Why are We Paying $50 a Barrel for $20 Barrel Oil??
An especially revealing article in the New York Times on Thursday, "Oil Prices Resist The World's Recession Trend," took cognizance of the following, "In recent months oil prices plunged as consumers curtailed use...with some analysts predicting that dire economic circumstance would cause oil to fall to $20 a barrel or less". I repeat, "...$20 a barrel or less." Then it goes on, "While prices may have fallen by two-thirds from their peak last summer, oil remains expensive by historical standards."
Then, in the inestimable fashion of the New York Times to rationalize each and every price distortion in the oil patch, it goes on to instruct us that oil is once again being traded as a refuge against a slumping dollar (please see "A Short Tutorial on the High Price of Oil and the Falling Dollar," October 19, 2007) and rising inflation. Rising inflation? Really? Please check out Spain's and the U.K.'s economy, among others.
The article continues, "Oil which peaked above $140 a barrel in July, tumbled to $33/bbl in December. But oil futures in New York have since rebounded and have been fluctuating between $45 and $50 a barrel... this week, despite a broad market swoon, oil never fell below $45 a barrel. As a result American drivers should expect to see higher prices at the pump this summer..."
This in the face of the World Banks' forecast that the global economy will shrink by 1.3% this year, with the Chinese economy sputtering, Europe is stagnant and Japan is contracting. In turn the International Energy Agency is predicting a fall in world oil consumption of 2.4 million barrels a day this year. The Times article goes on, "serious questions loom over the global economy that would suggest lower, not higher prices."
But then the New York Times goes on enlightening us that "The action of oil producers has been critical in providing a floor for prices. Members of the Organization of the Petroleum Exporting Countries have shown uncharacteristically strong discipline in recent months in sticking with their pledges to reduce output." He continues, "OPEC's success has provided an opening for investors to renew their bets on oil prices", or as termed by the talking heads on CNBC, seeking out a "safe haven."
Really? These must have been the same investors who went long at $140/bbl in July. Brave souls, they have not taken into measure the fact that oil inventories have hardly ever been higher and certainly not for the last 19 years. No mention is made that OPEC is producing less, not because they have become more disciplined in this over-supplied market -- Saudi Arabia alone pumping 8 million barrels/day, while shutting in some 4.5 million barrels/day of their production capacity (cartels always work far more effectively in a market that is in short supply -- be it real, induced or perceived -- than, as is the case currently, in a market in significant oversupply). Together with sharply curtailed refinery operations, there just is no place to store the oil. Sorry, there are the likes of Morgan Stanley chartering VLCCs to store millions of barrels at sea (Please see "Your Tarp Money is Being Used to Prop Up the Price of Oil," January 23, 2009). Question: What role did MorganStanley's oil trading/storage operations play in its sharp quarterly loss announced this past week?
What is given occasional lip service, but not touched upon seriously unless markets get totally out of hand as they did last summer, is the manipulation of oil prices on the commodity exchanges. That it is not "investors" who are providing support to current prices "...expensive by historical standards," but the producing countries themselves (please see "Oil at $111 a Barrel: We Are Being "Sovereignly Screwed," March 17, 2008).
One too often loses sight of the fact that oil prices are determined not by the actual trading in wet barrels (realtime -- "spot" -- purchase/sale and delivery of product), but by a broadly unregulated market trading in virtual paper barrels on interconnected commodity exchanges around the world. The price for oil as traded on the commodity exchanges in London, Dubai, Singapore, Tokyo have an almost immediate effect on prices traded on the New York Mercantile Exchange (NYMerc). And where the CFTC may be trying to get a handle on the oil pits at the NYMerc, where there is little enough transparency, in turn there is virtually no transparency in any of the other markets.
It stands to reason that producers the likes of Russia (please see "High Oil Prices: Is That The 800 Pound Russian Bear Dancing In the Trading Pits," July 8, 2008) and Saudi Arabia, with a single product economy and a Sovereign Wealth Fund holding reserves directly or indirectly in the trillions, would be tempted to use its economic might to "direct" the price of "paper" barrels which, after all, directly determine the price and value of their very real "wet" barrels. As Saudi Oil minister Ali al-Naimi told reporters on Saturday at the 3rd Asian Ministerial Energy Roundtable, that it would be "nicer" if the price of oil were above Friday's New York close of $51.55/bbl. (Also, please see "'The 'Nightmare Scenario'": Thank You Saudi Arabia For Looking After Our Future," February 14, 2009)
Do they, don't they? I do not know. But that is the CFTC's job and possibly even the CIA's. Oil trading on commodity exchanges can be readily rigged (please see "Oil Trading : The CFTC Brings 'Duh!' to a New Level," August 21, 2008, and "The Trade That Brought Us $100 Oil Teaches Us to be Afraid, Very Afraid," January 2, 2008).
The thirty-dollar difference between $50 and $20 bleeds $600 million dollars a day from the American economy alone into the pockets of oil interests both here and mostly abroad. That makes it not only an issue of grave economic concern, but national security as well.
Would lower prices result in greater consumption? Almost certainly. And it is here that government leadership is essential. Fossil fuel consumption needs be curtailed through imaginative policies be it carbon taxes, gasoline taxes, alternative energy programs, and possibly even engaging that word viewed by all too many with a degree of horror, "rationing."
But to continue transferring our wealth and well-being in these times of crisis to the oil industry and to the petro despots is madness.
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3 cents per KWH commercial rooftop solar from NanoSolar and others. 2$ per peak watt installed. My profile proves.
"Crude rises despite large buildup in inventory" - Chris Kahn April 29, 2009 AP
NEW YORK — Oil prices rose Wednesday even though the government reported that the nation is consuming less than it has in years and inventories are bloated with the most surplus crude in nearly two decades.
Energy prices have stabilized well below the levels reached in recent years, however, and retail gasoline prices have been largely stagnant since rising above $2 a gallon for the first time this year in late March.
Benchmark crude for June delivery gained $1.05 to settle at $50.97 a barrel on the New York Mercantile Exchange. In London, Brent prices increased 79 cents to settle at $50.78 a barrel on the ICE Futures exchange.
Continues: http://www.huffingtonpost.com/huff-wires/20090429/us-oil-prices/
Oil will more likely hit $100 than fall back to $20. The deflationary pressure that would incline people to believe in $20 oil is passed. With Bernanke monetizing debt, internal memos at the Fed calling for negative interest rates, and massive federal deficits, we will be moving into a high inflation period soon. Furthermore, with the rapid drop in oil prices, many of the projects to increase oil output started during the oil boom didn't get finished. An increase over $70 will probably lead to a price runaway like last year. Just look at the number of supertankers being retired this year as the international ban on single-hull tankers takes effect.
Not to mention, you can thank the team of Geithner & Bernanke for capitalizing the very investment banks engaged in oil speculation. Now the taxpayer funds the oil speculation tax, without the benefits of the revenue.
The worst thing that could have happened for alternative and green energy is drastically lower oil prices. Many huge biofuels, ethanol, and wind farm projects have been scrapped because of lower energy prices. A good number of these companies will probably have to file bankruptcy as their products are no longer profitable or feasible.
This same scenario has happened time and again through the years. Just when people get serious about alternative fuels the bottom drops out of the oil market and once again we buy most of our cheap fuel from overseas. Money dries up for new technology and new green energy companies. Like it or not - Green energy will come about through profits. Without profits - there will be no green energy.
"Why are We Paying $50 a Barrel for $20 Barrel Oil?"
Because most of you are driving more car than they need. The answer hasn't changed since 2008.
This article, "Front running" Against Humanity in the Oil Markets (http://www.monetary.org/frontrunninghumanity.html) explains one of the games the financial wizards use to play us.
We should be paying more for fossil fuels but most of the increase should be due to taxes. A predictable increase in taxes from one year to another can be very effective in making long term adjustments in our consumption. If decades ago we said we will increase tax per gallon of gasoline 10 cents a year, the actual price for oil today would be much lower. We Americans are willing to pay $4.00 per gallon of gas when that is due to the "market" forces but not if it is due to taxes. Any such taxes could then be either returned to citizens or used to develop conservation programs and investments in alternative energy sources.
Perhaps, you know or work with someone that owns one of the 451 million bicycles in the U.S. It's an industry that has seen annual growth rates between 10% - 25% worldwide. visit article online at "High Growth and Big Margins in the $61 Billion Bicycle Industry", http://seekingalpha.com/article/133109-high-growth-and-big-margins-in-the-61-billion-bicycle-industry
The author of the article apparently has never traded oil. The oil market isn't being manipulated by paper trading recently because the market is in contango. This means that traders will lose a lot of money every month by rolling over contracts, because front month contracts are cheaper than further out month contracts. Traders typically stay away from those markets. Many traders have, however, been buying far out month contracts and are storing the oil in tankers off the coast, but this puts no upward pressure on the front month price, which the author seems solely concerned with. The biggest reasons the price of oil remain up is the continued high prices for equipment and services and the continued lack of growth in global capacity and the continued dwindling of worldwide reserves.
If the Russians or some other country or trading entity is buying up Brent futures, you'd see a massive selloff in the days leading up to expiration, as rolling the contracts wouldn't make sense because of the high costs involved in buying the more expensive out month (but soon to be front month) contract. And this didn't happen in March or April when contracts were rolled over. Here's the chart.
http://www.livecharts.co.uk/daily_charts/daily_charts.php
The selloff in April before expiration was only about $2.
Gas prices are outrageous for one reason - Bush wanted to overstuff his pockets before he left office. The American people allowed the worst President EVER to stay in office and put our country in one of the worst financial crisises we've ever had. He took advantage of us and we all stood by and let him do it.
The financial crisis led to a massive collapse in gasoline prices, not an increase in gas prices. Also, George W Bush wasn't the CEO or major shareholder in a refining company. Rather, he was President of the United States.
You just had to remind me.
How did Bush line his pockets and what the hell did gas (gasoline?) prices have to do with it?
In the meantime, congress is pushing for more ethanol in our gas, 15% to 20% while our new cars
are being hauled off to the repair stations for $ 2000 at a shot. The engines cannot take the ethanol
and they refuse to run and no one is addressing this issue. They have caught some distillers mixing
too much into the gas and they are having heaps of problems in the Dallas Area. This needs to be
stopped. The manufacturer will not pick up the cost for repairs.
Last year I drove a brand-new Prius from Tucson to Arkansas. I filled up in Tucson and again in Van Horn, Texas. When I filled up in Fort Worth my mileage suddenly dropped by over 10%. I was delivering the car to my sister and my brother-in-law, and they've noticed a lot of variation in mileage depending on where they buy their gas.
The lies we hear every day about oil! Oil is going up because Saudis are cutting down the production and then something happens at Wall Street, like unemployment out of line, and the price goes down.
Never has anything to do with the Saudis cutting oil production, etc. Yet we continue to hear the lies.
Then you read an article that the price of oil has nothing to do with the price of gas, which is another lie, since you can track it daily, oil goes up, so does the price of gas. And congress is still not
addressing the root cause of all of this, their Commodities Modernization Futurers Act of 2000 who
brought this into this mess in the first place.
The Commodities Modernization Futures Act of 2000 has absolutely nothing to do with the price of gasoline.
No one will admit that the 140 bbl price is what started the cliff dive of the economy. Nobody will admit it. But that's what I see.
All for greed.
Oil should be taken off the financial markets.
You can only buy oil if you are going to take delivery of it. A price should be set that would ensure everyone gets a fair shake. From oil companies to consumers.
Why do this.......because its to damn important to leave it to speculators and cartels to set prices that affect a Nation and the people who try to make a living.
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