High Oil Prices: Is That The 800 Pound Russian Bear Dancing In The Trading Pits

OPEC, speculation in commodities market, hedge funds, the falling dollar, peak oil theorists, all play a part in the current run up in oil prices. Yet one of the major players has escaped both scrutiny and careful analysis. Consider two items that were news this past month:

- Russia's new president Dimitri A. Medvedev, speaking to a group of foreign journalists made clear his and Russia's posture that the " United States is in no shape to give advice". He then went on to categorically declare that America is "essentially in a depression."

- A few weeks before Alexei Miller, chief executive officer of Gazprom made an eye opening forecast. Mr. Miller predicted on June 10th that oil prices would rise to $250 a barrel in the near future. Gazprom is Russia's largest company. It controls 16 percent of the world's gas reserves and 116 billion in oil and oil equivalent ranking it only behind Saudi Arabia and Iran as the world largest holder of oil reserves.

Now why would the head of Russia's largest and most prestigious company put his reputation and his company's reputation on the line by making such a seemingly rash prediction. Certainly predictions of ever higher prices serve the interests of oil producers but usually they are left to friendly analysts in the field. Could it be that Mr. Miller is absolutely sanguine about the issue, knowing the price game is cooked.

And President Medvedev making comments about an America in depression whose advice is no longer welcome by an ascendant Russia, itself having become the largest energy exporter in the world, stoking an economy that is now the fastest growing by far among the G-8. This, by a nation that still views America with grave suspicion as succinctly expressed only recently in an interview (May 30, Paris "le Monde") with Vladamir Putin the former President of Russia and KGB colonel and Medvedev's sponsor and mentor, as a "frightening monster".

For Russia this moment verges on the triumphal. A nation ascendant in benefiting handsomely from the fortuitous rise of energy prices. An America sinking into recession if not depression, the cost of energy, especially oil, strangling its economy and in turn its influence on the world stage. The shifts in world order are so profound, so unexpected one needs wonder whether the word fortuitous is appropriate relating to the price of oil. In essence the price of oil has done for Russia what the cold war Kremlin was unable to achieve given all its missiles, tanks and mind numbing divisions of men and armor. Could it be that the Russians through Russia's vast $500 billion in foreign currency reserves, or Gazprom itself, or perhaps even the KGB ,or any combination or variation thereof is gaming the oil futures market to Russia's great advantage and to America's and all oil importing nation's great detriment given the vast expenditures in armaments it would have taken to achieve an analogous result. Gaming the oil futures market would be chicken feed by comparison to the armaments cost needed to achieve the same relative status.

Unconvinced it could/does happen? Let me cite some examples and commentary. In a post here in entitled "The Trade That Brought Us $100 Barrel Oil Teaches Us to Be Afraid , Very Afraid" 1.7.08 focuses on the single trade that moved the price from $99.53/bbl to $100 on January 2 2008. That trade was for one contract representing 1000 barrels and required a deposit margin of $6750. Thus with that miniscule investment, and as long as that price was preeminent on the trading board, all oil produced or shipped reflected that increased price value or a one days increase of some $40 million given the 85 million barrels loaded and shipped each day. How's that for leverage? And then to help matters along the hedge funds stand ready to pitch in being intrinsically trend players, happy to pile on and sustain any trend real or creative.

In another post ("Oil at $111 a Barrel: We Are Being Sovereignly Screwed!", 3.17.08),
The Sovereign Wealth Funds of the UAE, Kuwait, Qatar,Libyia, Algeria and of course Saudi Arabia were cited as having enormous wealth tied up in their sovereign funds with the means and certainly the incentive to game the futures markets of virtual paper barrels on commodities exchanges to support the price of wet barrels being produced in their home market. The Brazilian Sovereign Wealth Fund was cited because it has openly declared it will use its Sovereign Wealth Fund to support an ideal valuation of its currency the "real," given Brazil's export oriented economy. Here, clearly and candidly is a wealth fund declaring that its currency holdings would be used to pursue a policy in its specific national interest. This in glaring contrast to other wealth funds who are submerged in murky opaqueness without the slightest inclination toward transparency.

Are the Russians gaming the futures markets for oil? They are not innocents nor incompetent. When it comes to using elbows powered by their resources they will do what is necessary. Ask the Ukranians, ask the Europeans. Gaming the futures markets on the London or Singapore commodity exchanges or through electronic trading (please remember the markets offshore have a direct immediate impact on other markets throughout the world) would be a simple matter for the Russians as long as no one catches them out. Here one needs to remember that the Russian leadership is formed by KGB veterans.

What can be done? Given the evolution of pricing on our commodity exchanges and the paucity of oversight by our CFTC this is a job well beyond the CFTC's capabilities. It is Congress that must act. This administration, so in the thrall of the oil industry, whose modus operandi on matters of manipulation of oil prices is to do little or nothing whether it is confronting OPEC or putting teeth into the CFTC. It is Congress, in the interests of national security and rational markets, that must insist we engage the resources of the CIA to put a clear and bright light on this issue. Anything less would be a dereliction of responsibility.

Comments

[Raymondf]

Don't anyone realize that the Arab, Islamic nations are trying to break the Us economy. They can't beat us Militarily so all they have to do is raise oil prices. Drill, drill, drill. Everywhere, mine more coal. We already have the technology to turn coal into liquid, or gas. Do something now before it is to late. May already be to late.

[research]

BushCo and multinationals are intentionally crashing the US economy. the Arabs need us to purchase their oil and supply products. It's BushCo Shock Doctrine to achieve PNAC fascist corporatist dictatorial world domination.

[research]

Private business investors can invest the 1T$ needed to convert the US to wind, solar and electric cars. The price of oil will crash: 33 cents?

http://www.huffingtonpost.com/users/profile/research

[FreedomCorpse]

Interesting how, in the so called efforts to 'make us safe', bush has empowered more than anyone the very folks who our government said were our enemies. Some 'leader' bush supporters voted for.

[booker52]

So far those in Congress have done nothing about this, nor does it look like they want to. So therefore the price on a barrel of oil continues to rise and we and the rest of the world is in a world of hurt. Where will it end???? I say something has to give, but what??? Color me clueless at this point.

[tommy slothrop]

If the Russians are jacking up the price of oil it would be richly deserved. The Clinton and Bush administrations have cultivated an antagonistic relationship with Russia since the end of the Cold War. The only reason for this was to justify keeping military expenditures high.

Well, they got what they wanted and Russia now considers the US as its enemy.

[GetAbike]

Mod- As much as I thought myad hominem attack was funny and relevant, I deleted it.
Wow! Peak oil theorist now have the clout to influence the price of oil? To be counted along with OPEC, speculators, and the falling dollar is pretty heady stuff!
But seriously, as to your main point- Russia may well be having the adverse influence you describe. I do notice the absence of the "ol saber rattle and "food as a weapon" solutions you have proposed in earlier posts aimed at the KSA.

Mr Learsy, maybe you need to expand your understanding of Peak Oil to include the fact that oil producers are using, and planning to use, more of their own resources as they eye a future of Peak Everything.

Don"t you think diminishing exports count?
Ya see, it is not always about conspiracy.
Not only has the U.S. peaked about 30 years ago, but several old elephant oil fields throughout the world are drastically producing less.
And even if perceived "hoarding" is going on whether with SPR type programs, or internal use by producers, exports are still on the decline.
That"s it, I"m out.

[outnow]

The CIA already works closely with Wall Street. The Dulles brothers were the charter members. By 1953, the CIA had overthrown the government of Iran. That was all about oil and British petroleum and the perceived communists threat. I think we have come a full circle where our own economic tricks are being used on us. Can the CIA or Congress stand up? The White House is occupied by officials who have their own agendas such as Wolfowitz, Rumsfeld, Cheney and Bush. Whose interests are being represented? The interest of the American consumer are at odds with the military spending and oil wars.

With all due respect, I must disagree that the answer to KGB manipulation is for CIA manipulation on the markets. We all know about the Enron Loophole and that Congress will do nothing to protect the consumer. Instead more Enrons are planned by the same people who are supposed to protect us.

Most American have lost faith in government because of the decline of the rule of law and the blatant conflicts of interest in the white house and in the Congress..

[MyTake]

Excellent logic. I viewed Allen Welsh Dulles as one of the foremost criminals in human history.

But there was one other more powerful organization brought into being along with the CIA/NSA tandem. The CIA/NSA had a back channel flow of information to the Rockefeller Syndicate (Dulles was a part of that syndicate) and they simply used government tax money to support a government department that collects intelligence data (a country's resource wealth and logistics) which filters back to the Rockefeller Syndicate and onward to that powerful organization. I cannot mention this powerful group by name as the Huffington Post blog filters eliminates any blog entry received that contains this name. But if search for Daniel Estulin, you will arrive at that powerful organization.

After the World Wars which did not result in returning the globe to a feudalistic state, these groups were made operational to move the world piecemeal towards that state.

You also have to look at the Freemasons upon which the CIA personnel model was built. That in itself is more revealing about the U.S. government than one cares to imagine.

[outnow]

There must be some rich Texans who profit from the high price of oil. Even if the Russians become stronger, the owners of domestic US oil have seen prices go from $15 per barrel to $150 per barrel. If you control hundreds of millions of barrels in the United States, your oil is worth trillions more. You can then issue derivatives.

Removing the production of Iraq's oil has facilitated this process. The black market in oil comprises about one-third of Nigerian and Iraqi oil. Bribes are used. Also, BAE has an oil for arms deal with the Saudis whereby the British are getting oil under the table.

Just as narcotics have made government impossible in Mexico, oil has done the same thing in America and elsewhere. The reason is that the bribes are just too enormous to decline.

Manipulating these markets is like playing a violin. Once you know where the notes are, it is simple to play the strings.

The future of the world will be strongmen with WMD looking for ways to cash in on oil. Is Washington any different? Our founders were not able to foresee oil undermining the integrity of government. The gold rushes were the first clues as to the effects of wealth and greed overcoming all else.

[Torus34]

Years ago during the great days of the Green Bay Packers their coach, Vince Lombardi, was noted for a simple winning strategy: attack the opposing team in that area where they felt they were strongest. Once the Packers broke them there, the team would crumble like well-aged cheese.

The US has prided itself, rightly or wrongly, on its economic strength.

'Nuff said.

[leduck]

RULE O FLAW
here"s some names for your peer review besides m. king hubbert

1. kenneth deffeyes (author of my book)
2. Colin J. Campbell (author of my book)
3. Jean H. Laherrère
4. Hirsch report
5. Ali Samsam Bakhtiari
6. Jeffrey Brown (export land model)
7. Kjell Aleklett (president of ASPO)
8. David L. Goodstein (physics professor at Cal Tech [not a geologist], author "out of gas")
9. Megan Quinn (I mention her because she"s the only one I know who majored in Peak Oil)

these are just the ones i'm already familiar with
i know there must be many other authorities
i'm very positive this will still not do it for you
which shows your the one who's completely dogmatic

[outnow]

I tend to agree with the concept of peak oil because oil is probably a limited commodity. If oil is formed from stored sunlight and carbon and great pressures and heat, then there could be limits to the amounts available. But much of the theories are predictions based on computerized models, curves and various assumptions. Is peak oil a bell-shaped curve or a series of peaks? Why would it be bell-shaped? Bell curves are based on statistical distributions in a population or universe. Why not a long decline in production?

Wells go dry and also become harder to pump. This is a curvilinear phenomenon. Whether all oil production follows a similar curve is certainly open to question. I happen to agree with peak oil hypothesis since fewer new finds are made that rival the giant fields. Remote sensing is quite sophisticated and the new big finds are economically less promising due to higher costs of extraction.

[leduck]

as for peer review
ever heard of ASPO?
the number of chapters is growing fast
in countries all over the world

ruleo flaw

[leduck]

ok ruleo flaw
one last try
plug these numbers into the mathematical formula
first assume 2 trillion barrels (urr " ultimate recoverable reserves)
then peak occurs about 2005 or right about now
now assume 3 trillion barrels of oil
now remember the area under the bell-curve equals the total amount of oil in the world
peak occurs in about 2020
increasing the worlds supply of oil only pushed back the date of peak about 15 years
if you assume 4 trillion barrels of oil
then peak hits in 2030
peak oil is pushed back 3 years for every 200 billiom barrel increase
see " we"ve been burning oil for over 150 years and doubling the world"s oil supply doesn"t push back the date of peak very far

if your optimistic 15 years isn"t really that long
so even if your right, the time to prepare is now, because if you assume 2.5 trillion barrels, time will be up pretty fast

http://www.foundation.bw/ItsTheOil_files/image001.gif
http://www.foundation.bw/ItsTheOil.htm
http://www.mnforsustain.org/images/oil_lisbon_laherrere_us_fig3.jpg

[BigGuy]

The Soviet Union and Russia have always been nimble oil traders; the very best they have go to work for the KGB. Patriotism is a better motivator than money. There is very little downside for Russia in pushing oil prices higher. They have no incentive not to seek higher prices.

The simplest way to mitigate the effects of Russia pushing oil prices up would be for the the US dollar to strengthen. The most direct way for that to happen is for US gov't debt to be paid down, by collecting more taxes, instead of issuing more bonds. That's unlikely under Bush and McBush.

It's sad that the major consequence of W's foreign and oil policy has been to strengthen Russia and Iran. And to make oil service firms like Halliburton a whole lot more profitable.

The only President who comes anywhere close to having helped Russia (well, the USSR) as much as W is Herbert Hoover. Without Hoover dealing with the famine that overwhelmed the Soviet Union immediately after the revolution, the Soviet Union would have fallen apart.

[worldsforgottenboy]

Solutions, anyone?

Oil is here to stay, so the US and the other big importers are going to have to take the gloves off and fight for control of this oil market. Here is how this could play out:

1. The importers sign up for a simple tax treaty, to put the brakes on demand. Each member country collects a 30$/barrel tax on its oil imports and spends the money at will, as long as it does not hand out oil subsidies.

2. The consumers build their own capacity, say 5 million barrels per day of GTL synthetic fuel capacity at a cost of slightly under a trillion $, and control prices by throwing product on and off the market when oil passes a certain target price, say 30$ barrel. This will result in a 60$/barrel price, high enough to drive conservation and development of alternatives.

GTL technology is expensive, you can ignore conspiracy theorists who claim otherwise. However, if the treaty has a membership importing 40 million barrels per day, the members will get their trillion dollars back in one year if oil drops from 100$ to 30$ per barrel.

If anyone has a better suggestion, speak up.

[jbatch]

There are quotes from the whale oil industry in the late 1800's saying whale oil is here to stay. At that point, oil and so-called rock oil (natural gas) were just starting to make inroads into the lighting market, which was then the major consumer of oils.

You sound ver much like the whale oil industry.

It's not here to stay if we don't want it to be. We can power our transportation system with electricity.

[ftblgrl]

Reposted from down-thread
If you want fantasy, continue watching FOX snooze. Twenty- five years ago climate change was a non-issue too for the majority, that doesn't mean it wasn't a legitimate concern.

You could get 1000 geologists (not scientific researchers, BTW) to give you nearly a 1000 different views on the subject but it that would not in any way detract from the fact that oil is a finite resource. Regardless of your emotional arguments, there is a very high probability that oil will be more difficult and more expensive to find. That is all that peak oil "theorists" lay claim to.