Gas Pump Gouging: Don’t Blame the Saudis

There is no oil shortage, not yet at least. That doesn’t mean we’re not quickly sliding towards Peak Oil. We probably are, but that has nothing to do with today’s gas prices. The reason oil has skyrocketed to nearly $140 per barrel is because of speculation, rampant, “unregulated” speculation. The peak oil doomsayers are simply confusing the issue. This is not about shortages or scarcity; it’s about gaming the system to fatten the bottom line. The whole scam is being executed by the same carpet bagging scoundrels who engineered the subprime fiasco; the investment bankers. The Wall Street Goliaths are using the futures market to recapitalize their flagging balance sheets after sustaining massive losses in the mortgage-backed securities boondoggle. That’s the whole thing in a nutshell. Now they’re on to their next swindle; distorting the futures market with humongous leveraged bets on food and oil.

MarketWatch summed it up like this on Monday:

Speculators now account for about 70% of all benchmark crude-oil trading on the New York Mercantile Exchange, up from 37% in 2000… The report comes ahead of a House oversight subcommittee hearing slated for later Monday on Capitol Hill to study the role of financial investors in the crude futures market.

Congress has grown increasingly concerned over speculative investors’ role in the energy market in comparison with those buying futures contracts to hedge against risk from price changes. Lawmakers are expected to consider legislation to set strict limits — or in some cases, an outright ban — on speculative trading in energy futures in some markets.

In 1991, the Commodity Futures Trading Commission authorized the first exemption from position limits for swap dealers with no physical commodity exposure, the report said. This began what Dingell said was “A PROCESS THAT HAS ENABLED INVESTMENT BANKS TO ACCUMULATE ENORMOUS POSITIONS IN COMMODITY MARKETS,” according to the report. (MarketWatch)

So its not really Big Oil or “greedy Arabs” after all?

Nope, just the cutthroat banksters again.

What Happened in Jiddah

Over the weekend, Saudi Arabia’s King Abdullah convened an emergency Oil Summit in Jiddah, Saudi Arabia to deal with the disastrous effects that oil prices were having on the global economy. Rising prices are responsible for everything from food riots in Haiti to truckers strikes in Spain, Portugal and France. US Energy Secretary Samuel Bodman delivered a prepared statement supporting the Bush administration’s position on the issue:

“Market fundamentals show us that production has not kept pace with growing demand for oil, resulting in increasing — and increasingly volatile — prices. Despite higher global production for oil so far this year, inventories have been drawn down and current world production (spare) capacity is below historic levels — at fewer than two million barrels per day.”

Baloney.

Demand is not out-pacing supply. That’s a myth started by the people who are profiting by betting up oil futures; investment bankers. They’re led by their chief defender and former G-Sax scalawag, Henry Paulson.

Consider the remarks of Philip Davis in a recent post at Seeking Alpha:

Now we have the Saudi oil summit this weekend and Saudi Arabia took 1.5M barrels a day off-line since July of ‘05 in a series of cuts and is currently producing just over 8Mbd out of their estimated 10.5Mbd maximum capacity. It is forecast by the EIA that next year OPEC alone will have over 3Mbd of spare capacity so this would be a terrible time for global demand to take a nose dive or there are going to be a lot of idle wells… Should global demand drop another 5% in the next 12 months, we could be looking at 8Mbd less demand than there was just a year ago.

As the London Telegraph points out, not only does OPEC have a current production surplus of 2M barrels a day but that surplus will rise to 3.5M barrels a day BY NEXT YEAR. Also, non-OPEC production is rising fast with a 1.5Mb gain in non-OPEC production coming down the pike next year. …Iraq, by the way, is no longer included as OPEC or non-OPEC production, a very clever way to hide 2.4 million barrels of production by the energy apologists.

There’s no shortage, no scarcity.(Not yet, at least) In fact, oil is being deliberately kept off the market to keep prices high. Consider this: if supply isn’t keeping up with demand then why aren’t there any lines at the gas stations like there were during the ’70s?

Because it’s all a fabrication. Prices are up because of speculation, that’s all.

Here’s what Saudi Arabia’s King Abdullah’s said on Sunday: “Among other factors behind this unjust increase in oil prices is the abhorrent acts of speculators seeking to undermine the market.” That’s why he called the meeting to begin with. The King insists that “speculators” have played a key role.” (AFP)

How about Kuwait?

The Kuwaiti Oil Minister Mohammed al-Olaim insisted that “there is enough oil to supply the market. . . . We believe that the market is in equilibrium. The price is disconnected from fundamentals. It is not a problem of supply. Why would you have a supply problem WHEN DEMAND IS GOING DOWN.” (AP)

What about Libya?

“We believe speculation has its impact,” the OPEC chief said. Libya may reduce its oil production because THERE IS MORE THAN ENOUGH OIL ON THE MARKET Oil Minister Shokri Ghanem said. “We may have to cut production…. We don’t see any need for more oil. There is plenty of oil in the market,” Ghanem said, commenting on Saudi Arabia’s decision. (Bloomberg News)

How about Iraq? Can we at least count on our brothers in Iraq to maintain the administration’s falsehoods about dwindling supply?

According to Reuters: Iraq’s Oil Minister Hussain al-Shahristani said, “Any increase in world oil output would not have a significant impact on record-high crude prices that are being driven by speculation… Regulations needed to be introduced to stabilize oil markets. I do not think increasing any amount in the international market will have a significant impact on the prices. It is up to the stock exchange and the regulations in the industrialized nations. It is not something OPEC can contribute to. We did not see any impact on the prices from the Saudi’s previous increase.” (Reuters)

Venezuela?

Venezuela Oil Minister Rafael Ramirez refused to join the weekend conference because “We believe it is not necessary to increase output…Oil production levels aren’t behind the increase in prices,” Ramirez said adding that soaring oil prices were caused by ‘speculative interest, a falling dollar and global inflation’. (Reuters)

So, are all the oil ministers lying or is the Bush administration intentionally misleading the public about supply problems?

It’s always easy to point the finger at Big Oil or “greedy” Arabs for price gouging, but that’s not what’s happening. The Bush administration is colluding with their Wall Street buddies to fleece the public by inflating another bubble; this time in commodities. It’s just way of further enriching the wealthy at the expense of working people. Meanwhile the middle class continues to get hammered by soaring food and fuel costs and a steadily deteriorating standard of living.

Congress could end this charade in a minute by passing legislation that would close the Swaps Loophole and require steeper margin limits on oil futures. But don’t hold your breath. Wall Street is the biggest contributor to political campaigns which explains how we got into this mess to begin with. It also explains why Congress’s public approval rating has shriveled to a measly 12 percent.

Do Bush and Bernanke know what the banks are up to? Do they know that billions that are being loaned to the banks via the Fed’s “auction facilities” are probably being diverted into the commodities market and driving up the prices of raw materials and oil, while pushing the world towards global recession?

You bet they do and they’re probably doing everything in their power to keep the money flowing and banking system from buckling beneath the weight of its own massive debts.

Here’s an excerpt from Spiegel Online, “Are Pension Funds Fueling High Oil?,” which explains the whole scam:

Commodities exchanges limit the number of positions an investor can take in the market, but Michael Masters, of Masters Capital Management, says the Commodity Futures Trading Commission has allowed unlimited speculation in these markets through a loophole. This so-called SWAPS LOOPHOLE EXEMPTS INVESTMENT BANKS LIKE GOLDMAN SACHS AND MERRILL LYNCH FROM REPORTING REQUIREMENTS AND LIMITS ON TRADING POSITIONS THAT ARE REQUIRED OF OTHER INVESTORS. THE LOOPHOLE ALLOWS PENSION FUNDS TO ENTER INTO A SWAP AGREEMENT WITH AN INVESTMENT BANK WHICH CAN THEN TRADE UNLIMITED NUMBERS OF THE CONTRACTS IN FUTURES MARKETS. (my emphasis)

There’s no regulation; it’s a complete sham. The top five users of swap agreements are investment banks; four of which dominate swap dealing in commodities and futures are Bank of America, Citigroup, JP Morgan Chase, HSBC North America Holdings, and Wachovia.

The bloody footprints lead straight to Wall Street.

Here’s more proof.

Citing the harmful impacts record high crude oil prices are having on consumers, US Rep. Bart Stupak (D-Mich.) introduced a bill to close regulatory loopholes:

“The numbers back this up: Between Sept. 30, 2003, and May 6, 2008, contracts held by traders jumped from 714,000 to more than 3 million, a 425% increase. Since 2003, commodity index speculation has increased 1,900% from an estimated $13 billion to $260 billion invested. Stupak said 85% of the futures purchases tied to commodity index speculation comes through swap dealers — investment banks that serve as intermediaries for their pension fund and sovereign wealth fund customers.

“The CFTC has allowed 117 exceptions to swaps. When that many exceptions are allowed, they are not really subject to oversight. We have a CFTC that’s supposed to be doing its job. I’m not certain that it is,” he said. (Oil and Gas Journal, Texas)

Another Smoking Gun

On May 20, 2008 Michael Masters, testified before the Senate Committee on Homeland Security and Governmental Affairs, on the role that speculation has played in recent commodity price movements. He said:

“In the popular press the explanation given most often for rising oil prices is the increased demand for oil from China. According to the DOE, annual Chinese demand for petroleum has increased over the last five years from 1.88 billion barrels to 2.8 billion barrels, an increase of 920 million barrels. Over the same five-year period, index speculators for petroleum futures has increased by 848 million barrels. The increase in demand from Index Speculators is almost equal to the increase in demand from China!”

Masters is right; there is massive speculation which is distorting the market, but who is responsible? Clearly, the pension fund managers aren’t to blame. After all, the largest US pension fund, which is the California Public Employees Retirement System (CalPERS), has only invested about $1.1 billion in commodities swaps contracts. That’s a far-cry from $260 billion. The investment giants and hedge funds are leveraging the money they receive from the pension funds many times over to increase the size of their bets. Keep in mind, oil futures can be purchased for a mere $.06 on the dollar; that’s a lot of potential leverage.

Masters again: “Commodities prices have increased more in the aggregate over the last five years than at any other time in U.S. history. We have seen commodity price spikes occur in the past as a result of supply crises, such as during the 1973 Arab Oil Embargo. But today, unlike previous episodes, supply is ample: there are no lines at the gas pump and there is plenty of food on the shelves. Today, Index Speculators are pouring billions of dollars into the commodities futures markets, speculating that commodity prices will increase.

“Index Speculators have now stockpiled, via the futures market, the equivalent of 1.1 billion barrels of petroleum, effectively adding eight times as much oil to their own stockpile as the US has added to the Strategic Petroleum Reserve over the last five years.

“Doesn’t it seem likely that an increase in demand of this magnitude in the commodities futures markets could go a long way in explaining the extraordinary commodities price increases in the beginning of 2008?”

Yes, it does. And it also explains where billions of dollars from the Fed’s “auction facilities” are going. After all, the money is certainly not going into mortgage-backed securities (MBS) which represented nearly 70 per cent of bank revenue. The investment banks and hedge funds have turned to futures trading in hopes of recouping their losses and creating a positive revenue-stream. What do they care if their reckless behavior causes pain at the pump or crashes the global economy? Their only responsibility is to their shareholders.

Bernanke could stop this nonsense in a minute by raising interest rates and sending the speculators running for the exits. But don’t hold your breath. The Fed doesn’t care about the little guy, just his rich banking buddies.

Mike Whitney lives in Washington state. He can be reached at: fergiewhitney@msn.com. Read other articles by Mike.

27 comments on this article so far ...

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  1. Arch Stanton said on June 25th, 2008 at 12:56pm #

    South of the border, down Mexico way.
    That’s where I fell in love where stars above, came out to play.
    And now as I wonder, my thoughts ever stray.
    South of the border, down Mexico way.

    http://www.nytimes.com/2008/06/25/us/25gas.html?_r=1&ref=world&oref=slogin

  2. evie said on June 25th, 2008 at 1:19pm #

    Bernanke would have to raise rates quick and sharp to help the situation even a little and that’s not likely – he will hike it a teeny bit at a time. As the oil market is global the speculators could place their bets elsewhere, e.g. ICE in London, couldn’t they?

  3. bozhidar balkas said on June 25th, 2008 at 1:34pm #

    all i know ab oil is the fact that there’s less of it and more use of it now.
    beyond that i don’t speculate.

  4. rosemarie jackowski said on June 25th, 2008 at 2:20pm #

    WE HAVE BEEN ‘ENRONIZED’. Congress has set this up so that the rich would get richer. It’s the Speculators who are the real terrorists.

    Conserving energy is important, but tell that to the hedge fund managers – not the poor people in New England who had to chop up their furniture last winter for heat.

  5. Deadbeat said on June 25th, 2008 at 3:19pm #

    Mike Whitney is correct that the current problem is due to speculation as well as the War In Iraq. Mike is also correct in cautioning “environmentalist” who sees this as an opportunity to promote the “Peak Oil” canard. The MSM has been promoting that the reason for the price rise is due to “increasing demand” especially by China and India.

    However what the MSM and many “environmentalist” for that matter fail to recognize is that the U.S. consume much of the world’s oil supply and much of that supply is consumed by the MILITARY. Thus while it is easy to point to “suburbanization” and the use of cars, far more oil and energy is wastefully consumed by the military. In other words if you want to conserve energy and protect the environment the first place to start is by reducing the military budget.

  6. Don Hawkins said on June 25th, 2008 at 6:31pm #

    COAL

  7. Don Hawkins said on June 25th, 2008 at 7:32pm #

    The price of coal has gone up from around $30 per short ton in 2000 to around $123.50 per short ton as June 25th, 2008.

  8. Don Hawkins said on June 26th, 2008 at 3:40am #

    The next President must make a national low-loss electric grid an imperative. It will
    allow dispersed renewable energies to supplant fossil fuels for power generation. Technology
    exists for direct-current high-voltage buried transmission lines. Trunk lines can be completed in
    less than a decade and expanded analogous to interstate highways.

    Technology
    exists for direct-current high-voltage buried transmission lines

    Technology
    exists for direct-current high-voltage buried transmission lines

    And why do we need a low-loss grid? It’s called solar thermal and so far seems to be top secret or we can burn coal that is rather brontosaurian in nature don’t you think?

    What the Fed did yesterday I guess is part of that delicate balance. I don’t think balance is the right word imbalance is a better word. There is another imbalance that many of you are aware of and with that one time is very important. Still time but cutting it close if we start now. Growth using reason or

  9. John Wilkinson said on June 26th, 2008 at 8:06pm #

    The trouble with you, Mike, is you never include pertinent NUMBERS in your analyses. You never compare ORDERS OF MAGNITUDE to see if something makes sense. I guess people on the left do not want to be bothered with NUMBERS, they flunked out of math at an early age, so you just supply what they want. But this is just bold assertions and froth. Who cares what somebody said without specifying the context in which it was said and the hidden meaning behind those words. Human language is not a very precise instrument, and what I mean and what I say may be two different things. Yes, those ministers said there was no shortage – because there was capacity sitting idle on the side. But guess what, that substantial spare capacity is not there to meet the demand. They’re being smart and husbanding their (limited and dwindling) natural resources — after that’s gone there’s only sand over there. According to your reasoning, if they took 100% of the capacity off the market and make it “spare capacity”, then the prices should plummet to zero? Zero supply and huge demand equals zero prices? Just because you have “spare capacity”, and forget about the demand that’s not being met?

    So, let me take a crack at it. The worldwide supply of oil in 2007 was about 74 million barrels PER DAY. (That’s about equal to the demand, because you can’t store big quantities of oil, except for the little bit hoarded in various strategic petroleum reserves). Of that amount, Saudi Arabia, the largest producer, supplies 8.5 million barrels per day (about 12% of the total), and if they really went full throttle, could supply about 12-13 million barrels per day (so they say), or 15% of the total. So, even Saudi Arabia is supplying only a small fraction of the total (relatively speaking), so I don’t see how they have (or any other oil minister) a crystal ball as to what’s happening on the supply side.

    You say that the speculators “take out” (more on that later) about 1 billion barrels PER YEAR. (In one place you state 848 million barrels, in another 1.1 billion barrels, see what I mean that language is not very precise an instrument?) So, that’s about 3 million barrels PER DAY that the speculators “take out” (which they really DON’T take out, see below), or about 4% of the total worldwide supply of 74 million barrels per day. So, those are the orders of magnitude we’re talking about – the speculators are about 4% of the demand (/supply) – IF they actually took possession of that oil and stored it somewhere (or burnt it), which they don’t, won’t and CAN’T do. (In reality, then, the speculators may be 4% of the oil transactions, but approximately ZERO% of the supply, i.e., demand). But let’s say, that the oil they trade for is real – well, it’s only 4%. Would 4% (if it were real, which it is not) translate into such a big runup in prices? I don’t know, it depends on the elasticity of demand (how sensitive demand is to price signals — if it is not sensitive, then you need a huge price increase to reduce it enough to match the reduced supply). (No, I am not an economist, I just didn’t sleep through my ECON-101 class, like you guys did sleep through everything not related to football, girls and cliques, and now you think you know everything). I suspect that the oil demand is pretty inelastic, which means that even a small shortfall in supply (or an artificial shortfall related to “spare” capacity, or PERCEIVED future problems with supply, etc.) will lead to huge price increases. So, yes, maybe the 4% would be enough (if it were related to REAL chunk out of the oil supply, which it is not). But, in your world, even this imaginary 4% (which you think is real) would be more than covered by the excess “spare” capacity (which you count in the + column), if the world worked that way.

    In comparison, the US strategic petroleum reserve contains about 700 million barrels, or roughly the same amount as the annual “demand” you attribute to speculators.

    But the problem is that this 4% is NOT real. NO REAL OIL is taken off the market. You never bothered to explain how the futures (and options) markets work. OK, so you’re in the oil futures market – either as a speculator, as an oil company, a refinery, oil producer. You’re either in the straight futures market or in the options market. You place either an option or order on an oil contract of – I don’t know what the minimum chunk is, say 5,000 barrels of oil – or several thousand of such chunks, what have you. And you do it for some future delivery date. You put your money up front. In the end, you “win”, if your offered price (either through the straight futures contract or the options leveraging process) is in the range of what the market arrived at for that contract, through many transactions such as yours. When you “win”, you either physically take possession of that oil (all 5,000 barrels of it, or 5 million barrels, what have you), or you “sell” it (in the virtual commodity market) on the spot, to someone who could use it (like a refinery). A refinery is definitely not going to take more oil than it can process, or more oil than it thinks the demand is (that it can sell) or at a price that’s not supported by the market in the quantities that it’s buying.

    So, what do you do if you’re the “speculator”? You certainly don’t take possession of that oil – what would you do with it – such huge quantities, where would you store it, you’re not going to set up a distribution network, huge tank farms, are you? Of course you’ll get rid of it pronto – get it to somebody who can use it. To the same guys – refineries, etc. – who bid on it earlier, and “lost”. But those are “serious” buyers, who know the oil market inside and out and what is sustainable (and who own, i.e., “won” the other 96% of the oil contracts), and they are 96% of this oil futures market – so, the price is 96% closer to what they think it should be than what the speculators think it should be.

    So, yes, the speculators do increase the price a bit, but not by much. It would be more accurate to say that the ones holding the 96% of the market and the oil contracts (the oil companies, the refineries) are the ones setting the price.

  10. John Wilkinson said on June 26th, 2008 at 8:27pm #

    “Technology
    exists for direct-current high-voltage buried transmission lines. Trunk lines can be completed in
    less than a decade and expanded analogous to interstate highways.”

    What have you been smoking, Don? Yes, the technology exists for us to get to the moon, does that mean there’s a shuttle every minute to take you to your moon job? What is feasible, technologically and economically, that’s the question.

    Yes, we can, in principle, use superconducting lines to create a low-loss grid — a few YARDS of such lines have been built to demonstrate the principle that it’s POSSIBLE and that you have zero losses. But guess what — you have to cool these lines to liquid helium temps (near absolute zero). Even with the hi-tech “high temp” superconductors (which won’t conduct such huge amounts of current, etc.), you need liquid nitrogen temps. And you’re gonna do this in the deserts, among others. And you’re gonna cool them for THOUSANDS of miles? Can you even fathom the enormity of this task, the hardware needed? We’re not talking air-conditioning a small office, we’re talking about cooling thousands of miles of ducting to hundreds of degrees below zero.

    Digging underground lines (and putting all of that cooling equipment and supply lines down there, too) for thousands of miles and cris-crossing every which way to every home, that, too, would be extremely expensive.

  11. John Wilkinson said on June 26th, 2008 at 8:32pm #

    “And why do we need a low-loss grid? It’s called solar thermal…”

    Well, that part you got right — you need to transport the electricity for long distances because you guys are proposing to cover the deserts of the southwest with your solar hardware and move the power to everywhere else.

    “and so far seems to be top secret or we can burn coal that is rather brontosaurian in nature don’t you think?”

    that’s right, there’s a vast conspiracy against solar, that’s why it hasn’t delivered for decades and centuries, that’s what i’ve been hearing since time immemorial.

    the reason it hasn’t delivered it’s EXPENSIVE, see my post above.

  12. John Wilkinson said on June 26th, 2008 at 8:35pm #

    “Technology
    exists for direct-current high-voltage buried transmission lines”

    If it’s so easy to bury thousands of miles of high-voltage transmission lines, why hasn’t it been done for the existing high voltage transmission lines — they would be impervious to weather, no aviation hazard, no bird hazard, no huge towers to build. Because it’s PROHIBITIVELY EXPENSIVE (just that part, the burying of high voltage lines, don’t even think about the superconducting part, which is the only way you’ll get a low-loss line or dc over long distances).

  13. DP said on June 27th, 2008 at 1:38am #

    Mr Wilkinson obviously does not understand how futures work or he does but fails to see how they connect.

    Here is a quote from this site explaining futures found here
    http://www.globalresearch.ca/index.php?context=va&aid=8878

    Perhaps 60% of oil prices today pure speculation

    “By purchasing large numbers of futures contracts, and thereby pushing up futures prices to even higher levels than current prices, speculators have provided a financial incentive for oil companies to buy even more oil and place it in storage. A refiner will purchase extra oil today, even if it costs $115 per barrel, if the futures price is even higher.

    As a result, over the past two years crude oil inventories have been steadily growing, resulting in US crude oil inventories that are now higher than at any time in the previous eight years. The large influx of speculative investment into oil futures has led to a situation where we have both high supplies of crude oil and high crude oil prices.”

    So… Mr Wilkinson is correct in that refineries are sitting on oil but the only incentive they have to do that is because the speculators are driving the prices of “FUTURE” oil produced down the road to outrageous prices to make a ton of money at the expense of the average person….worldwide and not just in the USA.

    So to sum up, we are paying huge prices for gas because a handfull of rich people are driving the prices of future oil contracts not yet out of the ground, thus giving the large oil companies the incentive to sit on very large supplies of oil to get that “future” higher price by driving up the current prices….win for the rich bankers and win for the oil companies and everyone else suffers.

    Another odd fact is you cant trade other commodities this way and the giant loophole that allows this to happen is only in place for oil. Keep dreaming if anyone thinks that our leaders in the whitehouse are looking out for us……as a wise man said long ago, don’t pee on my head and tell me its raining.

  14. Don Hawkins said on June 27th, 2008 at 6:00am #

    Men might as well project a voyage to the Moon as attempt to employ steam navigation against the stormy North Atlantic Ocean.
    - Dr. Dionysus Lardner (1793-1859
    Well informed people know it is impossible to transmit the voice over wires and that were it possible to do so, the thing would be of no practical value.
    - Editorial in the Boston Post (1865)
    [Television] won’t be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night.
    - Darryl F. Zanuck, head of 20th Century-Fox, 1946.
    Rail travel at high speed is not possible because passengers, unable to breathe, would die of asphyxia.
    - Dr. Dionysus Lardner (1793-1859
    The dangers are obvious. Stores of gasoline in the hands of people interested primarily in profit would constitute a fire and explosive hazard of the first rank. Horseless carriages propelled by gasoline might attain speeds of 14 or even 20 miles per hour. The menace to our people of vehicles of this type hurtling through our streets and along our roads and poisoning the atmosphere would call for prompt legislative action even if the military and economic implications were not so overwhelming… [T]he cost of producing [gasoline] is far beyond the financial capacity of private industry… In addition the development of this new power may displace the use of horses, which would wreck our agriculture.

    - U. S. Congressional Record, 1875.
    There is not the slightest indication that [nuclear energy] will ever be obtainable. It would mean that the atom would have to be shattered at will.
    - Albert Einstein, 1932.
    There is not in sight any source of energy that would be a fair start toward that which would be necessary to get us beyond the gravitative control of the earth.
    - Forest Ray Moulton (1872-1952),
    Computers in the future may…perhaps only weigh 1.5 tons.
    - Popular Mechanics, 1949.
    It is difficult to say what is impossible, for the dream of yesterday is the hope of today and the reality of tomorrow.
    - Robert Goddard (1882-1945)
    “If God had intended that man should fly, he would have given him wings”.
    George melville

  15. john wilkinson said on June 27th, 2008 at 12:06pm #

    “It would be more accurate to say that the ones holding the 96% of the market and the oil contracts (the oil companies, the refineries) are the ones setting the price.”

    I forgot to add the producers who are setting aside the spare capacity and thus reducing the supply. Now, look at producers ACTIONS rather than WORDS. They claim this is all speculation driven. If so, why aren’t they taking advantage of the situation, while it lasts, and pumping like crazy, while oil is $140/barrel, as opposed to $20/barrel (and below) of a few years ago. As opposed to half the current price only a year ago. Shouldn’t they be wanting to maximize the profit, given the finite resources they have? I mean, all bubbles eventually burst. Given that people have cut back in response to the high prices, people and businesses have cut back; and further cutbacks risk plunging the world economy into a recession or worse, with even less oil consumed. So, there’s definitely unmet demand, and if what they say is true, it would be
    in their self-interest to jack up the production rates, to bring in the spare capacity into play. I think their ACTIONS are those of someone who knows that these prices aren’t coming down and who knows that there will be further tightening of the supplies vis a vis the current demand levels.

    What about the gas lines, why aren’t we having the gas lines? Because, the gradual imbalances are being worked away by the price mechanism, which leads to demand adjustments – we’ve all heard and read what these prices are doing to individual people’s driving habits, lifestyles, where they choose to live, on costs of everything, on biz operations. The prices gradually rise as the supply gets gradually tightened wrt demand (for whatever reason – could be just their setting aside the spare reserve capacity), the demand slowly adjusts to the rising prices and a new equilibrium is reached – in oil and gas as in everything else. When supply and demand are allowed to freely operate there are no “shortages”, at least until some extreme point is reached. As for the
    70s, yes it happened then, but then the supply was cut off suddenly, and there were no price signals ahead of time. Then it was a shock, an imbalance between supply and demand, and shortages and lines ensued.

  16. john wilkinson said on June 27th, 2008 at 12:16pm #

    “By purchasing large numbers of futures contracts, and thereby pushing up futures prices to even higher levels than current prices, speculators have provided a financial incentive for oil companies to buy even more oil and place it in storage. A refiner will purchase extra oil today, even if it costs $115 per barrel, if the futures price is even higher”

    Why would the refineries and the oil companies need the speculators to do this, buy up the oil contracts to drive up the price — when they could do it themselves, they’re 96% of the market? The same for the producers — simply set aside capacity like they’re doing.

    As for the inventories — they are tiny compared to our consumption rates — how many days of gas/oil are in the inventories? Even in the strategic petroleum reserve, there’s but 37 days of total US consumption. They have only so many tanks and they have to keep producing the gas, etc. to make room for new inventories arriving daily.

    Can you show me the calculation that 60% of the price comes from the speculators? How many million barrels are in invnetories now vs. what is normal, what is the increase in inventories, and how many days of consumption (worldwide and US) does it translate to?

  17. John Wilkinson said on June 27th, 2008 at 12:28pm #

    maybe the inventories are rising because demand is down or for a host of other reasons, like refinery problems.

    and how many barrels are in the inventories. it’s a drop in the bucket.

    show me the number and facts, instead of bs links and bs assertions.

  18. John Wilkinson said on June 27th, 2008 at 12:40pm #

    Don,

    there is a difference btw what is POSSIBLE and what is technologically and economically FEASIBLE, AT THIS POINT IN TIME.

    When the Wright brothers did their flight, they showed it was POSSIBLE for a machine heavier than air to fly. At that point it was NOT technologically and economically feasible, to organize mail delivery and passenger service around that concept. Only later, when several other problems were solved. And it wasn’t even technically POSSIBLE at that point, to build a jumbo jet and fly across the Atlantic. So, these are all gradations.

    What you’re suggesting is technologically POSSIBLE, but is NOT FEASIBLE (technologically or economically) AT THIS POINT IN TIME. It’s just way, way, way, too expensive, and I don’t know even if all technological problems are solved, probably not. Maybe later, it will become feasible (maybe some new invention, some quantum leap will make it possible) but not now.

    And I don’t know why you want to use dc-current (which would be useful for solar panels — they naturally produce dc current, not solar thermal). If you’re transporting power over long distances, to minimize losses, and because you need high voltages (to minimize currents and thus heating loads), and you need to convert between low and high voltages on both ends, then ac current is preferable for that, as it’s easy to convert voltages for it. And all of our appliances are geared toward ac power now. (For some, like lights and conventional cooking, it doesn’t matter, but for motors, etc. it does)

  19. john wilkinson said on June 27th, 2008 at 12:44pm #

    Don’t get me wrong, the bankers and the financial types have sowed a whirlwind of destruction in recent years (some of it touching myself), wiping out people’s lives, etc., but show me the numbers and facts supporting your assertions. If one wants to change the reality, it can only be done if one first KNOWS the reality, instead of wishing it or imagining it.

    Show me the numbers. Show me the facts.

  20. John Wilkinson said on June 27th, 2008 at 1:06pm #

    I looked at that link, and it’s what I’d assumed. Not one word of what the inventories are in millions of barrels, just that they are “higher” (for what reason, doesn’t say, just speculation here that’s worse in the oil markets). The $60/barrel price contribution comes from more arm waving — quoting what someone had said to a Senator.

    The only sensible thing in the article is that the dollar weakness is a contributor — and it’s probably a major contributor to the price increase. Compared to what dollar was vs. euro when oil was $20/barrel, I’d say that $60 (approximately — look at dollar-euro conversion rate, I don’t have any courage to look anymore) comes from the weak dollar.

    when will you guys realize that hot air blowing does not substitute for the facts. quoting some airhead does not substitue for facts. give me the FACTS and NUMBERS behind your ASSERTIONS.

  21. Don Hawkins said on June 27th, 2008 at 3:00pm #

    It’s just way, way, way, too expensive. How about an Earth that doesn’t support life.

  22. Don Hawkins said on June 27th, 2008 at 3:17pm #

    WASHINGTON (AP) — There’s a 50-50 chance that the North Pole will be ice-free this summer, which would be a first in recorded history, a leading ice scientist says.

    The weather and ocean conditions in the next couple of weeks will determine how much of the sea ice will melt, and early signs are not good, said Mark Serreze. He’s a senior researcher at the National Snow and Ice Data Center and the University of Colorado in Boulder, Colo.

    How many fires in California and that 500 year flood in the Midwest try 12,000 year flood. Still time but not much.

  23. DP said on June 27th, 2008 at 3:23pm #

    Ok so every nation besides the USA (who’s leaders are beyond corrupt and it just so happens to be centered around oil) says it is the futures trading…..a slew of experts on the economic side also agree but for some reason we keep hearing we need to drill off of every coast line to fix this problem (even tough there are a plethora of untested land that is supposed to be filled with oil in the gulf of Mexico that the oil companies own rights to…why not try there before we destroy the entire coast of the USA).
    You want facts and figures out of our government when their buddies break every rule or find a loophole to exploit…or even worse in this case invent a loophole to use? They can’t even tell us the truth about Iraq or just about anything at all.

    How about the common sence factor…gas prices started to rocket up just about the time this (whitehouse induced) loophole was developed.
    Why is it that we pushed to allow American oil to be traded in England ….because they don’t have to report it thus no facts or figures just as the President wanted it. No way to track how corrupt this process is while his pals make a fortune.

    Do you need to be hit in the head by a 2×4 to know it hurts…no I am sure I can’t find any facts to back up my 2×4 theory but I am not a stupid person and don’t need chart to make it obvious.

  24. John Wilkinson said on June 27th, 2008 at 7:11pm #

    “U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 0.8 million barrels from the previous week. At 301.8 million barrels, U.S. crude oil inventories are near the lower boundary of the average range for this time of year.”

    Source: US dept. of energy. Do a google search on “US oil inventory” or click on url:

    http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/weekly_petroleum_status_report/current/txt/wpsr.txt

    According to this, the refinery inputs are about 15 million barrels per day, the crude inventory in refineries is 302 million barrels (down 5 million barrels since the end of May, so it’s trending down in addition to be at a lower end of the average range for the time of year). So, the inventory is worth about 20 days. At this period last year, the oil inventories were about 352 million barrels or 14.4% HIGHER, so this year is 14.4% LOWER than last year. The gasoline inventory is slightly higher than a year ago 209 million barrels vs. 204 million barrels (2% higher). The jet fuel inventories are about 2% lower than last year. The table also shows a 2% drop in gasoline production compared to a year ago, and a 1% drop in cumulative production from January 1 of this year compared to the same period last year – so, there’s a demand drop.

    Conclusion: the data shows totally the opposite situation as was described in the comment (the refineries hoarding the crude). Figures: lies, distortions, that’s par for the course when dealing with “progressives”.

    The other thing is, what does inventory stocks have to do with anything? The inventory capacity is finite, and we’re looking at a steady state situation, so there could be short term fluctuations in output rate related to inventory, but in the end input equals output, and if inventory fills up, they buy less in the next period, thus exerting DOWNWARD pressure on the price.

    It took me 5 minutes to find this information, instead of spewing hot air about things you don’t know anything about.

  25. John Wilkinson said on June 27th, 2008 at 7:22pm #

    “It’s just way, way, way, too expensive. How about an Earth that doesn’t support life.”

    OK Don, you go dig several hundred thousand miles of tunnel, and you fill it up with liquid helium and superconducting leads. we’ll pay you $5/hr. and you’ll be done with this project when all the protons decay in the universe so it won’t matter. or better yet, YOU pay for this. it would be cheaper for all of us to live without electricity. even totally radical things would be cheaper than this. what about pollution from your solar — no you don’t wanna talk about that. that solar hardware needs to be made, chemicals need to be used, water polluted, but let’s not talk about that. just cover every square inch of southwest with your ugly mirrors and pipes, forget the wildlife, yeah that’s the way to go.

    when ALL the costs are included (not you wishing away things you don’t want to see), then even having a dead planet would be CHEAPER than your half-cooked options (meaning not ready now, not ready in the next 20-50 years, maybe ready at some point but not something that will get us out of this jam NOW).

    there are other, less pie in the sky ways. e.g., nuclear, though that’s not the only option.

    why don’t you find the way, when you’re so gung ho on this — go ahead, you’ll be famous.

  26. John Wilkinson said on June 27th, 2008 at 7:24pm #

    “OK Don, you go dig several hundred thousand miles of tunnel”

    and that’s just in the us, then you gotta do it all over the world.

  27. John Wilkinson said on June 29th, 2008 at 10:35am #

    …and by the way, it’s not true that only oil contracts can be leveraged. all commodities have this. you have options trading in soybeans, corn, coffee, metals, what have you.

    and leveraging in the stock markets is allowed too.

    more lies and distortions from “progressives”.