“There Will be Blood” Part 2 – Futures speculation and the price of crude

Home_sbs_0105 "The commission said it is investigating potential abuses in the way crude oil is purchased, shipped, stored and traded nationwide, but did not reveal details. Also on Thursday the agency announced a handful of other initiatives designed to increase transparency of U.S. and international energy futures markets.

For example, the trading commission said it will immediately require monthly reports from institutional investors who manage funds designed to mimic the price of crude oil and other energy futures. The goal, the agency said, is to identify the amount of such index trading and to "ensure that this type of trading activity is not adversely impacting the price discovery process."

The agency also said it has reached an agreement with its British counterpart and with InterContinental Exchange Inc.’s Futures Europe to expand surveillance of energy futures contracts with U.S. delivery points, including the benchmark West Texas Intermediate crude, which trades on the Nymex."  SFGate


I have thought for some time that the recent catastrophic rise in crude prices is not directly related to long term supply and demand issues, although those are certainly there in the background.

No, there is a short term supply problem caused by politically motivated regional suppliers who have found it easy to toy with the spot market enough to encourage traders of one kind or other to drive up prices of future deliveries in what can only be described as a "tulip" scenario.  The announcement of increased surveillance of these traders and their allies in the business intelligence world will stress the "skin" of the bubble and we will see something interesting.  It has already begun.  pl



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35 Responses to “There Will be Blood” Part 2 – Futures speculation and the price of crude

  1. Pat, I think that for crude prices as for food prices, two things are going on. (1) There are underlying market realities– soaring demand and (in the case of food, dwindling supply because of among other things the whole biofuels fiasco– related, of course, to crude prices, too.) (2)There has been a massive flight of capital out of all those shady financial instruments, mainly related to the overheated US real estate market… so since the collapse of that bubble, the fund managers have been seeking a handy place to park their $$, and seeing the interesting (from their viewpoint) prospects in the commodities markets they have been massively injecting their capital into them.
    So yes, undoubtedly in food and in crude there has been a LOT of speculative investment recently. I have big doubts whether the CFTC will find anything significant that they can take action on, however. After all, ain’t capitalism the American way?

  2. Curious says:

    It’s the entire vicious cycle, with oil price part of the chain.
    1. Bush is printing money like crazy (budget deficit, stimulus, war cost, bank bail out) The amount is not trivial and all these money has to be absorb by global economy somehow. But it simply can’t. Not even the european and chinese economy can absorb them all after 3-9% inflation respectively.
    2. on top of that the fed is setting the interest rate at 2% trying to bail out bank after the imploding sub-prime. At 3-5% inflation, no fool is going to put his money in bank. It will vaporize quickly.
    3. so investor are dumping dollar and putting their money in all sort of commodities. Oil, silver, gold, wheat, base metal..anything that doesn’t lost value.
    4. nobody want to put in housing, land deal or stock, since a) price is depressed. b) US economy is imploding, thus stock market is not growing fast enough against inflation.
    It’s stagflation. On top of global economic realignment against dollar.
    here is one example to feel the quickening collapse of banking. (This is handing out money. They are taking the useless real estate backed paper and swapping it with tax payer backed treasury. last year the number was only a third or so. The Fed now only have $300B of reserve.)
    The Fed said it will conduct three auctions in June, with each one making $75 billion available in short-term cash loans. Banks can bid for a slice of the available funds. It would mark the latest round in a program that the Fed launched in December to help banks overcome credit problems so they will keep lending to customers.
    So under nightmare scenario:
    1. The banking system finally collapse. (due to various reason.)
    2. Congress need to step in and assume all the debt. This will increase the budget deficit from $400 to about $5-700B/year. (definitely not sustainable)
    3. The global market start dumping dollar at alarming rate. (it doesn’t take much, $100-200B out of the 4T are released, we are toast. Dollar devaluation by $10-20%)
    suddenly the war in Iraq cost will double or triple. (paying fuel, equipments, transportation, increasing troop pays)
    The entire thing is not sustainable. Watch the number. Somebody better find a solution pronto before gas hitting $6/gallon.

  3. Patrick Lang says:

    American preference for a capitalist economic system has little to do with the existence or non-existence of speculative bubbles.
    Such phenomena collapse of their own weight because the level of price is eventually not supported by reality. pl

  4. b says:

    Hmm – not sure what the Colonel is alluding too.
    Iran parking crude on rented tankers?
    The Saudis holding back some production?
    Both happening now.
    Still the big top is pure speculation. Future contracts have increased 40% over the last months.
    The most serious offender here is the Fed.
    After the dot.com bubble blew, it lowered interest rates and created a housing bubble.
    After the housing bubble blew it again lowered interest rates and created a commodity bubble.
    Every hedge fond and investment bank is having fun in the commodity pit.
    The Fed literally kills people who can’t afford food that goes up with oil prices.
    It was obvious happen. I wrote about last Decenber and again in February.

  5. b says:

    The first time the Colonel posted “there will be blood” it was about Shia politics in Iraq. So what is trying to tell us now. That the gangs in Basra stopped exporting?
    Hmmm …

  6. Clifford Kiracofe says:

    Per tulipmania,
    As I mentioned on a different thread, a senior official of a foreign multinational oil company told me several years ago that his company calculated speculators/hedge funds accounted for about $15 of the then $60 per barrel price.
    I do not know the statistic offhand, but aren’t a considerable number of hedge funds located in the Cayman Islands? And other ‘offshore’ areas?
    Are any of these funds cover operations for governmental (pick one) economic warfare operations?
    “Free” enterprise? “Capitalism?”….or cloaked economic warfare waged by governments via supposedly “private” machinery (“proprietaries”), perhaps?
    The “sanctions” against Iran at present are a form of economic warfare being waged by the US government.
    So what are other governments up to?
    Congress — as usual — has failed in its oversight role and its regulatory role…imparing our economic and financial security.
    “Gentlemen don’t open others mail” or engage in economic warfare? Come now…

  7. zanzibar says:

    IMO, the crude market is not a classic bubble in that the average person is not speculating in it nor have commodity funds become a popular vehicle for the public to invest in. However, your point that there is a large speculative content to the recent price rise is an observation I agree with. If you notice crude futures recently were in contango usually a sign of an impending correction. Spot prices are already moving down relative to distant futures contracts. You will notice this relationship through the 90s and even as recently as late 2006-early 2007 as contango developed crude collapsed from $80/barrel to $50/barrel.
    Part of the speculation it seems is about momentum investing – money flows to the rising asset. In addition there apparently is some real buying as China stockpiles prior to the summer Olympics while crude output has declined a few points.
    But taken as a whole the global economic environment is certainly facing some stiff headwinds and our financial system is still in a precarious state. Unfortunately, our policy and practice of privatization of profits and socialization of losses does not allow the business cycle to work itself out. And the regulators recently seem to ignore enforcement of existing rules when it comes to large political contributors.

  8. jonst says:

    I see govts running the gaunlet from Mercantilism, to Monachary, with professed socialists (Venezuela, and, to a lessor extent, Nigeria)and Fascists (Russia) in between,more than happy to participate, with the Capitalists, in the conspiracy that is the gray market in oil futures. In the end I just call them thieves.

  9. jonst says:

    By the way…for those interested in the alleged speculation going on:

  10. J says:

    living in ‘oil patch’ one learns a few things that so many are not aware of, for example the barrel of that $135 per barrel oil, the poor saudis are only getting $3 or so per barrel, and it costs them roughly $.40 to bring that barrel to the surface.
    it is also interesting and sad how the international petrol exchange in london and their speculators are turning everything upside down and ripping so many off in the process.
    also did you know that our very own alaska crude that the congress ‘prevents’ from being allowed on our ‘domestic market’ even though the original intent of the alaska pipeline in the 70s was to send the alaska crude to our domestic market so we wouldn’t be manipulated by foreign nation/london exchange’s decisions to play the troll. instead congress makes sure that our alaska is prevented from entering our domestic market. and a real kicker, we (spelled u.s. via congress) are selling our alaska crude to canada who in turn is putting a markup on it and then re-selling our own alaska crude to u.s.. real irony don’t you think?
    if it were to come to the point where the only alternative transportation was to go back to buckboard and buggy, all i’d have to is saddle up and go.
    just so you know, the mennonite and amish communities make some really nice buggies, and buckboards.
    we the u.s. are sitting on so much oil and natural gas that is makes your eyes water. and that’s not even getting into all the oil and natural gas that’s sitting in the domestic shale deposits, and that really makes your eyes water.
    there are a number of people whom in my opinion need to go to federal jail cells for their extortion/ripoff/speculations regarding oil and food.
    maybe rep. maxine waters is right, it’s time to ‘nationalize’ our nation’s oil industry.

  11. Fred says:

    I think that we would do well to remember the California electricity ‘crisis’ in 2000-2001 and the collapse of Enron. There strategic decisions to avoid power plant development and reliance on outside power generation (hydro-power from the pacific northwest), coupled with the lack of transparency in creating the trading rules during de-regulation as well as the outright manipulation of the market by constraining supply led to extreme rates, rolling blackouts and political upheaval, including the re-call of then Governor Grey Davis. (http://en.wikipedia.org/wiki/California_electricity_crisis ) I believe similar factors are causing a repeat of this experience in the oil markets, to the detriment of people around the planet and the enrichment of the few. (Only a small portion of this is caused by the strategic decisions such as refinery building and oil field development. ) Combined with this market manipulation are larger economic forces that are de-valuing the dollar and driving inflationary pressures in the US. One has to wonder just who was in attendance at the energy policy meetings hosted by Dick Cheney and just what was said. Why are those meetings so secret that the American people are forbidden to know the facts?

  12. meletius says:

    The Fed bailed out the commercial banks by allowing them to pledge their worthless mortgage backed securities to the Fed for more loans and by opening up the Fed’s borrowing windows to unregulated investment banks (also accepting their worthless mortgage paper as collateral).
    By obtaining funds from the Fed for these worthless bonds, and not having to eat their losses by being forced to sell them to raise reserves, the Fed has allowed these “banking” institutions to take positions in the commodities markets and create this disastrous bubble.
    The goal, I think, appears to be to allow these institutions to make huge profits and regain their solvency on the backs of the world’s citizens and poor.
    And the Congress approves as far as I can tell, and doesn’t raise a peep.

  13. Cloned Poster says:

    meletius, you took my post out of my thoughts, bubble upon bubble upon bubble, perfect storm for an Iran/Tonkin, incident….. the West’s economy is burning alive.

  14. Mongoose says:

    “Puts” and “calls” and derivatives and derivatives of derivatives in securities and commodities have become so complex and arcane that I doubt that those who exercise these options truly understand them. I’m like Socrates (not my favorite philosopher) in the sense that at least I know that I don’t know how all this stuff works.
    I’d be shocked if these investigations and perhaps others (by Congress?) discover any nefarious activities–at least the issue will be so obfuscated by reference to “markets,” and “supply and demand” that nefarious behaviors will be explained or, more likely, explained away to the “satisfaction” of the public (the word “public” itself seems to me to be on the verge of becoming an archaism.)
    Primping and posturing are Congress’ raison d’etre, especially given how secure most, but not all, congressional seats have become. The lack of sound and the absence of fury (save the blogopunditry) except for the occasional faux outrage of Senators and Representatives, regardless of which crisis is under discussion, is indicative of this sad state of affairs.

  15. rst says:

    I found the following articles helpful in tracking these issues over the past few weeks. From newest to oldest, and easiest to densest (densest?):
    1. from an IMF economist and a Georgetown prof:
    2. two from F. William Engdahl:

  16. Steve says:

    I agree that the price of oil nowadays to some extent is primarily a result of speculation, and not underlying supply and demand.
    IMHO, though, it’s still the price everyone pays, regardless of whether the price is “real” or “speculated”. And the economic effects are the same. Money is money.
    What the speculated price means though is that in the short term is that oil supplies may not be as dire as is thought.
    That’s fine.
    But I think it bodes ill to think that there is no long/medium term downside to what is an inevitable decrease in world oil supply.
    Petroleum dependent economies should begin now to wean themselves off the oil teat. It can be done, and should be done. We have the capital and the intellectual capital to do it.

  17. JohnH says:

    Current market conditions certainly seem to lend themselves to speculation. Some reports allege that demand is exceeding supply by 2 MM barrels per day.
    But the current price also discourages investment in new production by the national oil companies who control most of the world’s energy reserves: their budgets are overflowing with manna from heaven without even having to part with part of the bonanza to invest in new production. And every barrel left in the ground today will be worth more tomorrow. So what’s the urgency to produce more, particulary when they keep assuring us that there is plenty of supply on the market already. But it can only get worse unless they start investing heavily in new production.
    So what are you going to do, invade and force them to produce more? Hmmm, we tried that once already. Unless, of course, Iraq is really producing a lot more than we know, which could be the case, since their wells are conveniently not metered.
    As to the CFTC, I’d like to know where they get the legal authority to do what they propose to do, since Bill Clinton exempted them for federal oversight by signing the “Enron loophole” into law as his last gift to America in 2000. As a result, there is no legal way to know just what energy traders are doing. Zilch. They manufactured the California electricity crisis in 2001, so why wouldn’t they repeat it on a bigger scale with oil?
    Meanwhile, Hillary has called for closing the loophole, now that it’s politically expedient. But whre was she when Bill signed it into law in the first place? Is the “Enron loophole” part of the legacy of “experience” she claims? If so, we can definitely do without that kind of pandering to oil speculators.
    The real solution is transparency, so we have the information needed to identify the acutal problem(s). Unfortunately, none of the players seem the least interested in providing providing useable data, the Bush administration being as bad as the Saudis in that regard.

  18. whynot says:

    The price of oil isn’t going up because the Fed has printing press running full steam and turned the dollar into a piece of trash. Or because demand is growing but supply simply can’t keep it up. Or because we’ve turned the ME into a cauldron of death and chaos.
    No, clearly the speculators are driving the price up to get us. Hey let’s investigate them. Better yet, let’s sue OPEC. Bailout nation, can’t change the facts so they turn into crybaby nation.
    It’s all quite comical and sad.

  19. Patrick Lang says:

    Rubbish. People are speculating in oil to make money, the same reason people do anything in business. Are the Saudis willing to screw us a little to enable that speculation? You bet. Why wouldn’t they?
    Investigate the speculators? Sue OPEC? How old are you?
    The oil bubble will collapse when the last speculator loses confidence in his ability to pass the risk on to a greater fool. pl

  20. Twit says:

    “The oil bubble will collapse when the last speculator loses confidence in his ability to pass the risk on to a greater fool.”
    I think this (i.e. a pyramid scheme) is an apt description of our country’s collective mentality over the last few years. While not many are participating directly in the oil bubble, lots have gotten caught up in the IT bubble, the Kool-Aid fear bubble, the housing bubble, the Obama bubble, etc.
    What are we, Albanians? (although at least they took to the streets…)

  21. Bobo says:

    What goes up must come down & Tulipmania are old adages when things get out of whack. For all I know it will go down to $10 or up to $250 a barrel, a year from now.
    Some comments, from individuals who I think know what they are talking about this past week.
    1. We could be looking at $7.00 a gallon for heating oil this winter.
    2. The cost of Transportation will be changing Globalization at these prices. Goods from Asia will not be as competitive as in the recent past. Trading patterns will be radically changing in the near future.
    3. Gasoline & Diesel consumption is down 5-7% in the USA but our excess products are being exported to Asia and South America in volumes never seen before.
    Whatever these comments mean, it bodes ill will for you and I should these prices remain the same for an extended time.

  22. Curious says:

    Oil is at $125 today. So the price went up $10 then going down $10 within a week. That’s 8%. I seriously doubt world energy demand fluctuate that wildly. Global economic growth is only at 3-4% annually, not 8% within a week.
    It’s hot money going in and out of commodities market. (The question: how come there are so much hot money sloshing around like never before? So much that it can affect global oil price to fluctuate 8% up and down within a week?)

  23. Old Bogus says:

    I agree with curious. Tracking the actual M3 money supply against commodity prices reveals an almost 1:1 correlation. The price of oil is not going up; the value of the dollar is going down.
    It isn’t speculation; it’s insurance. Holding dollars is a losing proposition; buy SOMETHING!

  24. zanzibar says:

    Old Bogus
    Dollar depreciation is only part of the answer. Crude has risen even in Euro, Yen and Swiss Franc terms although relatively less compared to the dollar price. So the underlying commodity has got more expensive. Part is due to tight supplies and strong short term demand – although refined product consumption is beginning to weaken in the US. The other part is clearly speculation. All speculation is not bad – speculators do provide market liquidity. However, since they are not interested in delivery of physical product and since humans tend to act in herds the markets also tend to wax and wane. Mean reversion is a good maxim – but forecasting the extent of the pendulum swing on either side of the mean is really unknowable.

  25. Cieran says:

    One has to wonder just who was in attendance at the energy policy meetings hosted by Dick Cheney and just what was said.
    One doesn’t have to wonder. The folks at Judicial Watch FOIA’ed the government and got notes from those meetings that Cheney held many months before 9/11.
    And what were these discussions about? Iraqi oil reserves!
    Go figure…

  26. londanium says:

    Well, according to the actual data that is produced by the EIA, y-o-y US gasoline demand is down about 0.5%, whilst diesel demand is up about 1%.
    The US does export some diesel production ( it actually has a net export balance of maybe 100-200kbpd ) – to customers in South and Central America and the Caribbean.
    US net distillate exports range between 2.5 and 5% of production, depending on seasonal factors, and have been on a fairly sharp downward trend for a good few years now.
    As far as gasoline is concerned, the US is a heavy net importer which relies on well known oil giants such as Belgium, France, Germany and South Korea for a good percentage of its imports. The US’s principal export customer for gasoline is Mexico – via swap arrangements for crude oil. On a net basis, the US imports anywhere between 750kbpd to 1250kbpd of gasoline/gasoline blending components, depending on seasonal factors; this is not exactly indicative of excess production.
    The only substantial net US petroleum exports are residual fuel oil and petroleum coke ( aka refinery waste ).
    On a net basis, the US imports some 2 million barrels of petroleum products PER DAY, on top of 9-11 million barrels of crude oil PER DAY. Of course, the US could do some import substitution – but that would require the US refinery complex to operate at a far higher utilisation rate than the 88% rate that it is currently running at, and this would entail pulling in more crude imports than the it does at present, thereby putting upwards pressure on prices and further increasing product prices.
    It would be unwise to rule out the possibility of greater fool being the “speculator” who sells just as the hurricane season starts.

  27. Curious says:

    The numbers are staggering. (never before, not even during vietnam war)
    Money supply chart
    Price of oil in USD, EURO, Gold.
    1. The budget-busting Pentagon: The Pentagon’s core budget – already a staggering US$300 billion when Bush took the presidency – has almost doubled while he’s been parked behind the big desk in the Oval Office. For fiscal year 2009, the regular Pentagon budget will total roughly $541 billion (including work on nuclear warheads and naval reactors at the Department of Energy).
    The Bush administration has presided over one of the largest military buildups in the history of the United States. And that’s before we even count “war spending”. If the direct costs of the wars in Iraq and Afghanistan, as well as the global “war on terror”, are factored in, “defense” spending has essentially tripled.
    As of February 2008, according to the Congressional Budget Office, lawmakers have appropriated $752 billion for the Iraq war and occupation, ongoing military operations in Afghanistan, and other activities associated with the “war on terror”. The Pentagon estimates that it will need another $170 billion for fiscal 2009, which means, at $922 billion, that direct war spending since 2001 would be at the edge of the trillion-dollar mark.

  28. whynot says:

    In case you didn’t notice, our Congress has threatened to sue OPEC so I’m not sure why you’re questioning my age. It’s our leaders who are acting like children.
    But, I’m old enough to have invested in quality oil companies. And old enough to understand the supply/demand issues of oil.
    Sure, there is some speculation going on in oil, but it alone can’t drive the prices to these heights. If you think there is ever going to be some huge price break than you don’t understand what is happening in the oil patch. And if there ever is a huge break in the price of oil, it’ll be because the economy has completely tanked. So, pick your poison.
    Demand keeps rising, and production has trouble keeping up. More people want what used to be the domain of only the ‘1st-worlders’. The state owned oil companies (Saudi’s especially), don’t have anywhere near the reserves they claim. All the biggest fields are in decline. Instead of blaming everybody for our predicament, maybe we should develop a plan. Solar, electric, anything. But no, we whine and cry that prices are too high. Don’t use so much, and the price will come down. But since that’s not possible, the price will continue to rise. But don’t get me wrong, I’d love to see a nice break in the price. I’ll buy even more quality companies at a discount.
    Whiny, crybaby nation never fails to disappoint. Nothing is ever our fault. This time it’s the speculators and the Saudi’s. I wonder who’s at fault next.

  29. Charlottesville, Virginia
    31 May 2008
    At the risk of being subjected to the Internet of version of being tarred, feathered and run out of town on a rail, I strongly (but respectfully) disagree with the role that speculation has played in the run up of oil prices. Indeed, in some parts of America, saying that oil (and it’s refined products-gasoline, diesel and jet fuel) are still priced way too cheap would be enough to get you burned at the stake by a crazed mob of increasingly desperate SUV owners.
    Please, bear with me for a moment. Think about what a barrel of crude oil will do: it can be refined into a tank full of gasoline that takes you and a 2000 pound vehicle loaded with your family and your stuff several hundred miles in air conditioned comfort. In addition to transportation fuels, a chemical engineer can do some pretty amazing things with that same barrel of crude oil (create feedstocks for plastics, medications, pesticides) making that barrel of crude a very valuable resource.
    Some time back, when I first started reading this blog, I wrote (and the good Colonel kindly posted) a short essay on peak oil, and the coming problems that would face an increasingly power starved (and particularly oil starved) planet (Subkommander Dred Speaks SST, 4 September 2006). Thus, I am not surprised at the increase in oil prices that has taken place in the 20 months since I wrote that piece; they were entirely predictable. In fact, during that time Mexican oil production (a major exporter of oil to the United States) appears to have entered a precipitous and terminal decline (a 16% drop in output from 2006 to 2007). Venezuela, similarly a major oil exporter has seen a 7% decline, this in spite of record oil prices, creating every incentive to pump as much as possible.
    The very disturbing thing about oil production declines is that they are not isolated to these 2 countries. Indeed, within the past 10 years, the United Kingdom peaked in it’s oil production and is now a net energy importer, Indonesia, previously an exporter has recently quit OPEC, and the populations of Russia and Saudi Arabia are increasing their own domestic oil consumption with subsequent declines in exports. Last, but certainly not least, there is a war on. A lot of folks in this country seem to have forgotten that. I know I haven’t.
    At some point, a peak in oil production on this planet will be reached. The fossil fuels reserves on this planet are finite, and 6.5 billion human beings make that fact increasingly obvious with each passing year. Another fact that bears at least passing mention is that both the major oil companies as well as those nationally owned are having to go into far more remote, technically difficult, dangerous and needless to say, very expensive places to drill for more oil. The Tupi field off the east coast of Brazil would be good example. Petrobras SA has hired as many drill ships as they possibly can at extremely costly rates (upwards of $500,000/day) to drill in waters a hundred miles off shore, several thousand meters deep, and then another 3 to 4 thousand meters beneath the sea bed into a salt formation that may or may not produce the 30 billion barrels of oil they ‘hope’ to find. A year or so ago, Exxon spent $100 million to drill an empty hole in the Caspian, and Shell just recently decided that it’s Mohogany shale oil project in Colorado, despite the expenditure of millions of dollars and the leasing of dirt cheap federal land, was not economically viable. We have a world so hungry for oil now that serious talk has been given to turning coal into liquid fuel, which, while technically possible, is never going to give us the amounts of motor fuels that we have been used to. It sure won’t be cheap. The Germans, in desperation, did much the same thing during the 2nd World War. That didn’t work out too well for them. Will we be forced by circumstance into the same desperate measures. Like I said, there is a war on.
    But perhaps I digress. Coming back to the issue at hand; speculation in the oil futures markets and it’s skyrocketing price increases. I don’t don’t doubt that many traders and their clients are making tanker loads of money. But, in the immortal (immoral?) words of Dick Cheney “So?” I mean, this IS capitalism, right? This is how things are supposed to work? There is a demand for a resource, there is a scarcity, those that can pay for it get it, those that can’t pay for it…well, they walk or take the bus. That is, if the local transit service hasn’t cut routes and hours because of the high cost of fuel.
    Right then. It is far too beautiful a morning to sit much longer in front of this damned machine (made of plastics, imported components shipped from another country, powered by electricity…all of which was transported or generated from fossil fuels) so I shall close here. For a much more comprehensive discussion of some of these issues I have addressed, I refer you to the ever interesting and enlightening folks over at http://www.theoildrum.com. Me, I’m just some slightly evolved ape with a computer. Those folks are the real experts. If you want to learn something about oil and energy, they are a useful resource to consult.
    I remain your most humble servant,
    SubKommander Dred

  30. With 70% of total production controlled by NOCs (National Oil Companies) I have yet to see an analysis of how much of the refining and distribution system is controlled by NOC’s. I do note that there is a LUKOL station in Tysons Corner about 3 miles up route 123N/W from the entrance to the CIA!

  31. VietnamVet says:

    Read these comments and you have all the reasons for the spectacular rise in the price of gasoline in the USA. But, just like the basic strategy behind the Global War on Terror “Kill them all and let Allah sort them out” is never discussed by corporate media, the basic premise of deregulation and privatization “Rip’em off and fill up my off shore bank account” is also never discussed by corporate media.

  32. Curious says:

    This is the kind of thing that ends an empire (The British empires pretty much ends, when people start dumping pound for dollar in the 70’s. Middle east and east asia are the one propping up US dollar.)
    But America’s monopoly on the world’s reserve currency may soon end.
    According to a recent Merrill Lynch & Co. report, the U.S. Treasury Department has effectively given Gulf Arab oil producers the green light to break their currency peg to the dollar and instead rely on a currency basket for their financial stability. This report reveals that the Treasury Department issued its own report to Congress admitting that the record inflation rates among Gulf Cooperation Council (gcc) states were, at least partially, because of their currencies’ peg to the dollar. The Treasury also stated that the U.S. government now believes the dollar is strong enough to thrive without the support of the Gulf states. But this green light may well be a harbinger of a massive stampede away from the dollar to other currencies like the euro or yen.
    Merrill Lynch & Co. says that both the United Arab Emirates and Qatar will probably break their dollar peg and move to a currency basket within the next few months. Kuwait already enacted both of these measures over a year ago, and Saudi Arabia may do the same before the end of next year.

  33. jon says:

    Oil prices represent a series of factors, most of which are combining to drive up the price of oil. Oil, like other products, is simply worth what people are willing to pay for it. Americans seem willing to pay $4/gal, or more for their gas. So the price will remain. You can’t expect those in the oil industry to charge less than what people are willing to pay. That would be socialist, or worse!
    The underlying driver is that the world is modernizing rapidly, and India, China and SE Asia are starting to need vastly more energy than they did previously. World population is also rising.
    US consumption has recently started to decline modestly. This may suggest that we have reached to point of price sensitivity, and that people will start to economize, find more efficient ways to use energy, and seek alternate sources. Long term that will help to moderate oil prices. Right now it’s trivial to world demand.
    Oil production volumes appear to be peaking. Oil is a limited, nonrenewable resource. As remaining supplies become more expensive to acquire, pump and refine, yet demand does not wane, price will increase.
    Oil production capacity used to be greater than total demand. Demand is now higher, and small changes in supply, stockpiles and refining will have outsized effects on price. Just like costs of other basic supplies spike locally in the aftermath of natural disasters.
    The fuel requirements of the US military in Afghanistan and Iraq, including Air Force and Navy operations, is roughly equal to the daily production of Iraq. Thus that oil, which used to trickle into the world market is no longer available to buffer demand.
    There is a newfound calculus for the risks of pumping, transporting and refining oil in the aftermath of 9-11, attacks on Saudi and Nigerian refineries and infrastructure, as well as the risks of the Iraq and Afghan wars continuing and perhaps spreading. The potential of a US or Israeli attack on Iran contributes substantially to rising prices.
    Certainly, there is speculation, and probably a good amount of system gaming, collusion, price fixing and other techniques that exploit the underlying dynamic and contribute to rising prices. Oil companies have certainly delayed repairing and expanding refineries, and building new capacity Continuing to fill the Strategic Petroleum Reserve also contributes.
    Oil is denominated in dollars; as the dollar falters against the pound, euro and yen, higher oil prices reflects some value recapture.
    How to bring the price of oil and other fuels down?
    1. Conserve aggressively
    2. Convert energy uses to high efficiency plant, equipment, lighting and transportation
    3. Aggressively construct alternative fuel sources, particularly renewables such as solar, wind and tidal. Many of these techniques are now cost competitive with traditional power generation and proven technologies
    4. selectively invest in oil production infrastructure to remove various bottlenecks in supply, such as refinery capacity, tanker availability, and seasonal plant conversion restrictions to supply
    5. rapidly end conflicts that affect oil producing nations, regions and supply lines
    All of this may not return oil to $1/gallon, but it would bring the price down from where it is today, and remove a great deal of the opportunity for rampant speculation not based on supply and demand market fundamentals.

  34. whynot says:

    Col Lang
    Maybe you should be questioning the age of our leaders who have decided to sue OPEC. They’re the ones acting like children. But, I’m old enough to have invested wisely in oil companies.
    Oil is a demand/supply problem, and blaming the speculators is just more of the same for this country. We’ve screwed up by failing to develop any long term energy strategy, and now that it’s caught up with us we have to blame somebody instead on looking in the mirror. Have speculators pushed the price up? Probably a small percentage, but if the supply/demand metrics weren’t there it wouldn’t be possible. We’re not talking about worthless pieces of paper like tech stocks, we’re talking about a commodity that everybody needs.
    You may get a big break in the price of oil, but only if the world economy goes into the tank. So, pick your poison. High oil prices, or a world-wide recession.
    Personally, I hope there is a nice downdraft in the price. Because it will only be temporary, and it’ll give me a chance to buy more. This country needs to work on solutions, not place blame for its own shortcomings.

  35. Curious says:

    From currency trading floor. (for those who still think “Bush doesn’t hand out cash like candy.”)
    A reader sent me a note about the 1-year auction of Treasury Bills, and said, “This is scary isn’t it?” OK… Here’s the skinny on that… You see U.S. Treasury Sec. Paulson is feeling like he’s been through the desert on a horse with no name these days… The Treasury is going to issue 1-year T-Bills tomorrow for the first time since 2001… With the expanding Budget Deficit, they have no other choice… The cheese that binds here is the fact that Paulson is indicating that the Fed Reserve, who in the past, had been a regular purchaser of the debt, may not be willing to do so… You see, the Fed is focusing on taking on all that bad debt from mortgage lenders… (can you say, “the Fed’s focus is all screwed up?”… I knew you could!)
    Want some proof that our Deficit situation has become completely out of control… How about this little ditty… In the first five months of 2008, the Treasury sold $1.4 trillion of bills, an increase of 36 percent from the same period last year. Oh, but don’t let that get in the dollar bulls way of buying dollars! Deficits Don’t Matter, right? HOGWASH! You and I know that! But these guys running the country don’t believe it… And that’s a real shame, or sham… Pick one, either one applies!

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