Look at those gas prices go! Depending on where you get your news, gas prices are leaping, inching, crawling, surging, climbing, or soaring. It’s as though gas prices are some new autonomous genera of animal acting of their own volition. Genus Oleum pretium (gas prices); sub-species: normalis (regular), medius (mid-grade), superfluo (super), and diesel (maxius taxius? Sorry, no Latin for diesel). Gas prices seem to have raised themselves 50 cents per gallon since the first of Jan. No-one else is taking the blame, so they must have done it alone. Nasty creatures, oleum pretium.
Gas prices at the pumps are obviously related to oil prices. On the Brent market, oil, which was $80/barrel just 4 months ago, is now hitting over $120/barrel. The Brent is important because that is the market which sets prices for gasoline in the US and most of the Eurozone. It is rather funny how, just when the price per barrel was heading downwards because of weakening demand, a reason to inflate prices suddenly appeared. It’s almost mysterious.
Perhaps the oil companies were losing money and had to increase prices. (Snort.) The five largest oil companies made 137 billion in profit last year (that’s profit after expenses); in the past decade, they have made 1 trillion in profits. There is no doubt that in April, when the first quarter’s reports come out, we will hear that Exxon made record profits – again. Every quarter is a record quarter for Exxon.
Maybe it is high demand causing the rise in prices. I have seen that postulated in a variety of places. Yet demand is actually down, both in the US and globally. China’s demand was blamed for the ’08 increase, but now their economy is beginning to get a little shaky and their oil demand growth is slowing. Can’t blame it all on China this time.
Is it a supply problem? No. US supply levels remain fairly constant. As a matter of fact, we have enough of a supply that we are now a net exporter. We produce roughly 8 million barrels of oil a day as it is, and Obama opens new areas for exploration and drilling every day. No tree-hugger, that guy. It should be patently obvious that if we are a net exporter, there is no need to allow speculative drilling companies to tear up our country, use up our fresh water, and destroy our oceans. At some point, we need to realize that having clean water, arable clean land, and edible fish is a bit more important than destroying everything based on somebody’s guess about where oil is.
Right now, it is estimated that we might have enough oil in the ground to continue producing for about ten years if we keep on at the same rate. The only result of digging it up and using it up faster – which demand levels indicate is unnecessary – will be to run out that much sooner. And as I pointed out in my post of 15 Jan, “Bakkan, Keystone XL, and Fracking”, the amount of oil and natural gas thought to be under US ground is based on pure speculative guesses from the oil companies looking for new drilling leases. Take the time to read the linked article in the following if you haven’t done so already:
In a sadly overlooked article in the NYT (June, ’11) by Ian Urbina, industry insiders admit they have no idea how much oil and gas are in the shale formations and doubt that extracting the fuels will end up being cost efficient. If you take the time to read the entire article (please do – it is amazing what the industry insiders acknowledge to each other), you will view fracking in a whole new light. You might even want to look into green energy, mass transit, and other such assorted non-fossil-fuel alternatives. – Teri
Quoted article: Natural gas companies have been placing enormous bets on the wells they are drilling, saying they will deliver big profits and provide a vast new source of energy for the United States.
But the gas may not be as easy and cheap to extract from shale formations deep underground as the companies are saying, according to hundreds of industry e-mails and internal documents and an analysis of data from thousands of wells.
In the e-mails, energy executives, industry lawyers, state geologists and market analysts voice skepticism about lofty forecasts and question whether companies are intentionally, and even illegally, overstating the productivity of their wells and the size of their reserves. Many of these e-mails also suggest a view that is in stark contrast to more bullish public comments made by the industry, in much the same way that insiders have raised doubts about previous financial bubbles.
“Money is pouring in” from investors even though shale gas is “inherently unprofitable,” an analyst from PNC Wealth Management, an investment company, wrote to a contractor in a February e-mail. “Reminds you of dot-coms.”
“The word in the world of independents is that the shale plays are just giant Ponzi schemes and the economics just do not work,” an analyst from IHS Drilling Data, an energy research company, wrote in an e-mail on Aug. 28, 2009.
Company data for more than 10,000 wells in three major shale gas formations raise further questions about the industry’s prospects….
As I thought we would, we are again hearing about how we must fast-track the Keystone XL pipeline. The southern leg of this boondoggle is a go (which Obama “welcomes”). Ah, the Keystone. Such a deal. Dirty tar sands oil from Canada, dug up by a Canadian company, running through a pipeline built by Canadian employees, going to refineries in Texas where the diesel will be sold on the open market.
Already, U.S. refineries are exporting records amounts of the gasoline they make. For the first time in 62 years, America is now a net petroleum exporter. Valero Energy Corp., the largest U.S. exporter of refined petroleum products, is a major lobbyist for Keystone XL. Along with Motiva (an oil refiner jointly owned by Shell and Saudi Aramco) and Total (a French refinery), Valero has signed secret, long-term contracts with Keystone’s owner (TransCanada Corp.) and several tar sands oil producers to bring this crude to Port Arthur, Texas. All three have upgraded their refineries there to process diesel for export.
Adding to Big Oil’s enjoyment is the fact that the Port Arthur refineries of Valero, Motiva and Total are within a Foreign Trade Zone, giving them special tax breaks for shipping gasoline and diesel out of our country. And adding to the dismay of some U.S. consumers, TransCanada has quietly boasted that Keystone XL would cut gasoline supplies in our Midwestern states, thus raising prices at the pump and siphoning more billions of dollars a year from consumers’ pockets into the vaults of multinational oil interests.
In a pinch, Saudi Arabia will always rescue us, right? They’ll shore up our supplies; they are our friends. Except that Saudi Arabia’s reserves are falling 3% a year and they really want oil prices to keep going up.
So why are the gas prices leaping about? Three reasons: speculators, the tension with Iran (which is part of what is driving the speculation), and because the oil companies want more money. One minor thing was that the oil companies just lost their ethanol subsidy, and this immediately raised prices at the pumps on 1 Jan. Hey, why should they endure any loss of profit at all? Even if it does mean that the consumer will get hit with higher food and energy prices as well, which are affected by gasoline and diesel costs. (Even without the subsidy, these guys make out okay on the ethanol switcharoo – adding ethanol reduces your gas mileage by about three miles per gallon so that you have to go fill up more often than you would if the gas were ethanol-free. Great stuff.) Truth is, they simply want money. A lot of it. They will raise prices whenever they want. As one of my Southern cousins would say to emphasize a point or mark agreement, “Tell you what!”
Speculation in the markets is the same sort of crap that got us in trouble with the housing market, but this time they are wreaking havoc with the commodities markets. It’s the same players though – Goldman, Sachs et al. They managed to get a few loopholes quietly opened for speculation in the commodities markets – loopholes that exist for only a few very specific companies – and were allowed to create a new form of investment called index speculation. They are screwing with the markets in brand new complicated ways and have completely thrown out the traditional role that speculators used to play, which was to provide a place for the producers and buyers of actual physical products to buy or sell their goods.
Equally important is the role of Wall Street financial speculators. According to the Commodity Futures Trading Commission, which regulates energy trading, the proportion of oil trades made by pure speculators—those who never take actual possession of the oil, but are simply betting on the price—has shifted in the last five years from 30 percent to nearly 70 percent of the total.
CFTC Commissioner Bart Chilton told ABC News that the “speculative premium” on oil was about $23 a barrel, or 56 cents for a gallon of gas. This vast sum goes straight into the pockets of the same Wall Street firms that crashed the world economy in 2008 through speculation in real estate mortgages and were bailed out by the Bush and Obama administrations.
“Speculation is now part of the DNA of oil prices. You cannot separate the two anymore. There is no demarcation,” Oppenheimer & Co analyst Fadel Gheit tells McClatchy News. “I still remain convinced oil prices are inflated.”
Carl Larry of Oil Outlooks and Opinions adds in a recent report that if Iran stops exporting altogether, crude market prices are estimated to hit around $130 a barrel in the immediate aftermath. Although the response would be the result of fear-induced speculation, the consequences could be catastrophic as the western world continues to teeter towards default.
“It is important to emphasize that a spike in oil prices would most likely inflict damage on the economic recovery,” Goldman Sachs say in their own just-published report. They expect crude to rise to $123.50 a barrel within 2012. [My note: As is usual with Goldman, Sachs “prophecies”, which somehow are unerringly accurate when it comes to predicting which funds are going to pay off, we see that they called this correctly. Brent crude is 123/barrel today. How do they do that?]
Speculators are working off the rising tensions with Iran. Tension, it must be noted, that we and Israel craftily created ourselves. Iran hasn’t actually done anything that was not a response to something we did first. We – or at least our media outlets, and at some point you better start trying to figure out who they really work for – claim that they are trying to create a nuclear bomb, yet this is not what the IAEA has found and not what our own generals think. Iran is enriching uranium to 3.5%; a nuclear bomb needs 95%. We began sanctions on Iran to get them to stop doing something they are not doing. We then got the Eurozone to sanction Iranian oil (although those sanctions don’t begin in earnest until 1 July); just the threat of all these sanctions and embargoes has ramped up speculation in the markets. My goodness, it was just in January that a US Treasury official (named “Anonymous”, the most frequently heard family name in American politics) claimed that the sanctions would not disrupt the global markets in any way. Iran then said it will cut off oil deliveries to Europe peremptorily themselves, which seems a fairly reasonable response to the economic war we have already begun against them. Most countries around the globe don’t care if Iran has a nuclear weapon, by the way, and find that the US and Israel are the greatest threats to world peace today. Hell, until a year or two ago, most Americans didn’t care if Iran had a nuke.
So here we are, sanctioning and embargoing a country, deliberately trying to drive its people into poverty (still talking about Iran here, though you might sensibly begin to wonder about the true target), which another member of the Anonymous family admitted the other day – and the results are: some European countries may lose a significant source of oil, gas prices in Europe and the US are sky-rocketing, and a whole bunch of other countries (there are other countries out there – you know that, right?) are going off the petrodollar. The big oil companies and too-big-to-fail banks are making out like bandits, as usual. The American “recovery” may well be smothered in its infancy, as gas prices are followed inevitably by upticks in food and energy costs. High oil and gas prices have preceded every recession since the 70’s. Well, this will sure teach those Iranians a thing or two….oh, wait. Who is being taught a lesson here? I mean, think about it. When you take a look at who is being affected by the Hate On Iran campaign, check out your last grocery bill or your last gas station receipt. And your new little part-time job is not going to cover the bills as they continue to rise. Actually, you may not have that job too much longer. Any company that dared to start hiring recently may quickly find that they need to lay off workers again very soon, as their costs increase. Just wait until March 20, when the Tehran bourse starts trading in other currencies besides the dollar, if you think gas prices are high now. And, by the way, has it occurred to anyone that Iran is ironically helped by rising oil prices? The funds they lose by the sanctions are partially replaced by the fact that the oil they do sell is bringing in higher prices. And quite a few countries have declined to mess up their own economies or trading relationships by going along with the insane US/Israel “plan”; Iran will continue to sell its oil.
And our leaders are doing this knowingly. They absolutely understand what is happening to commodity prices. Why are they doing this? Just to show support for Israel in its weird obsession with Iran, an obsession they have managed to entangle us in? Iran has not threatened the US. The US is daily threatening Iran. Factually, Iran has not even threatened Israel. Look, Israel is not part of the US. If they want to go after Iran for some strange reason, have at it. Knock your freaking socks off. There is no sensible reason for us to allow ourselves to be duped into fighting a proxy war for them, a war that would be another trillion-dollar hole in our bucket, a war that would be yet another illegal, baseless war of aggression on a country which has caused us no harm and threatened us in no way. In fact, the whole thing makes so little sense that one might wonder if there is more to all this than the Israel-first lobby testing exactly how far out on that limb they can shove us.
As our media obediently whips up the hate for, and fear of, Iran, they also prepare us for further gas price shocks. “$5 a gallon gas by summer?” the headlines ask. You read the articles and are given no good insights into the why of it all, just some nonsense about “summer prices arriving early”. Oleum pretium did not see his shadow this year and has crept out early. But the point of these articles is not to teach you about index speculation or the profits of commodities traders or even to point out that someone is making some kinda serious dough off all the cavorting around that gas prices are doing. The media is doing its job and doing it well. They are softening up the mark. It all becomes a self-fulfilling prophecy, and we are being prepared to accept our fate. We are the mark. We ought to make some effort to find out who the grifters are.