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.
a.- Uncle Sam gets more profit from taxes applied to oil and derivatives than OPEC countries from selling the very same oil.
b.- Department of Energy is not there to protect US economy, it is there to protect large oil corporation's economy. By the way, US Government and institutions' job is no other than protection of the big fat cats at the expense of ordinary citicens.
c.- Citgo offered low cost heating fuel and a lot of governors refused because they would loose their part in business.
It is easy to put the blame on OPEC or someone else instead of real predators like Uncle Sam and his huge oil companies.
In denial of the common sense notion that we are on the plateau of resource depletion- we can expect from our main sources of information, including the author of this blog, some or all of the following excuses-
Investment analysts will claim the lack of production is due to demand destruction;
Oil companies and Republicans will say there is not enough oil because of government;
governments and the ignorant will blame speculators;
and OPEC will all the while contend that the markets remain well supplied.
The benefit of all or any of these propositions is that there are no demands on us to change, to adapt, or to meet the future head on.
Enjoy your excuses even as you sit there in the gas line waiting for something that will only get more precious and hard to come by.
Indeed . . . he does that as the Secretary of Energy. That's the point!
I'm sure we would all love to have an energy secretary that could just urinate out 10 million barrels of oil a day. But that is impossible. The geology is what the geology is.
You article is just a bunch of crying and moaning with absolutely no proposed solutions. Just childish suggestion to release oil from the SPR to 'spank the speculators'. Well speculation is the free market, that is what we are all about. And no, we shouldn't release oil from a STRATEGIC petroleum reserve just because people are whining about high oil prices. They need to change their ways, not be coddled.
EIA predicts U.S. output will drop by about 170000 barrels a day in 2011 thanks to the ban.
Unfortunately, it’s peanut.
The unrest in the Arab world is threating a production of 25.6 million barrels per day of oil.
Today, Saudi Arabia, Libya and Algeria are producing 14 million barrels per day.
United Arab Emirates and Kuwait are producing 5 million barrels per day.
Iraq and Iran are producing 6.6 million barrels per day
That is about 30 times the Arctic National Wildlife Refuge oil production expected in 2025.
That’s 150 times the missing production due to ban in 2011.
As oil prices are set by supply and demand worldwide, even if US was able to stop dependence on Persian Gulf oil, gasoline price will be determined in the Middle East for years to come.
Chu is the best Secy of Energy we have had. The rest were in the pocket of big oil and that is why we are in an oil crisis. Development of alternative enrgy is exactly what the USA needs.
Oil demand is proportional to population and standard of living and so when the world emerges from the current recession, demand is going to pressure supply and prices will escalate. This will be exacerbated when the impact of Peak Oil is felt. Yes wells deplete and on a global basis - it is happening. Of the thousands and thousands of wells tapped, none ever comes back - this is a phenomena that has been observed for each well, each field and each country. It will happen to all of them.
Half the speculators. For every long there must be a short. For every Call bought someone must sell that Call. Same for Puts. What grades are presently in the SOR, sweets, sours? If sours what is the sulfur contend?
Besides, there is mounting evidence that the WORLD is reaching or has already reached "peak oil" (terminus technicus for maximum possible production). If so guess what?
Krugman says it is fundamentally supply and demand. His evidence is that inventories of oil have remained at normal levels, whereas you would expect them to go up due to hoarding if speculation was important.
You seem to believe it is speculators and manipulators. And your evidence is...?
I seem to recall that this was a big part of why he was hired in the first place. Doesn't look like that is working out too well.
Chalk one up for strategic placement of personnel in this administration by oil interests.
I'm trying to figure the logic behind this.
Whether by design or default, that is a win for the oil industry.