Gas prices do the darnedest things.

04 Mar

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.


8 responses to “Gas prices do the darnedest things.

  1. paxhonu

    March 6, 2012 at 4:02 pm

    Excellent article.

    I too have admired, if that’s the word, the third party passive used by everyone in the media from NYT to WaPo and even by Huffpo et all when referring to gas prices. They’re “inching up”, “raising their heads”, “having an early spring”, etc.

    Today we learn that Congress is working on this year’s new transportation bill, named of course by the House as the “American Energy and Infrastructure Jobs Act of 2012”. It intends to end any support for public mass transit in favor of highways alone, will leave states, counties, and cities, to repair and maintain bridges, byways, etc. without federal support at all, will require the full and immediate installation of the Keystone XL Pipeline because, well, just because, will continue without diminishment the enormous economic subsidies given to Big Oil while removing longstanding environmental protections, and just for good measure, curtail federal pension payments to government workers while simultaneously disfavoring union bids for public works just to make sure that the beneficiaries of these so-called Jobs bills continue to be not workers (or more accurately, would be workers) but a very small group of very large private multinational corporations and financial oligarchs such as Goldman Sachs who call all the tunes.


    • Teri

      March 6, 2012 at 4:36 pm

      Hello, paxhonu,

      I have written numerous e-mails to my “representatives” regarding the transportation bill, but I think perhaps the whole game is over. America was a wonderful idea. And none of this had to happen…rendition, torture, assassinations – even of Americans, the health-care giveaway to pharma, drones, wars, firming up all the industry cartels, the Gulf spill, TARP, the foreclosures and job losses – none of it.

      I really am heart-broken. I can’t even think of anything else to say.



  2. Kitt

    March 8, 2012 at 11:35 am

    Teri, another great and informative article. I know you’re distressed, as we all should be. The only way to stop this seemingly endless dive to finally inform the masses as to what is happening. Millions need to bet on board. That’s a very tall order, I know, but it is what we have to strive to accomplish.

    Here is a link from a couple of days ago to an Arthur Silber article addressing how to try to do that.
    PS…I’m linking your article to my facebook page in order to, hopefully, give your writing more exposure.


    • Teri

      March 8, 2012 at 2:12 pm

      Hey, Kitt,

      I saw that piece over at Silber’s blog. I thought it was a pretty good idea, and was hoping a few “big names” would get on board. Something like that could go viral, and God knows we ought to utilize all the venues available to get people to wake up. I am useless re: technology, but you better believe I would spread a video like he has in mind everywhere I could.

      Do you know if anyone is helping him with the project yet?



  3. Diego

    March 8, 2012 at 5:19 pm

    Hey, Teri,

    Strong article.

    If we had a truly “free press”, it would ask the right questions and put two and two together.

    All of this saber rattling is driving up the price of oil. Obviously. If a political figure (or party) is for a war with Iran, and says so, publicly, they are putting upward pressure on gas prices. Our Media should highlight the absurdity of anyone wanting both a war with Iran and lower gas prices. There is a major conflict between the two, etc. etc.

    The media, unfortunately, are silent about this, just as they never talked about the absurdity of wanting tax cuts for the rich and reduced deficits.

    This is often a very, very stupid country.


    • Teri

      March 9, 2012 at 8:14 am


      I just posted a very brief note about Morris Berman; I hope you have time to read at least the Nomi Prins interview with him that I link to in the post. Dr. Berman is very fun to talk to in the comment sections on his blog, despite the serious nature of his published writings and the topics discussed. He refers often to what he calls the “Dolt Factor” in the American population. I think that phrase pretty much sums it up.

      Thank you so much for taking the time to stop in here!



  4. Kitt

    March 8, 2012 at 7:07 pm

    Hi Teri,
    I don’t know if anyone is helping Silber yet. But I sent that link to someone in my local Occupy who is quite tech savvy, and who has also put together
    something similar to Silber’s idea for educating the masses. He was not aware of Silber before I sent him the link, and he was wowed by what he read. I’m going to be working with this person to get his project spread far and wide. And in doing that we intend to be in touch with Silber. So we will be following Silber’s progress, and we hope that Silber will be involved to some extent in our project as well.


    • Teri

      March 8, 2012 at 7:51 pm

      This is most excellent, Kitt.

      I’m so glad that someone is trying to do something – things cannot continue the way they are going. I am sure Silber will welcome you guys; I have always been impressed with his blunt honesty and was very bummed when it became apparent that no-one with solid means and a larger audience was going to pay attention to him or even offer to help with the project. There is nothing I can do to help with this particular project – being a technical moron, a really poverty-stricken technical moron – except cheer from the sidelines and spread the results around when the time comes. Keep me posted.

      Best, Teri

      And by the way, thank you for what you are doing – being involved in not only this project, but in Occupy and all.



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