Why Crude Oil Prices Dropped 28% Over The Past 21 Days

October 10, 2008

 

The Facts

 

On September 19, 2008 Wall Street got hit with a financial tidal wave that nearly drown them (some did drown). Four days later on September 23rd Henry Paulson, Ben Bernanke, and Christopher Cox showed up in from of Senate Banking Committee asking for $700 billion to bail out Wall Street. On or about September 19, 2008 crude oil price was around $109 per barrel. Today, 21 days later, oil closed at less than $78 per barrel, a 28% decline. During the same period the Dow Jones lost 2,700 points. The stock market basically crashed.

 

My View

 

Between June 23, 2008 and September 28, 2008 I have written 9 post on the ridicules price of crude oil. And in most of them I insisted the price of oil was being manipulated by speculators and traders. During that same time there were several dozen “experts” on television and in print that were absolutely livid that anyone would suggest such a thing. “It’s a matter of supply and demand”, they insisted. But even those like John Hofmeister, President of Shell Oil Company US Operations, were suggesting that oil should be no more than $60-$70 per barrel when oil was at $130. But no one wanted to hear about that; too many people were making too much money. It even seemed the news media didn’t want to hear any of that. Just about all of their “expert” guests who were interviewed were those who had something to gain by high prices of crude oil. But here we are; when investors are being extremely cautious and don’t want to risk their money, the price of oil dropped 28% in less than 4 weeks. And there’s been no noticable decrease in demand during the past three weeks according to those who track supply & demand. In fact there has been a slight curtailment of supply. There are roughly 38 platforms in the Gulf of Mexico that are not yet producing oil due to hurricanes Gustav and Ike, we still have a pipeline down in Europe, and offshore platforms in Nigeria still down due to terrorist.

 

For commodities to fall by this much there would need to be at least a 20% reduction in demand. So where does this leave us? Only one place. A small handful of extremely greedy and corrupt people (speculators) cost the consumers of the world hundreds of billions of dollars, and caused immeasurable hardship on hundreds of millions of people. And the news media is working right along with them by not asking those same “experts” now why the price of crude oil has decreased so drastically and so rapidly.

Speculators Raise Oil Prices On News Of Feds Printing Money For Bailout

September 23, 2008

 

The Facts

 

Steven Schork was on the phone with CNBC yesterday talking about the $20 increase of crude oil prices in just one day. Schork was obviously very upset with what speculators were doing to crude oil prices, most especially in the face of what is happening now with the markets. He was basically saying it was this kind of irresponsible action that caused us to be in the position we are in today with Wall Street, and the only reason speculators are doing what they are doing now is because the feds are “just printing money for this $700 billion pool”.

 

If you don’t know who Steven Schork is, you should not dismiss him; a little research is suggested. You can start by going here. He publishes The Schork Report on energy and shipping markets. His background and experience is very impressive, and he is very well respected in identifying pricing inefficiencies and the commodity markets.

 

Schork said we are right back where we were last September when the feds lowered interest rate (making money available cheap), which caused speculators to start investing heavily in the futures markets. Relative to what happened yesterday with crude oil, he says there is absolutely no reason for this happening; “an obvious short squeeze’ is going on”, although there is no supply & demand problem at this time. “We are on the road back to 150 dollar oil regardless of supply & demand, when $100 is not even justified, let alone $150”.

 

Schork said his biggest fear is being realized in that “cheap money” is going to start piling into commodities; “the trade is to sell dollars and buy crude oil”. And he said it is more than coincidence, and he pointed out why.

 

My View

 

I said it time and time again; Wall Street is willing to literally destroy this country just to make a few bucks. Nothing could be more obvious now, what with the happenings over the past few weeks and month. And now these speculators are more than proving just that. Some people tried to tell us months ago that speculators were the cause for crude oil doubling in price, not supply & demand. But those in the media who have controlled our minds and thoughts through never-seen-before aggressive & immoral ways have been very successful. We pick out our favorite media reporting outlet and just seem to humble down to them. Divide and conquer; a philosophy that has never failed.

 

The video of Schork’s interview is just over a minute long. I encourage you to listen to it.

Bush Uses Gustav Disaster As Political Tool

September 3, 2008

 

The Facts

 

On his way out the door for a tour in Louisiana in the wake of hurricane Gustav, President Bush said “When Congress comes back, they’ve got to understand that we need more domestic energy, not less. One place to find it is offshore America, lands that have been taken off the books, so to speak, by congressional law”. Press Secretary Dana Perion said “The president wasn’t trying to be overly political; he was stating a fact”.

 

My View

 

I’ve lost count of the times I’ve said Bush uses every opportunity to stump for “more oil drilling” no matter what issue he’s addressing. Now he’s using the hurricane disaster in Louisiana to push his “big business” agenda. If there’s anyone out there who still doubt that Bush has absolutely no sympathy or concern for the working class people of our country, this should convince them. With these most recent statements, there certainly isn’t any doubt what his top priority is. There is only two things Bush hasn’t been able to achieve in his eight years that he wanted done before he ever came into office; zero taxes for corporations and unlimited drilling for the oil companies. And here he has shown us all he will stop at nothing to achieve the latter.

UPDATE August 22, 2008 – Are Market Demands Created For Oil In Order To Influence Price?

August 21, 2008

 

The Facts

 

Update: The Washington Post published an article yesterday about an investigation on oil speculators by the Commodity Futures Trading Commission. So far they have discovered that Vitol, who is supposed to be buying futures for actual delivery, was holding oil contracts as a profit-making investment. Vitol holds 11% of all oil contracts. They also discovered that financial firms speculating for their clients or for themselves hold 81% of oil contracts, which is substantially more than they had previously reported. The investigation found that on June 6, the day crude oil increased by $11, “Vitol had acquired a huge holding in oil contracts (57.7 million barrels), betting prices would rise”.

 

The Post article is three pages long and is extremely informative, and you should read the entire article. This is the hyperlink to the Post’s article, but you may have to be a subscriber to their online site, or become a free subscriber, to access it.

 

Original Post

 

From early January thru late July of 2008 oil prices have gone from an average of $85 per barrel to as high as $144 per barrel, although as I write this the price is around $120 per barrel. A lot has been made about such a drastic and unprecedented price increase. Just about every imaginable reason has been given for the increases, ranging from the totally ridicules to reasons that can be easily believed. But the one reason that is most defended as not the reason is the one the vast majority of Americans believe to be the real reason; speculation.

 

On August 13th CNBC reported that oil demand was lower in December of last year than it had been since 1982. On August 15th they reported that gas usage was down for 16 straight weeks.

 

My View

 

If you actually pay attention to the business channels instead of just watching them, you will begin to notice a particular pattern. It is nearly always investment company spokespersons who are telling us what we should be investing in. Practically every segment of every show will have one or more of these spokespersons as part of the discussion. Even if a particular recommendation is not currently doing well, we are always told that it’s going to make a turnaround, and probably soon, so we need to be poised to take advantage of it.

 

Now I realize these investment “experts” are the ones who are supposed to have their ear closer to the ground, so-to-speak, about what is doing good, what is doing bad, and what the future looks like relative to investment opportunities. But every one of them has a vested interest in what they are recommending; therefore if folks don’t invest with them, they’re out of business. Just a few days ago I wrote a post about this very point, singling out a particular oil speculator who was insisting oil would go to $200 a barrel; therefore we should jump on the band wagon.

 

Today as I watch several of those oil speculation boys hype their product, I suddenly got visions of another attempt to create a market many years ago. If you’re younger than 35 years old you probably won’t remember the Hunt brother’s, Nelson “Bunkie” & William Herbert, but you may have heard of them. The story begins with them deciding to buy precious metals, mainly silver, to hedge against inflation. Then greed set in; they decided to corner the market on silver. And it worked in sorts, and they were almost successful.

 

When the Hunt brothers first begin to buy, silver was around $1.95 per ounce. Six years later it was about $5. Less than a year or so later it was $50 an ounce, and then peaked higher. Once the Hunt brothers had a huge chunk of the worlds known silver, they started telling everybody that silver was in short supply, convincing many other investors to start buying silver, which helped fuel the price of silver. Eventually the brother’s started believing their own rumors and bought more. The Hunt brothers, allied with some Arabs, eventually ended up with about one-half of the world’s silver.

 

In 1980, along with action taken by the Federal Reserve & Wall Street, the price of silver starting dropping like a rock. It fell to less than $11 an ounce. The Hunt brothers lost just about everything they had, then arrested and convicted of conspiring to manipulate the market. Thousands of other investors, as well as some investment firms, lost everything.

 

Just a side note. I would be the first person to tell you I am not an originator of new ideas; far from it. So with that in mind, I will tell you I was actually shocked at the number of articles that made comparisons of the Hunt brothers silver venture to oil speculators when I went online to find a couple of articles to give you about the Hunt brothers silver dealings. I took that as validation of my comparison. I won’t reference any of those sites as you can find them as well as me, but below are a couple of sites on the Hunt brothers silver run in case you’d like to read about it in more detail.

 

A story – H.L. Hunt’s Boys and the Circle K Cowboys

 

An outline – The Hunt Family Silver Venture

Are Market Demands Created For Oil In Order To Influence Price?

August 21, 2008

 

The Facts

 

From early January thru late July of 2008 oil prices have gone from an average of $85 per barrel to as high as $144 per barrel, although as I write this the price is around $120 per barrel. A lot has been made about such a drastic and unprecedented price increase. Just about every imaginable reason has been given for the increases, ranging from the totally ridicules to reasons that can be easily believed. But the one reason that is most defended as not the reason is the one the vast majority of Americans believe to be the real reason; speculation.

 

On August 13th CNBC reported that oil demand was lower in December of last year than it had been since 1982. On August 15th they reported that gas usage was down for 16 straight weeks.

 

My View

 

If you actually pay attention to the business channels instead of just watching them, you will begin to notice a particular pattern. It is nearly always investment company spokespersons who are telling us what we should be investing in. Practically every segment of every show will have one or more of these spokespersons as part of the discussion. Even if a particular recommendation is not currently doing well, we are always told that it’s going to make a turnaround, and probably soon, so we need to be poised to take advantage of it.

 

Now I realize these investment “experts” are the ones who are supposed to have their ear closer to the ground, so-to-speak, about what is doing good, what is doing bad, and what the future looks like relative to investment opportunities. But every one of them has a vested interest in what they are recommending; therefore if folks don’t invest with them, they’re out of business. Just a few days ago I wrote a post about this very point, singling out a particular oil speculator who was insisting oil would go to $200 a barrel; therefore we should jump on the band wagon.

 

Today as I watch several of those oil speculation boys hype their product, I suddenly got visions of another attempt to create a market many years ago. If you’re younger than 35 years old you probably won’t remember the Hunt brother’s, Nelson “Bunkie” & William Herbert, but you may have heard of them. The story begins with them deciding to buy precious metals, mainly silver, to hedge against inflation. Then greed set in; they decided to corner the market on silver. And it worked in sorts, and they were almost successful.

 

When the Hunt brothers first begin to buy, silver was around $1.95 per ounce. Six years later it was about $5. Less than a year or so later it was $50 an ounce, and then peaked higher. Once the Hunt brothers had a huge chunk of the worlds known silver, they started telling everybody that silver was in short supply, convincing many other investors to start buying silver, which helped fuel the price of silver. Eventually the brother’s started believing their own rumors and bought more. The Hunt brothers, allied with some Arabs, eventually ended up with about one-half of the world’s silver.

 

In 1980, along with action taken by the Federal Reserve & Wall Street, the price of silver starting dropping like a rock. It fell to less than $11 an ounce. The Hunt brothers lost just about everything they had, then arrested and convicted of conspiring to manipulate the market. Thousands of other investors, as well as some investment firms, lost everything.

 

Just a side note. I would be the first person to tell you I am not an originator of new ideas; far from it. So with that in mind, I will tell you I was actually shocked at the number of articles that made comparisons of the Hunt brothers silver venture to oil speculators when I went online to find a couple of articles to give you about the Hunt brothers silver dealings. I took that as validation of my comparison. I won’t reference any of those sites as you can find them as well as me, but below are a couple of sites on the Hunt brothers silver run in case you’d like to read about it in more detail.

 

A story – H.L. Hunt’s Boys and the Circle K Cowboys

 

An outline – The Hunt Family Silver Venture 

Oil Price Predictions Vary By 150 Percent

August 13, 2008

 

The Facts

 

Almost on a daily basis we have people predicting what the price of crude oil will go to. Each gives us their reasons for believing their numbers. Over the past month I’ve heard numbers ranging from $80 to $200 a barrel, with occasional mention of higher numbers if certain major events occur around the world. And usually a time table accompanies the prediction, ranging from now to the end of 2008 to mid 2009.

 

My View

 

Most of these “expert” oil price predictors I am referring to are usually the owner/CEO and/or funds manager with some sort of investment company. In other words, someone who has something to gain with their predictions. On August 6 Aaron Smith, Managing Director of Superfund Financial Singapore, was on CNBC. He, too, has his own predictions. His company deals in diversified futures funds.

 

During the interview I listened intently, as I usually do, and with the introduction of Smith and his company, the word “futures” impacted me. And it was from that point of view I listened to the interview. The very first question CNBC’s Arnold Gay asked Smith was about his prediction that oil would go to $200 a barrel. Smith went on to “justify” his prediction, not failing to point out that oil is really up from a “technical” standpoint and that its normal for oil to have a “20 to 30 percent pull back” during its trip to $200. Smith finished his answer/response by saying “this pull back is a great opportunity for investors”. The interview was nothing more than a “commercial” for Superfund Financial Singapore, but Gay did mention that the company sounded more like a hedge fund, pointing out the huge risk that is associated with hedge funds. Naturally, Smith defended that position.

 

This interview reminded me all too well of the hundreds of phone calls I’ve received over the past 15 years from investors trying to get me to invest with them. Without fail, those hard core sales people were “extremely excited” about one particular sector or stock they wanted me to invest in. I never fell for any of this, but on more than one occasion, I did follow the particular stock they insisted had only one way to go and not once did I see anything near what the sales person had predicted. In most cases, the stock went down. But with oil, we can now safely say (with hind site) that if enough money is invested in oil futures the price will certainly rise very sharply.

 

To the point; if you are an investment firm, there is absolutely nothing to gain and everything to loose if you predict a commodity or stock price will fall. So how can they be believed? But if there is a proven track record on how to increase the price of oil and you use that same method, the odds are in your favor. Then with success, the investment firm can proudly boast their predictions were correct. And in this case, $200 oil.

Who Gets The Oil The US Produces?

July 16, 2008

 

The Facts

 

Since the price of oil has increased so dramatically over the past several months, there’s been a lot of lobbying to open up restricted areas for drilling and oil production. President Bush has not failed to mention this each and every time he gets in front of a microphone. Many Democrats are against this, as are most of the environmentalists. Without fail, those who are in favor of opening up the restricted areas justify the need by proclaiming we, America, must become independent of foreign oil, and bring down the price.

 

My View

 

Earlier this month I wrote a post entitled “Why Oil Prices Are What They Are” where I addressed the absence of competition in the oil industry. One of the reasons for this absence is that all the crude oil produced in the world goes into a single “bucket”, where the price is set to all countries and customers, regardless of who produced it. With that fact in mind, just exactly why are we suppose to believe America will become independent of foreign oil if we start producing more oil here in America? And just exactly how will this bring down the price of crude oil here in America if foreign countries like China and others continue to increase their consumption?

 

I worked in the oil and gas industry for many, many years, and just about all of that time was spent offshore in the Gulf of Mexico. And there is one thing I can personally attest to; safety and environmental records have improved so much since the early-to-late 1980’s that it’s almost a non-issue, and will continue that way if current regulations continue to be imposed on the oil companies, including the smaller oil producers. By comparison, onshore plants, refineries, and facilities can only dream of being as good. Therefore, I can not oppose to opening up restricted areas if those same laws are applied AND enforced. But Bush, Chaney, nor any other advocate can convince me we will become independent of foreign oil or the price will come down just by opening up these areas. That argument is nothing but a smoke screen to give the oil companies access to more product so they can grow bigger and wealthier. This fact is more evidence this administration and their supporters are working only for the oil companies and other big business, and have absolutely no concern for the middle and lower class. It’s also evidence they have absolutely no problem lying to the public in order to achieve their goals. Remember their resistance when Congress pushed to curtail adding crude oil to our reserves while the prices were so high? Remember how they said our reserves would dwindle and we couldn’t afford that? Well, the price of crude oil dropped $6 per barrel today when the new numbers came out. Crude oil stocks rose by 3 million barrels; gasoline was up 2.4 million barrels; and distillate rose by 3.2 million barrels. And that’s with refineries operating at just over 87%. Just more evidence of the lying. But why should the lying surprise us; this administration has demonstrated on many occasions they have no problem lying about anything to achieve their objectives. And to think we (including me) called Bill Clinton the biggest liar of them all. Thank God Bush didn’t have sex in the oval office, or we’d really be upset with him.

“Bill Phillips Big Oil Letter” Update

July 12, 2008

 

The Facts

 

Today I received a comment on my original post about the letter that is going around entitled “Big Oil” by Bill Phillips. (In case you haven’t seen it, the letter suggests Bill Phillips is a descendant of Frank Phillips of the infamous Phillips Petroleum Company, which is supposed to qualify him on oil and oil politics.) The comment is by Randy Phillips, who says he is a descendant of Frank Phillips. I use Randy’s name in this post, as he proudly used his name with his comment to my original post, so I don’t think he would have a problem with me using it here. You can read Randy’s comments by linking to my original post, but the following is his comment.

 

“The assertion that “Bill” Phillips wrote this article under the auspice that he is a relative or more accurately a direct descendant of Frank Phillips the founder of Phillips Petroleum is fraudulent. There is no Bill Phillips born under Frank Phillips. There are only a total of 17 blood offspring to date to the present fourth generation (where it current ends). 14 are still living; I am one of them. None of us has the name “Bill”. Not one of us has EVER worked for Phillips Petroleum or the merged Conoco Phillips. So, if you believe this letter was written by a credible source, I’m afraid you are mistaken. If it’s discussed further it should be noted that this is written with a fraudulent endorsement by a non-existing person.”

 

My View

 

I also made a comment on my post in response to Randy’s comments. In that comment I said it was for that very reason I inserted the last paragraph in my post, which suggest that Bill Phillips may not have written the letter and that it may be fraudulent. As I also suggested there are no limits to what many will do to achieve their objectives, and this “Bill Phillips letter” proves that. I have little doubt that Randy Phillips is real, as his location and email address is available to me, and I doubt anyone would make that available if they weren’t genuine. As you may have noticed in the infamous letter (if you’ve read it), no such information was made available to confirm that it’s genuine.

Oil Man Bill Phillips’ Political Scare Tactics

July 3, 2008

 

The Facts

 

You may have already received an email from a friend (with content inserted, attached, or a hyperlink) of an article (or letter) supposedly written by Bill Phillips entitled “Big Oil”. Or, if you have “googled up” the words “big oil”, you most certainly have found this article. Bill Phillips is a descendent of the infamous Phillips Petroleum Company owner(s) (now ConocoPhillips), and, according to the intro to the article (obviously by someone else), has been in the oil business for “nearly 50 years”. If you read his “Big Oil” article, there can be no doubt that Phillips is casting a vote for the Republican Party and denigrating the Democratic Party. It’s all about which political party is responsible for the oil crisis, the high price of gasoline, the devalued dollar, & other things, and who should be in political control of the country.

 

My View (& some more facts)

 

I learn of this article from a friend who included me in an email he sent out to his friends. Of course, my friend is of the “Republican” persuasion, which is fine with me, so I wasn’t surprised to get it from him. But what’s ironic is that people will read these sorts of things and, because it says what they already want to hear, they buy into it hook, line, and sinker without questioning anything or doing any research on it. In this case, since Bill Phillips has “spent nearly 50 years in the US oil and gas industry”, many will considered him an “expert” on the politics of oil, and on the “facts” about oil production. But once you start doing some research on his “facts”, you find they are very slanted in favor of his politically views, and in some cases, absolutely not true.

 

Take his quote on royalty percentages; he says outright that the “government collects 25% on the gross oil”, implying that every barrel that comes out of the ground is charged a 25% royalty. (He also implies that he’s talking about the Federal government.) But the actual published percentage’s by the Federal MMS (Minerals Management Services) is 1/6 and 1/8. Some states also charge a royalty, but that is negotiated at a state level and has nothing to do with the Democratic controlled Congress. Some states & private land owners can charge up to 25%, but that is negotiable.  But not everyone pays a royalty. If the cost of production is high, the MMS can, and often does, forgo the royalty. He also doesn’t point out that a large portion of charged royalties never get paid. In addition, oil prices are adjusted upward to offset the royalty cost, just like manufactures adjust their cost upward to include any taxes they pay. (Besides, if all royalties were dropped today, we’d see no decrease in the price of crude oil, and everyone knows that.) So Bill Phillips quoting 25% as a blanket cost for royalties is very, very slanted, and borders very close on being an outright lie. And, of course, he doesn’t point out what the royalty money is used for. For example, The Land and Water Conservation get a huge chunk which is used to acquire parklands and to maintain them. The actual government policies that govern all this is very lengthy and puzzling, just as all government documents are, but this site gives you a brief look at oil and natural gas royalties.

 

The same slanted “facts” applies to the first several paragraphs of his article relative to his “definition” of big oil. He has slanted these “facts” so bad, they can’t even stand on their own two feet without falling over. To point out all the slants here would take a lot of paper, but you can easily find unbiased facts all over the internet that reveal the real truth.

 

Another of his “facts” is slanted pretty badly. He tells us “your dollar is now worth 0.62 Euro-cents”, and blames the Democrats for that. That dollar value is right on as of today, but what isn’t true is his blaming the Democrats for that. Between 2000 and 2006, with a Republican in the White House and the Republicans controlling Congress, the dollar fell from about $1.20 to about $.75 against the Euro. Therefore, using Phillips’ analogy, a Democrat Congress under a Republican President is responsible for a 17% drop in our dollar, but under a Republican Congress and Republican President, the dollar dropped 40%. Can you see any “politics” here?

 

In my research on this issue, I literally found dozens of sites that address the Bill Phillips article. I was quite surprised at the amount of places carrying his article and the responses to his article. A lot of the responses are opinions, but some actually address the issues of his article. You can find them as well as me, but this one (a blog), although not “official”, takes each of the articles paragraphs (or part of a paragraph) and addresses it. I can only say that it is “interesting”, but not known to be factual.

 

One other thing I should point out here; the Democrats have not passed one single piece of legislation in the past 18 months that has caused the price of crude oil to rise. (That’s the time they have been in control of Congress during the Bush administration.) Thus, about the only thing Phillips and others can say about that is that prices have risen simply “because Democrats have controlled Congress”. Naturally, they could not produce any evidence of support, but they could say it without fear of anyone producing evidence to the contrary. But there is one fact they can not deny; oil prices have risen 600% over the past 7 years. And guess who’s been in the White House for those 7 years; Republican George Bush. And that party also controlled Congress for almost 6 of those 7 years.

 

Here’s my point on the Phillips article; it is politically & selfishly motivated. If you already want to believe that the Democrats are bad and Republicans are good, you will like it and believe it; if you have different beliefs, you won’t. If you are like me, and don’t believe either party is taking care of America and its citizens as a whole, including our oil crisis, you will question everything Phillips says, just as you should with any article like this, whether it is slanted in favor of the Republicans or the Democrats.

 

Just yesterday I wrote this post on politicizing oil, and Bill Phillips has done that very well. And because he has “been in the oil business nearly 50 years”, he has accomplished his goal of convincing a lot of people he has the credentials to know what he’s talking about, and that the only way to go is with the Republicans. However, I doubt he’s made many converts; all those quoting him were already Republican supporters. All Phillips has done is given them more disinformation and lies to spread around to support their preconceived agenda.

 

Finally, I should point out this “fact”. In the hundreds of sites I researched, I have not found a single one that seems to the “official publisher” of the Bill Phillips article (letter). There may be one, but I haven’t found it. The “letter” is dated May 28, 2008 on every site I found, with only the site publish date differing. So you have to wonder; is this something that Bill Phillips really wrote, or just another of those millions of bogus “fact” articles that is constantly running around the internet and being passed around in emails?

Who Can Be Believed On Our Oil “Crisis”?

July 2, 2008

 

The Facts

 

Wilbur Ross, Jr., Chairman & CEO of WL Ross & Company, told CNBC today that there was no shortage of oil or a supply problem. He also said the fair value of oil is $100 per barrel, but oil was trading as if Israel had already invaded Iran. Ross went on to say that the growth in oil demand was only 2%, which contradicts what many others are saying. (See one article on how Ross makes his money.)

 

On a different segment of CNBC, John Hofmeister, recently retired President & CEO of Shell’s US Operations, said there was plenty of crude oil for the next 30 years. In that particular segment of the show, he said that the oil industry had hurt itself by being “too Republican”. In another segment, Hofmeister said there was lots of oil offshore in Alaska that is not restricted, but it would be a little expensive to produce due to the environment and sea life, and that an infrastructure would have to be built to move the oil. What he didn’t say was an infrastructure would also be needed if drilling was allowed in Anwar (ANWR). Finally, in another segment, Jeff Kruper, the Department of Energy acting deputy secretary, kept saying that opening up restricted areas was the only answer to lower prices. He works for George Bush.

 

My View

 

The real problem in getting to the truth of the matter is that crude oil has become politicized, and since politics has become nothing more than the dissemination of disinformation and outright lies, who can believe them. Maxine Waters, Democratic Congresswoman from California, has threatened to nationalize all the oil refineries so Congress can regulate the price of oil and gasoline. She has support in that from Democratic Representative Maurice Hinchey from New York. Now that’s just what we need; our “efficient & effective” government regulating our oil and gas supply. But this just goes to show you how politicized this has become, with nearly all Republicans doing everything they can to support whatever the oil companies want.

 

The oil companies and their political supporters seem to be speaking with forked tongue. They keep telling us the reason for high prices is a crude oil shortage. But at the same time they are complaining about being blocked in building refineries to refine all that oil they are producing, yet existing refineries are not operating at full capacity, mostly by choice. Can they have it both ways? It’s kind of like our tax system; if you make it confusing enough that the average person can’t understand it, it then becomes easier to fool the public. And those who believe prices will come back down if more drilling is allowed are complete fools. That is never going to happen simply because more drilling is allowed, although I am a mild supporter of opening up many of the restricted areas just so we can began to become independent on foreign oil.

 

As John Hofmeister said, by becoming too Republican, the oil companies have not helped the problem. But that’s because the oil companies & other big businesses have convinced the Republican Party that the only way to govern the country is through big business. Naturally, the Democratic Party is going to fight that with every tool they have at their disposal, which, in the end, is no better than letting big business govern the country. We, the people, do have alternatives to both parties’ ideas, but we don’t have time to do anything about it, what with us being too busy supporting our favored party and arguing with each other.

 

With his retirement, John Hofmeister has started “Citizens for Affordable Energy”. Hofmeister is the Founder & CEO. He talks about it in his “Parting Shots” on the show today. Hofmeister says it is pro-consumer and will be a bipartisan, non-profitable organization that will be exploring alternative and affordable energy, with short, medium, and long term goals. He goes on to say that the citizens will be part of this, because they don’t have a voice now. The citizens, he says, put politicians in office to work for them, but Congress is working for themselves. He calls it “partisan paralysis”. Hofmeister acknowledges there are existing organizations who claim to be doing the same thing, but their membership does not include the average person. He says CAE will not be that way. We’ll see.

Why Oil Prices Are What They Are

July 1, 2008

 

The Facts

 

Crude oil prices have more than doubled in the past 15 months. As consumers, we are given any number of reasons for this, depending on who we are listening to. The most quoted reason is supply & demand. However, many of us can not accept that “supply” can decrease so rapidly relative to “demand”, or “demand” can increase so rapidly relative to “supply”, during a one-year period of time that it justifies a 100 plus percent increase in price. Ironically, most who say oil prices are justified or unjustified seem to be divided along political party lines. Those who say price increases are justified seem to be of the Republican persuasion while those who say they are unjustified seem to be of the Democratic persuasion, with very rare exceptions on both sides.

 

My View

 

In 1870 John D. Rockefeller started Standard Oil Company of Ohio with three other partners, but later bought them out. Then he became a monopoly through shear ruthlessness. By 1890 his monopoly could fix its own prices and terms of business because it had no competitors (quoted). By 1896 Rockefeller was worth $200 million ($5 billion indexed to 2007). But being a country of laws, one which forbids monopolies, the Supreme Court broke up Standard Oil in 1911. But that didn’t stop Rockerfellow and future business men in our country from aggressively pursuing ways to monopolize their product. About the only thing the action against Rockefeller did was tell these thieves they needed to find “legal” means of monopolizing, and if there were no legal means, bribe the countries lawmakers to pass laws that would circumvent the monopoly laws. And that has been done very successfully.

 

Not one single person today could make a viable argument that oil companies are competitive. There just simply isn’t any competition between them other than negotiating for sites where they want to drill for oil. Even at the retail market of gasoline, there is no real competition. And where there is no competition, prices are controlled; hence, a monopoly. (Occasionally, the retail owner will vary the price of gasoline a penny or two out of his own profits as a competitive edge, but the price to the retailer is set daily to include all of them.)

 

Take a look at all the places in the US where oil is produced; Alaska, Gulf of Mexico, the mountain ranges, west coast, etc.; even from abroad. Once the oil comes out of the ground and volumes recorded, it all goes into the same “barrel”. (“Barrel” is described as pipeline, tanker trucks, tanker ships, storage tanks, etc.) One market pays the same for all crude oil produced (by grade), no matter where it comes from. It doesn’t matter what oil company you are talking about, they all get the same price for their oil at any given time. Hence, a monopoly. No incentive to produce oil more economically for the purposes of competition. Now compare that to, say, the auto makers. For every compact car that rolls off any assembly line let’s charge the same sale price; for every full size car that rolls off any assembly line lets charge the same sale price; etc. etc. etc. You get the point. The results? No competition; charge any price you want or what the market will pay. How about appliance manufactures? Refrigerators, for example. All 19 foot refrigerators, same price; all 21 foot refrigerators, same price. How about all 4 ounce chocolate candy bars; lets charge the same price regardless of the manufacturer. (There’s a name for this kind of market, but we Americans don’t use it because it doesn’t coincide with a Democracy or a Republic.)

 

We must remember one thing; when our constitution and laws were set up, there were a lot of arguments about who should run (control) the country. Was it to be made up from all the citizens, or only the wealthy (people of “means”). Remember, our forefathers had just fought a war to free themselves of an “upper class” tyrannical government. So the majority of our forefathers won out; the country was to be ruled by citizens from all walks of life, not just by the wealthy. However, we have now, over time, silently elected a government that has successfully changed that. The wealthy and businesses control our government, albeit a government “elected” by the rank & file citizens. I demean the word “elected”, because the wealthy & big businesses have been very successful in convincing the rank & file citizens to vote the way they want them to vote through massive disinformation programs, propaganda, and just plain outright lies designed to tell people what they want to believe based on disinformation and propaganda.

 

Today you hear a lot about letting companies operate in a “free market”, especially in reference to oil companies. Confined to the basic definition of that two-word phrase, I completely support that theory. However, we have migrated to a point where the marketers want selected enforcement of that phrase.

 

Ever wonder why “a girl’s best friend”, the diamond, is so expensive. Not because of supply & demand based on how many diamonds mother earth produces. It’s because DeBeers controls over 90% of the worlds diamonds, and they put very strict limits on how many diamonds are released to the market over a given period of time. I’m not saying that there is a limitless supply of oil like there are diamonds, but when there is control without competition, you can charge any price you want.

 

The end results is that if we want to get back to paying a fair market price for crude oil and the products derived from crude oil, we must force the oil producers to move back into a competitive market. Without competition, oil companies are nothing more than a DeBeers, charging any price they want regardless of supply & demand or cost of production. However, we can’t depend on the Supreme Court to do that for us this time, as they are owned by the same people who own our elected officials.

 

Rockefeller, you won.

Oil Prices, Speculators, And The Saudis

June 23, 2008

 

The Facts

 

Oil prices are now a huge part of every daily news show and many discussion segments. It seems that anyone who is given the opportunity to be on television is offering their reason(s) as to why oil has doubled within the past year. Those reasons range from a basic supply & demand issue to a conspiracy issue. There is any number of explanations, with many variations, depending upon who you are listening to.

 

My View

 

On CNBC’s Power Lunch today there was a segment entitled Saudi Arabia Oil Summit. Kyle Cooper with IAF Advisors and Arthur Gelber of Gelber & Associates were the guest. CNBC’s Melissa Francis, who has just returned from the summit, participated in the discussion. Nothing unusual about this segment by today’s standards except for one thing Arthur Gelber said. While addressing what part speculators had played in the current price of oil, Gelber said (in reference to speculators) “a different word should be used”. My mind immediate turned to how the term “trickle down economics” has been changed not once but twice over the past decade or so. This latter term was changed because Wall Street & politicians realized the average American worker had become too savvy to what it meant, which was putting more of our tax dollars in the pockets of large businesses without any real return. So I wondered if there was an attempt to apply this same strategy to speculators. I didn’t have to wait long to realize my suspicion was right. In the very next segment, CNBC host were picking up on this. One even said maybe someone could come forward with a new word and definition. So here we go. If you are familiar with any of my stuff, you will already know my point of view on this; “if the definition of a word or phrase is uncomfortable to you, just change the definition or apply a different word”. One last thought on Gelber’s comment. On Gelber & Associates web site under “About Us & Our Work”, you will find the following; “Gelber & Associates is a nationally recognized energy consulting and advisory firm specializing in energy trading practices (bold added) and protocols”. So why do you suppose Gelber would like to use a different word for “speculator” in reference to what part speculators are playing in the price of oil. This bears repeating for this case: “If you are uncomfortable with the definition of a word, just change the word”.

 

 One other thing was discussed several times on CNBC today, and that was how production volumes would, or could, affect oil prices. Now we all know that under a true “supply & demand” scenario, as production increases to offset shortages, prices go lower. We have certainly been bombarded with that “fact” by the many politicians and oil industry leaders who are telling us that if oil companies are allowed to drill in restricted areas, oil prices will come down. Although I am in favor of opening up certain restricted areas, it’s very hard to believe them. All we have to do is look back over the past twelve months. Oil prices have doubled during that time. Are we to believe that the demand for oil has increased to such a level in just twelve months it justifies doubling the price? We have also been told by these same people that the price of oil will come down just on the news that we are going to open up these restricted areas. I have to certainly question that. With the news today that the Saudis has agreed to increase production by another 200,000 barrels a day, that brings the total production increase by the Saudis to 700,000 barrels over the past three months. And during that time oil has gone up about $30 per barrel. Added to that, gasoline usage has dropped by nearly 2% during that time in this country alone. Oh, sure, there could be all kinds of “reasons” argued for that. But there is only one real reason; the producers now know that, overall, most of their customers are willing to pay the current prices for gas. So it is no longer a supply & demand issue; it is an issue of “what people will pay”.