How 'fortunate' we are to have two Nobel Laureates bringing their vested Nobel prestige to matters relevant to oil markets. From their authoritative perch they instruct us on matters of oil pricing and get it dangerously wrong while we pay at the pump and the economy sinks.
First we had Nobel Laureate Paul Krugman's May 12, 2008 New York Times' Op-ed, the "Oil Nonbubble" with oil prices at $125 a barrel and steaming ahead to $147/bbl a few weeks thereafter, advising us that oil prices were all about 'supply and demand' and that neither speculation nor manipulation played a role. He thereby gave umbrage to our sleepwalking regulators and their agencies to continue to snooze away while helping the economy reach a near breaking point in September of that year.
Now we have another Nobel Laureate, Steven Chu, Secretary of the Department of Energy, whose grasp of oil markets and how they function rivals that of Paul Krugman. An erstwhile professor at the University of California, Berkeley, he is accustomed to lecturing. In response to last week's dramatic 6.7% jump in the price of West Texas Intermediate Crude (WTI), Mr. Chu lectured us in a tone and in a manner in keeping with the Department of Energy's doleful performance in protecting the nation and its economy from the rapaciousness of the oil industry and its attendant speculators and the manipulations of the OPEC oil cartel, instructing us all the while our pockets are being picked at the pump. This, as the inhabitants of freezing Maine and like environs are having their family budgets devastated by soaring heating oil bills:
"We don't want to be totally reactive so that when the price goes up everybody panics and when it goes down everybody goes back to sleep."
These fighting words from a Secretary of Energy who has been happily snoozing on his watch almost from day one of his swearing in (January 21, 2009). From February 2009 the price of oil has skyrocketed from $33 a barrel (bbl), to $104/bbl this week. Most readers know well what this has meant at the pump. On a national basis with a consumption of some 20 million barrels a day that means a transfer of American consumers wealth at the rate of $1.4 billion ($1,400,000,000) a day or $511 billion a year ripped out of the economy going into the pockets of oil interests and their kindred Wall Street speculators.
Aside from being asleep at the switch since his swearing in while the nation was being looted through the upward ratcheting of the price of oil, Secretary Chu did arise from his slumber long enough to do a little moonlighting on the side. He continued his scientific research publishing a paper on 'gravitational redshift' that appeared in Nature (463, 926-929) in Feb 2010 and a second paper, co- authored in July 2010. Certainly a brilliant mind but seemingly totally at loss when dealing with the rough and tumble of the oil markets and the insidious influence of the oil lobby. His performance between naps of having the price of oil, the core commodity to our fossil fuel dependent economy, increase, with barely a peep, by over 200 percent ($33/bbl to over $104/bbl) in a little over two years, is a feat that should send him back to Academe in short order.
As commented in this corner previously and in the closing paragraph of the New York Times article from which the Chu quote was taken, which referenced one Tom Kloza, chief oil analyst of the Oil Price Information Service. Simply put, Mr. Kloza said that releasing oil from the Strategic Petroleum Reserve "would help spank the speculators".
But to spank the speculators, you have to understand what role the speculators along with the manipulators play in the formulation of exchange traded oil prices. And that's a rough and tumble world not fit for Nobel Laureates.
Mr. Chu's talents would be ideally suited to head a commission seeking alternative energy solutions and helping to formulate government energy polices that reduce our dependence on fossil fuels. There his competence could be focused on issues of vital interest to the nation. On the other hand it is long past due, given the appointments of this and past administrations, that our government find a Secretary of Energy who really understands the real-time dynamics of the oil markets and what is at stake to the economy in the here and now. Someone who will not be led down the garden path by those whose singular interest is in pumping the price of oil.