Poor Hugo Chavez. After threatening to cut off oil supplies to the US if we so much as dared exert a whisper of influence on last weekends Venezuelan referendum, all manner of opprobrium was visited on him by Americans of all stripes from politicians to editorial writers to just private Joes and Janes like the rest of us. All this after suffering the indignity of being told to 'shut up' the week before by King Juan Carlos of Spain at the Ibero-American summit in Chile, and receiving a further dressing down by Spain's Prime Minister Zapatero. Then, to top it off, the ultimate indignity of stumbling and suffering a stunning rebuff to his bizarre attempt to impose term limits toward becoming President for life by a roused and valiant Venezuelan electorate refusing to be cowed by his bombast and threats.
Compare Hugo's unhappy state of affairs with that of our government's and press' coddling attitude toward OPEC and their media stars. OPEC is scheduled to meet today and will undoubtedly try to regale us once more with platitudes reminding all of their diligence, and their concern for our well being. Their helplessness in the face of monstrous high oil prices will be played out to the point where much of their audience, especially in the media (you need only read the NY Times' "OPEC's Tough Call: Increase Oil Supply or Hold Steady"), will be presenting OPEC's dilemma with such poignancy that one feels only the Salvation Army can properly intervene.
OPEC dazzles us with such pithy nonsense as OPEC's Secretary General el-Badri,"We will add more oil if it goes to refineries" but not if goes into stocks, making as much sense as Campbells telling us if you put more than three cans of baked beans in your cupboard we are going stop delivering baked beans.
An alert and responsive Energy Department would promptly respond by desisting from making any further additions to the Strategic Petroleum Reserve. This should be done loudly and clearly to signal our outrage at this ongoing theater and to further underline our grave displeasure at OPEC's efforts to propagandize the current vertiginous price levels of $80/90 plus as the new norm. To make it clear, that at these price levels there are no longer any valid reasons whatsoever to hold back production while presiding over spare capacity which is generally understood to be some 2.5 million barrels/day.
But the nonsense doesn't stop here. One can always count on Saudi oil minister al-Naimi for a bon mot on most any occasion. He simply denies that short supply of oil has anything to do with recent price increases. "There is absolutely ample supply" he instructed us last Friday from Singapore. "The price movement has nothing to do with fundamentals of the market". Well there you are. Only the OPEC PR department could come up with such fantasy and have the good fortune to have an al-Naimi to run with it to center stage, and deliver it with a straight face. He continued go on to say there is a "mismatch between high prices and oil supplies. Anyone that tells you otherwise is wrong."
Well there you have it. But wait, just wait. Maybe there is something to what al-Naimi is saying. That he knows about and we don't. Remember the price of oil today is not set by trading physical product, actual barrels of oil, which was how oil was purchased and sold some years ago. Then prices for physical product were set at posted levels and contracted accordingly, or each cargo was negotiated separately between buyer and seller, that is to say between oil producer and end user, or on occasion by traders who served as intermediaries and took physical possession of the oil.
Now oil is traded in a virtual world by buyers and sellers trading contracts on commodity exchanges rarely taking possession of the oil, many of whom, I would venture to say most, have never seen nor touched a barrel of oil. These commodity markets are worldwide and the trading is enormous. But they are also opaque, in that anyone can trade without revealing themselves, or through straw men or companies. There is little oversight here and virtually none in exchange platforms overseas. All of which becomes a clarion call for mischief or, better said, manipulation. It takes a lot of wherewithal to tinker with these markets, but it can be done if one has specific goals and the moneyed resources to do it.
And who would be better positioned to push prices ever higher on the commodity exchanges today especially given that the exchange prices today determine the prices of actual transactions for the physical product. Let me give you one guess. Right, OPEC themselves. With their goal of ratcheting prices ever higher, they certainly have the means, given the avalanche of cash flooding their coffers at the rate of some $2.5 billion every day.
Hypothesis perhaps. But let me go back a few years, to 2004. On Sunday, December 12 of that year our peripatetic Mr. al-Naimi made an astonishing prediction. He was reacting to a surprise drop in prices even though OPEC had just voted to reduce production by four percent. Telling Arab News, "Watch what happens tomorrow. I tell you prices will go up tomorrow". And hocus pocus indeed they did. One can presume the only way al-Naimi could have predicted the price move with such assurance was if he through OPEC or its agents, was manipulating the oil futures market. Question, if then, how many times, and how effectively, since?
While poor old Hugo takes it on the the chin, where is the condemnation of Mr. el-Badri and Mr. al-Naimi and their blather? And perhaps its time for Congress to wake up and give the CFTC the wherewithal to really smoke out the oil trading cabal on the commodity exchanges.
Raymond J. Learsy is the author of the updated "Over a Barrel: Breaking Oil's Grip On Our Future"