THE BLOG

Oil -- Congress Finally Takes Charge Yet Must do Much Much More

05/25/2011 12:35 pm ET
  • Raymond J. Learsy Author, 'Ruminations on the Distortion of Oil Prices and Crony Capitalism'

This administration has wasted near eight years without giving the nation a coherent energy policy, a policy urgently needed that would:
- Dramatically reduce the consumption of fossil fuels
- Bring down the price of crude oil arresting the massive transfer of wealth to oil companies and oil producers.

For eight years Congress acceded to President Bush's threats to veto legislation that would have begun to show the oil industry and oil producers around the world that there was at least one body of our government whose patience with a dysfunctional, climate crippling and progressively rapacious oil market was at an end.

Finally, finally, on this issue Congress has begun to function as a legislative body more responsive to the welfare of its constituents than the need to curry favor to the vast influence and money power of the oil industry's lobby.

Other than the price of oil reaching new highs a few things happened over the past couple of weeks signaling this sea change. First Congress presented the president with a veto proof bill, which over his stubborn objections he signed into law, having read the writing on the wall and responding to the growing anger about energy prices in the country at large. It brought to an end
the administration's madcap and patently counterproductive purchases of crude oil irrespective
of the stratospheric prices that needed to be paid. On the one hand exacerbating those prices, and on the other, taking oil off the market. Thus one of the great oil patch boondoggles was brought to an end.

Then, going one step further Congress is preparing to challenge another of the president's threatened vetoes by presenting him with NOPEC legislation that would end once and for all the sovereign immunity extended to OPEC by our courts for actions in restraint of trade. Actions that would otherwise bring the full wrath of our Justice Department and our Federal Trade Commission into play were such collusionary constraints restraining trade and impacting prices on the American market organized by any other industry or commercial grouping. Such actions against offshore syndicates are not unusual and have been highly successful in forcing the end of collusion and price fixing.

The house has passed the measure overwhelmingly, the Senate is expected to follow suit. In the past the president's threat of a veto has aborted these efforts but this time it is expected to land on the president's desk. Given the mood of the country would he dare exercise his veto? We will soon see whether Mr. Bush is President of the United States or Saudi Arabia's stealth Regent.

With a motivated and focused Congress, zeroing in on this issue with enough votes to override the president's ever obstructionist veto much could happen to solve our energy and global warming nightmare swiftly, effectively, and permanently in that the steps that could be taken are all within our own purview, dependent on our own actions and not at the behest or mercies large and small of others. Courage, vision and a totally new perspective would be needed and perhaps just perhaps we are at the beginning of a new age. Congress could take the torch and:

- Begin to curtail our voracious appetitive for fossil fuels by legislating a national ceiling for oil/gasoline consumption programmed to diminish their usage significantly over a period of years. Our current consumption of crude oil is approximately 21 million barrels/day. The aim could be to reduce this amount by 5% per year over a period of ten years. The reduced consumption would attain to petroleum based gasoline and fuels only. Alternatives such as bio-fuels, hydrogen, electric power and on would be without restriction, open-ended and encouraged (please see "An Essential and Viable Energy Fix and the Renaissance of Detroit" 04.04.08). The allocated fossil fuel based gasoline/diesel would be distributed equitably through a national voucher system (please see "The Energy Solution That Dares Not Speak its Name" 07.17.07). For those skeptics questioning the viability of a fair voucher system may I direct them to their history books to read about the Home Front during World War II. A further reminder to the skeptics, that the technology available to us today to effectively organize and manage such a program was not even dreamed of way back then. And yet it was done with great success and imparted a sense of shared sacrifice and not unimportantly, great pride.

- We are the largest consumers of oil in the world. Our market is equally if not more important to producers as their product is to us. Under the influence of the oil lobby we have been giving world oil producers free access to our markets never invoking the enormous trading and strategic advantage our vast buying power imparts. We should henceforth require import permits for all crude oil entering our market, determined by country of origin. (Yes, I am aware oil is fungible but there are ways of tracing exchanges and switches that are meant to circumvent the spirit of such a program). These could be freely given, at least at the outset. However such a program would signal to producers within or without OPEC the possibility that these permits could be withdrawn and the American market for their oil might evaporate. Just to have this tool would be a sharply pointed arrow in the negotiating quiver of those in government who have currently been reduced to pleadings to the likes of Saudi Kings, witness the humiliating supplications of President Bush.

- There is a growing consensus throughout the land that we must begin to access those deposits of oil and oil shale that could dramatically reduce or dependence on foreign sources of energy. Concurrently there is a massive distrust of the oil industry to access these potentially massive resources in an environmentally responsible manner and in a way that the nation rather than the oil company's would benefit. Rep. Edward Markey pointed out in recent House hearings that the oil companies currently have drilling rights to 30 million acres both on shore and offshore that they are not using. Given their performance, given their massive earnings on the backs of everyday Americans, given their lack of meaningful innovative initiatives to curtail our fossil fuel dependency, now perhaps more than ever is the time for Congress to consider the creation of National Oil Trust to develop both economically and in an environmentally friendly manner the nations hydrocarbon resources, not exclusively for the benefit of a handful of wealthy and powerful oil companies but for the nation as a whole. This could be achieved much in the spirit of, and in the example of Norway's National Oil Trust through which that nation's oil and gas riches accrue to all its citizens (please see "The Oil Industry is Driving Away With Our Future- The Norway Solution" 04.24.06). Clearly, an American National Oil Trust venturing to develop the Alaskan ANWAR Refuge would have a totally different resonance in the halls of government and among our citizenry than its development being left to an oil industry that has lost its credibility or an Exxon Mobil adding another billion to its bottom line.

- Speculation in oil and oil product markets has distorted the realities of market logic. On May 22nd the price of oil on the trading exchanges topped an all time high of $135 per barrel. On that day Iran had fifteen fully loaded tankers waiting in harbor with no place to go "waiting for greater demand to lift spot prices as well" (translation-couldn't find a buyer). Russian crude was selling at a $5.00 a barrel discount a to its equivalent North Sea crude on the spot market, if and when there were any takers. And yet long dated futures contracts were selling at significant premiums (at contango) largely in reaction to Saudi Arabia's announcement that they would not expand their production capabilities in the future beyond the long since promised 12.5 million barrels currently planned by 2009. Nor would they commit to any significant increase in current production as needed to signal to a market that prices need to come down, this in spite of the entreaties of President Bush and numerous other countries and agencies. Clearly when paper barrels are bid to the sky and wet barrels go begging there is a manifest irrationality lurking in the oil trading pits. It is bad enough to have the oil executive royalty spouting the nonsense "the price of their product is determined by supply and demand" before an assembled Congressional hearing, but it becomes particularly grating hearing it from our government officials or perhaps better described as oil patch lackeys the likes of Energy Secretary Sam Bodman, Acting Chairman of the CFTC Walter Lukken, and now Secretary of the Treasury Hank Paulson who one would have hoped would have known enough to know better. As Chris Kelly on a HuffingtonPost blog ( "Oil Execs to Congress: I Drink your Milkshake" 05.23.08) wisely put it "supply and demand' is what you say when you want the other person to know you think they're an idiot". Congress needs to roll up its sleeves to assure those agencies responsible for trading oversight have the budgets and the highly motivated and qualified personnel needed to deal with the issue of oil futures trading and other commodities, closely looking at the exchanges in New York, Chicago, Philadelphia, electronically and beyond to London, Singapore, Dubai and wherever, determining how it all ties together and where mischief is possible (please see "Sovereign Wealth Funds and the Price of Oil" 11.1.07) , fully understanding that those working the commodity pits are like brothers in foxholes. See, hear, speak no evil could well be emblazoned on their banner. The exchanges are all intertwined, trading on one impacts the price on the other. Ways have to be found to make them all transparent and accountable or serious consideration has to be given to changing the system altogether. Please remember, not that many years ago there was only a wet barrel market.
- And please, please get rid of that 54 cent import duty on Brazilian sugar based ethanol.