But there’s still a base inherent wisdom that doesn’t follow here in two areas.

Perhaps you can lend your thoughts to my questions, yes?

Perhaps there is another component that has not been mentioned yet – intentional market manipulation. Goldman Sachs and Morgan Stanley, two Wall Street firms, are among the biggest cheerleaders for a rising price of oil. They are also, along with OPEC sovereign wealth funds, bigger players than most other players in the market combined. Any “demand” from their buying is of course not real. With just $12 billion, one of these mega-players could buy up a million leveraged futures contracts with a roughly $12,000 initial margin deposit, and control a billion barrels of oil. If Friday July 25 was a typical day for volume, crude oil looks like it had about half a million contracts traded. One could easily imagine one of these mega-funds establishing a leveraged long position, then buying more to tip the balance to buyers over sellers several days in a row and make the price go up to help their already-established positions. The futures market does not distinguish buying for consumption from buying for speculation from buying for manipulation or cornering. The CFTC is of course in charge of stopping such activities, but they only get trader positions and trading activity from the NYMEX and Chicago MERC. As an Asia Times article reported, the door was opened wide to manipulation in 2006 and 2007 when additional exchanges, the London ICE and the Dubai oil exchange, opened up and started trading the same crude oil contract as traded on the NYMEX. The mega-funds could choose to route their orders through those exchanges to avoid detection by the CFTC.
Mega-funds could just keep rolling over their futures contracts, or some might take delivery and need a place to store the oil. Goldman Sachs is said to have rented oil storage facilities all over the world, a curious thing for a supposedly financial firm to be doing. The only country to report oil inventories on a regular basis is the U.S., and the weekly EIA inventory reports only count inventories held by companies in the business of using and refining oil. Inventories held by investment banks, brokers, and floating around the oceans in tankers (“Hide the oil”) are not counted, though they are inventories just the same. Production and consumption in other countries (e.g., Russia and China) can only be guessed at – those two countries even consider their oil figures a state secret.
Another curiosity that would be consistent with big-money firms dominating the market and moving them practically at will is that on June 5, Goldman Sachs announced an asset sale of $28 billion. Frenzied buying moved oil $5 a barrel higher that day, and then another $10+ a barrel the following day. I wonder how much of the buying was by Goldman Sachs with that fresh $28 billion.
Another explanation I have heard is desperation. The really big velocity moves up began last September in the wake of the sub-prime part of the credit crisis. Banks and investment banks got caught with a whole lot of junk derivative debt that they suddenly couldn’t unload, which blew big holes in their balance sheets, and continues to enlarge them to this day. Out of desperation, the financial institutions started to run the commodity markets higher by buying them with all the money they could get their hands on, hoping to make commodity market profits to offset their derivatives losses. We have seen the energies, the metals, the grains, and the “softs” all take off since last fall. Apparently these financial institutions will do ANYTHING in an attempt to survive, even if it means starving the poor of the world with sky-high food prices.

If manipulation (or market cornering) has played a significant part in oil’s price rise, we may only find out for sure if Goldman Sachs, Morgan Stanley, or anyone else involved goes broke the way Bunker Hunt did trying to corner the silver market. The free market seems to have a strong tendency to deal its fiercest vengeance against market manipulators and market cornerers.

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[...] are: 1:?

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All I know is that during the decades of you folks denying us the right to drill for our own oil the price has gone up, up and UP!

If this is the case, why do you call the recent uptick in gas prices the “Pelosi premium?” Come to think of it, until quite recently, the Republicans were in charge of congress for quite a while. I wonder how this problem that is, as you say, decades in the making all gets laid at the doorstep of someone who has been Speaker for well under two years.

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Dave Noble: Why don’t we just drill here, drill now and find out if your theories are correct?

All I know is that during the decades of you folks denying us the right to drill for our own oil the price has gone up, up and UP!

I find all the excuses you folks have for drilling rather specious. Especially when considering how you demand we should drill on the 68 million acres already leased for oil drilling whether or not there is oil there. If it’s ok to drill there, why not drill everywhere?

P.S. That’s not Sean Hannity’s “Drill here, Drill now” petition. If you had been listening closely, you would have known this idea comes from Newt Gingrich’s American Solutions outfit. And everyone who understands that this is a supply side issue should sign the petition.

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I heard an interesting discussion on the Sean Hannity show the other day. A caller noted that he signed Sean’s “Drill Here, Drill Now” petition. He then challenged Sean on the certainty of the economic impacts of drilling now. Sean reminded him that it was a simple matter of supply and demand. He noted that if we increase the oil supply with our newly developed resources, the price will go down. [Sidenote: This assumes static demand. When you look at India and China, that doesn’t seem likely]. Then the caller raised this issue: If we raise the supply with our oil, won’t the other oil producers [good capitalists that they are] reduce their production to compensate and thereby keep the price high? Sean then responded that we would keep all the oil drilled in the United States in the United States. Full stop.

How would we do that? How would we induce the oil companies to sell their oil only in America when they can get a higher price elsewhere? Would we appeal to their patriotic duty? Wouldn’t we have to declare that oil pumped from United States territory is United States oil? But wouldn’t that violate free market principles and be in effect the nationalization of our oil reserves?

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How quickly will we be lulled into a catatonic stupor by Saudi promises of increased oil output?

Now that we’ve alarmed their obscenely wealthy princes by cutting down on our consumption in the face of budget busting prices, are we going to stick our heads back in the Arabian sand and put our urgency to fund and implement alternative sources of energy on the back burner?

Are we going to drill closer to home instead of innovate? And if we’re going to pay the price to drill, can we use an equal amount of resources to find a way to harness the energies of the sun, the seas, and the subterranean so that we’re not compromised politically and ethically by our need for fossil fuel from people who don’t much care for us or how we express our freedom?

Are we that easy to manipulate?

Are we as intellectually lazy as we’ve shown ourselves to be over the last 8 years, voting for a friendly fella whose idea of research in college was finding out which New Haven 7-Eleven carried Heineken by the case?

Are we ready to wake up?

http://www.loosekannon.com

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[...] about Daniel Yergin’s anticipated testimony before Congress today when, simultaneously Harry Bergeron made a comment about him on my post, Desperately seeking blame for oil [...]

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What to blamefor high gas prices??…

Mataharleyover at Flopping Aces did a great job in investigating the reason gasprices are rising. It is a combination of things,butit seems that suply/demand is the main culprit, alongwith einiery capacity. But the oil speculator scontribute a little a…

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#11 But it’s interesting there was an int’l decline in usage from late 70s to early-mid 80s. Anybody know what that was???

I suspect part of it was the infamous “stagflation” of the infamous Carter years.

#13 …the stockpiling to which I refer isn’t actually physical storage, but oil contracts that can be sold.

Then that “stockpiling” is just speculation, plus the ordinary operation of the futures market. That market is absolutely necessary to the orderly supply of commodities to manufacturers. Whoever owns a particular December 2008 crude contract, that oil will not be available before then and it has to be delivered then, whatever the price. The spot market is higher because it is only for those who don’t have enough for current needs.

If we try to eliminate speculation in oil futures, speculators will just move to Dubai. Daniel Yergin just today testified to Congress that speculation is NOT a problem. His book, The Prize, is a must-read for those who want to understand oil.

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You’re welcome, Mr. Harry. But the stockpiling to which I refer isn’t actually physical storage, but oil contracts that can be sold. Gosh darn, what a tank that would be, eh?

But physical storage, indeed even transporting oil in the supertankers… most of which have to round the Cape of Good Hope thru treacherous waters… is quite the big deal. Read a book a long time ago that stuck with me… Supership by Noel Mostert published in 1974, before they had double hulled ships. Amazing book. Somewhat dated, but still very relevant.

As I mentioned near the end of the post and to Suek, refining adds costs to the pump and I do address the lack of processing facilities and mixed fuel. So yes, it is a culprit for our own pump prises. But the price per barrel comes before the refining process. So somewhat unrelated on that level.

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