of continual exponential increase in consumption can even make this resource seem quite finite..”
TomB
If you cast your mind back a couple of weeks, you may dimly recall that Friday when Shaul Mofaz helped move the market by $10 simply by moving his lips ( I hope his friends in Teheran – he’s of Iranian extraction – or Russia, placed a nice gratuity in a Swiss bank account ).
If I’m not mistaken, this past Friday we had the “revelations” of Israeli attack planning, and a $5 bump. Two points make a line, but a third would suggest a pattern – I wonder what we’ll see this Friday, when market sentiment is generally skittish about going into the weekend short? It wouldn’t surprise me if the Bush administration spent the past two weekends fielding irate calls from some of their business buddies demanding that they at least tell the Israelis to STFU.
I’m not in the undue gouging/speculative excess camp, but markets do, quite legitimately, price in forward risk, and the fear premium is currently on a rising trend. The markets are posing a complex geopolitical question about the willingness of the US political class to do the necessary ( ie talk ) with Teheran – in return they’re offering a softening of prices as the fear premium deflates.
That said, commercial users are shedding inventory, not out of choice, but for financial reasons – at prevailing price levels their finance and insurance costs are skyrocketing, their working capital is under pressure ( and that’s during a credit crunch as well ), and there is the generalised dread of holding excess stock that can fall in value quite rapidly, so they have to run as leanly as possible, which means that any excess inventory is being worked out of the system.
I think that there are a multiplicity of factors in play at present, and that the markets are simply reflecting an increasing degree of chaos.
For W.R. Cumming:
http://www.livemint.com/2008/03/13010555/Net-cost-of-India8217s-petr.html
“In rupees, the share of petroleum crude and products in total exports has risen to 17.64% during April-October 2007-08, from 16.16% over the same period in 2006-07. Growth in exports as measured in rupees, in the same period rose 17.54% to Rs61,809 crore.
“India has excess refining capacity and our oil exports would go up by 2012. This would enhance India’s position as a global refining hub,” said Vijaya Katti, professor and chairperson, Indian Institute of Foreign Trade.
India will add 2.14 million barrels per day (bpd) to its existing 2.98 million bpd capacity by 2012.”
You can draw the inference.
As noted in a previous thread, petrol in India costs $5.77 a gallon.
From Jan 2008:
http://www.theagni.com/2008/01/are-petrol-prices-in-india-cheap.html
“Thursday, January 10, 2008
Are petrol prices in India cheap??
($1 = Rs.39, approximately)
Recently, I had been going through a number of articles in Indian media, claiming that oil companies are losing Rs.9/liter of petrol due to global oil price rise. The reports seem to convey the message that Indian motorists are somehow paying very low than what they should. Reality is otherwise, as I noted in one of the earlier articles here.
Indian motorists pay around Rs.52/liter ($1.3/liter or around $4.93/gallon). Do you think this is subsidized and cheap?? See what India’s peers in far more wealtheir nations with greater purchasing power pay in CNN.com. I think the petrol subsidy debate is misguided, because of the absence of discussion of taxes. Are Indians paying less for Petrol than we living in the US? I fill my tank at $3.2/gallon (before getting 5% cashback with my credicard) because my state of washington has one of the highest sales taxes, but it is still equivalent approximately Rs.30/liter which is half what an Indian motorist pays in India. Does it mean 76, Chevron and other places where I fill gasoline from are making losses?? Looking at their stock prices doesn’t make me think so. US oil companies are having windfall profits.”
Thank you very much for this info.
If a person is lucky, every so often he’ll come across a work that opens his eyes to new vistas. The work of F. William Engdahl does just that. Absolutely fascinating. I don’t yet know if he reflects an Austrian economic view but, in another one of his essays, his description of the Anglo-American banking system in the 1920’s is riveting, as it casts history in a different light.
Also, for what it is worth, J. Nadler at Kitco today echoed very much the same theme raised in the Engdahl essay referenced in this thread. Here’s the Nadler commentary titled, “2 dollar gas in a month.”
http://www.kitco.com/ind/nadler/nadlerjun242008.html
The Global research website looks cutting edge. I hope to spend some time to try to determine its view on globalization. Again, thanks.
I have been out for a few days in a major city for the oil business — Houston, Texas — where ironically the price of gasoline is higher than in the smaller, non-oil city of San Antonio.
The Number One Clue that something rotten is going on is that people talk in terms of one price for oil for the whole world.
None of our brain-dead (or complicit) politicians and “news reporters” seem to be talking about why that is.
Like sex, drilling for oil (sorry, bad play on words), getting it out of the ground when you strike it, transporting it to refineries and other processors, transporting gasoline to filling stations, and who pays who (or whom) and how, all along the way, are physical acts invented by human beings. This means that the system is not complicated; rather, it consists of lots of little detailed acts that can be traced through. There are no mysterious processes, like the moment of conception.
Part of the mechanical process that results in some prices for petroleum is another man-made system euphemistically called “commodity exchanges”. The ones that matter are located in New York City and London, England. The big problem is that at the “exchanges”, nothing is exchanged, except paper, or usually today, entries on a computer hard drive displayed on a screen. I have heard that you only have to put down about six percent of the face amount to be paid under the “contract”, and can “borrow” the rest “on the margin”.
This “paper” is usually called a “futures contract”. The theory, which is not the practice, of a commodity exchange is that a business person can get some predictability into his or her operation by entering into a contract to buy a needed commodity at a particular price at a particular time or over a time period. That way, the costs of your business can be managed better.
If you and I build a factory to make cars, and even if we are going to manufacture the parts in-house, we will still need to buy things like steel, glass, wire, plastic, rubber, and so forth. So we will go to businesses that have these things to sell and try to make contracts to buy the commodities at specific prices over time, in order to predict our costs and be able to price the cars we build to sell to the public. We expect to take delivery of the commodities so that our factories can turn them into car parts and then into the cars themselves.
Do you see one big fat difference between a real business process of commodity buying and what goes on at the so-called “commodity exchanges”?
Two words.
“Take delivery”.
The U.S. Congress has proposed dealing with the problem of the commodity exchanges by ways as effective as a one-legged man in a pants kicking contest.
The U.S. Constitution gives Congress the power to regulate interstate commerce in Article I, section 8.
The transactions on the New York commodity exchange, we can safely say, are interstate in nature.
Congress can pass a short and simple law. If you enter into a contract at the commodities exchange for a commodity, you, and no one else, will take delivery of it.
Like their cousin the stock market casino, the commodities exchanges produce nothing and are not markets; they are cleverly designed organizations that play reverse musical chairs with money. But they are much more harmful to the economy and to real people than the public stock market, because they play a role in setting prices that have a real effect on many real people, as in gas prices as opposed to the “price” of Ford Motor Company stock.
The commodities exchanges are part of the pricing racket in the oil and gas realm. The other part lies in the relationship between the countries with large petroleum reserves, especially in the Middle East, and a few large oil companies, and how that relationship is physically implemented.
I will again seek to promote a book by Stephen Pelletiere, entitled “Iraq and the International Oil System”, with ISBN number 027-5945-626 (original hardcover), and 094-4624-456 (paperback, 2nd edition). The book describes much history of oil and gas production in the Middle East. It includes a description of a trip to Iran by representatives from the U.S. and (I think) Britain to Iranian Prime Minister Mosaddeq who was planning to nationalize Iran’s oil. They tried to explain to Mosaddeq the intriguing fact that “there is no market price for oil”. Mosaddeq went ahead and nationalized Iran’s oil, and the U.S. and Britain (and others?) plotted a coup against him that was successful. He was overthrown in 1953. This was reversed in the 1979 Iranian revolution, and the rest is not history, but the present.
Thanks neocon. I like my $6/gal gas.
http://news.yahoo.com/s/nm/20080626/bs_nm/markets_oil_dc_7
Oil hits record over $140 as Libya mulls cuts
SINGAPORE (AP) — Oil prices climbed to a record above $141 a barrel in Asian trading Friday as the dollar’s protracted slump prompted investors to flock to oil as a hedge against inflation.
Speculators?
More anent oil:
“Oil has set new highs the last three days as money managers bought futures, shunning stocks as global equity indexes fell for a fifth week. Crude may rise further next week, according to analysts surveyed by Bloomberg.
“Investment demand has been driving prices higher,” Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt, said in a television interview. “Longer-term pension funds, investment funds, but also banks and insurance companies are pouring their money out of the equity market, out of the U.S. dollar and into commodity markets and especially oil.”
“The fewest Americans in three years will travel over the July 4th weekend as record gasoline prices and a slowing economy force consumers to curtail spending, according to AAA, the largest U .S. motoring group. U.S. gasoline demand, which typically rises at this time of year, fell a 10th time in the week to June 27, according to data from MasterCard Inc.
http://www.bloomberg.com/apps/news?pid=20601082&sid=abV_6aXyXQ.s&refer=canada