Showing posts with label Oil by the barrel. Show all posts
Showing posts with label Oil by the barrel. Show all posts

Wednesday, February 29, 2012

Your Offensive Obama Oil Policy Infographics of the Day... by Bill S. Feb. 28, 2012


Your Offensive Obama Oil Policy Infographics of the Day


If you’re looking for a single picture that captures the salient points of President Barack Obama’s oil policy, here it is. Courtesy of the Republican Study Committee:
This was timely, given Steve Maley’s excellent posting yesterday on the “10 Ways Obama Could Reduce Gas Prices Now“. Now some on the Left, including the President himself, are trying to convince us that there’s nothing he can do to bring gas prices down in the short term. And in fact it is pretty obvious that his administration’s policies are diametrically opposed to the idea of reducing prices in the first place (witness the Steven Chu quote cited in the infographic). But as my colleague Steve posted in his RedHot tweet last night, there is ample evidence that past Presidential actions have resulted in just such immediate relief as Obama and his minions deny are possible…behold, the second best infographic of the day:
(source: energytomorrow.org)
Despite the feeble efforts of the Left to excuse Obama’s offensive energy policy as having little or no impact on gas and oil prices, the evidence speaks for itself. Not only have the policies of the Obama administration had an adverse impact on the price of oil, but theseanti-oil policies are probably hindering the economic recovery that the President supposedly seeks. But hey, Obama’s tree-hugging buddies are pleased as can be at his eco-pandering and continued efforts to use government money to shore up an “alternative energy” industry that is neither profitable nor practical.  While Obama and Chu continue to peddle lies about the oil and gas industry, they stick us with the price tag for follies like Solyndra.  As Marita Noon describes, it’s “Obama’s Fake Fossil Fuel Infatuation“:
While greens describe Section 1603 as a program that “provided grants in lieu of tax credits to small renewable companies,” free market, fiscal conservatives—who don’t like subsidies in the first place—would be outraged if they understood how the program is really used. The PTC gave owners of wind turbines a tax credit of 2.2 cents per kilowatt-hour (kWh) of electricity produced during the first 10 years of operation. A 50 MW installation operating at an average capacity factor of 30% would generate 131,000,000 kWh per year. The owner would receive a PTC of $2,891,000 per year or $28,910,000 over 10 years. However, Section 1603 allowed the turbine owners to take a “cash grant” equal to 30% of capital costs up front ($100-120 million, 30% = $30-36 million) that came directly from the US Treasury—whether or not the turbine ever produced any electricity. This removes the performance risk for the developer and allows projects with a marginal net capacity factor to get built—even though, like Solyndra, the project doesn’t attract enough private investment. Plus, the cash grant is a “grant,” not a loan. The government doesn’t expect any money back. With the money taken up front, rather than annually based on actual production, turbine owners do not have the incentive to keep up the costly maintenance, and the turbines can eventually be abandoned. Additionally, much of the money is given to foreign companies—not “small renewable companies.”
These brief samples of President Obama’s priorities, as outlined in his proposed budget, highlight the flaws of his ideology. Instead of building on strength, it builds on failure. Renewables have repeatedly proven that they are more expensive than traditional fuels and are unwanted—requiring mandates and government programs to create an artificial market. There are thousands of abandoned wind turbines rusting in the wind. There were no buyers for Solyndra. Their stock of solar tubes were tossed in the trash. Fledgling companies from all segments of the renewable industry have gone bankrupt. They were surviving solely on subsidies and couldn’t compete without the frequent cash infusions. Yet, the budget promises them billions more—good money thrown after bad.
Peter Morici, of the University of Maryland Smith School of Business sums it up well:
Under Mr. Obama’s stewardship, the U.S. economy is not recovering as it should. As per usual, the president distracts public attention from poor policy choices by blaming and ridiculing others.
After three years, the president, who promised Americans millions of clean energy jobs in place of a thriving petroleum industry and much lower unemployment, should own up to his mistakes. Most Americans are needlessly paying too much for gas and foreign oil, while federally subsidized solar and wind projects are filing for bankruptcy.
This November, poor judgment and weakness of character—such as the president’s repeated attacks on the petroleum industry and failure to take responsibility for the consequences of his actions—make the most compelling case for change.
Americans should not expect a perfect president but at least one who bases decisions on facts not whimsy, and learns from mistakes.
Americans are simply not getting fact-based leadership and good judgment from President Obama.
The infographic does tell the story:
  • Inauguration Day, 2009:  $1.92 a gallon.  Today: $3.72 a gallon.  
  • Chu: “Somehow we have to figure out how to boost the price of gasoline to the levels of Europe” 
Yay, Obama Energy Policy!

Monday, February 27, 2012

10 Ways Obama Could Reduce Gasoline Prices. by Steve Maley, Feb. 25, 2012

Tulsa World headline:

Obama: No magic bullet to lower gas prices

WASHINGTON — President Barack Obama says there is no easy answer to the problem of rising energy prices, dismissing Republican plans to address the problem as little more than gimmicks.
“We know there’s no silver bullet that will bring down gas prices or reduce our dependence on foreign oil overnight,” Obama said Saturday in his weekly radio and Internet address.  …
Obama said Republicans have one answer to the oil pinch: Drill.
“You know that’s not a plan, especially since we’re already drilling,” Obama said, echoing his remarks earlier in the week. “It’s a bumper sticker.”
Speaking of bumper stickers, remember “Yes We Can”, Mr. President? No one understands the concept better than the oil and gas industry. The main thing holding domestic energy companies back from making a stronger commitment to future domestic supplies is uncertainty. Capital hates uncertainty, avoids it like the plague. Your rhetoric may appease your doctrinaire base, but it makes domestic energy producers hold back, fearful that you will punish their success, or that you will change the rules on them in the middle of the game.
Erasing uncertainty is the #1 thing you can do as a national leader if you truly desire to lower gasoline prices. Not only could it change the psychology of energy investing, there is still time for companies to change their 2012 investment plans.
Below the fold is my humble 10-point plan: Things President Obama could (but won’t) do to reduce domestic gasoline prices by November 2012.
1.  Commit to a strategic goal of North American energy security. That includes reasonable and responsible domestic drilling. That includes taking the lead on the Keystone XL Pipeline; we could find a way to make it happen while addressing the legitimate environmental concerns of Nebraskans. It includes a commitment to maintaining the Trans-Alaska Pipeline System and opening ANWR.
2.  Ditch the anti-industry, anti-capitalist rhetoric. It is not the President’s or the government’s place to decide when an industry’s profitability is “high enough”. High oil company profits fund more drilling; more drilling means more future supply and lower prices. Besides, American oil companies are not owned by a cabal of wealthy executives, but by America’s pension funds, mutual funds and private investment accounts. “They” are “us”.
3.  Stop targeting the oil industry for punitive tax treatment. States such as Texas and Louisiana have production tax abatement programs that have successfully encouraged new drilling. If you don’t believe that the threat of increased taxes discourages drilling, just ask Governor Perry or Governor Jindal.
4.  Realize that Uncle Sam is in the energy business and is a partner in industry’s success. Oil and gas royalties are the federal government’s #2 source of revenue, after the income tax. Offshore slowdowns hurt not only industry and jobs, but government revenue.
5.  Recognize that industry does not need to be led by government; industry needs to be unleashed and encouraged to innovate. The resurgence of the domestic energy sector was rooted in the private sector, not matter how much President Obama and Dr. Chu would like to take credit for it. The growth in North Dakota, Pennsylvania and Texas happened in spite of the federal government, not because of it.
6.  Trust that no oil operator wants to be the “next BP”. The BP spill cost that company something on the order of $40 billion. Industry safety and environmental commitment is motivated more out of self-interest and less out of fear of the government. When it comes to federal regulation, the nation would be better served by Sheriff Taylor, not Barney Fife.
7.  Return offshore permitting to the pre-Macondo pace.  Your overreaction to the BP Spill has cost on the order of 500,000 barrels per day of domestic oil production from the Gulf of Mexico. The ridiculous “Worst Case Discharge” calculation as a routine part of offshore permitting is engineering malpractice, in my humble opinion. The professional staff of the Bureau of Safety and Environmental Enforcement is capable of reasoned regulation, but they currently operate in fear of their political masters.
8.  Declare hydraulic fracturing & well design to be the regulatory domain of the states, not the EPA. Geology and environment vary widely; Pennsylvania is not Louisiana is not North Dakota is not California. It is insanity to think that one broadly-applied set of rules can be applied to regulate industry without suffocating development.
9.  Rescind the recently-enacted royalty rate increase for new onshore Federal oil and gas leases. Secretary Salazar’s stated rationale for increasing the government’s take by a whopping 50% – from 12.5% to 18.75% of gross production – was to equate onshore royalties with the offshore royalty rate. That makes no sense. Higher royalties mean less drilling, poorer economics of production and premature abandonment of wells. Besides, an IHS-CERA Study recently showed that the federal government’s total take of offshore cash flows makes the Gulf of Mexico the second-most punitive fiscal regime in the world, after Hugo Chavez’s Venezuela. [Update: In keeping with the First Rule of Holes, rolling back the royalty rate increase may be the first thing the government should do if it is serious about reducing energy prices. - Ed.]
10. Encourage development of a nationwide distribution system of natural gas as a transportation fuel. Natural gas is clean, abundant and nearly 100% domestic. Its potential as a transportation fuel has scarcely been tapped.
Bonus #11: Get real about the promise of alternative fuels. Recently you said“You’ve got a bunch of algae out there; If we can figure out how to make energy out of that, we’ll be doing alright.” Maybe so, but I will stick my neck out and say it ain’t gonna happen, at least not in my lifetime, not on a scale that will impact pump prices.
Energy policy will be a President Obama’s key vulnerability in November. His goal has always been to encourage alternative fuels by raising conventional energy prices. Alternative energy may poll well, but the average voter who fills his tank with $4+ gas on the way to the ballot box will certainly “Hope for Change”.
Cross-posted at stevemaley.com.

Wednesday, February 15, 2012

Land Drillers Look Attractive in Light of Premium Rig Shift... Feb. 13, 2012 by Cowboy Byte..


Land Drillers Look Attractive in Light of Premium Rig Shift


Land drillers, as a group, are attractively valued today. We believe fears of another collapse in drilling activity similar to 2009 are overdone. While these drillers have no economic moat, their current competitive position is perhaps the best in the past decade. Prior industry cycles were driven by supply/demand dynamics, but with a U.S. fleet of mostly mechanical rigs that were refurbished over time as they aged. In our view, there was little differentiation between the top drillers and the rest of the industry. However, the shift toward horizontal and oil-directed drilling away from vertical and gas-directed drilling, thanks to the emergence of various shale plays in the United States, has driven huge demand for new premium land rigs, allowing the industry’s top drillers to differentiate themselves from smaller peers by offering more powerful rigs.
__________________________________________________________
BS Ranch Perspective: 

Land Drilling is looking attractive now?? now it is looking attractive.. there has been many reports that there is oil located still in Pennsylvania & North Dakota, in fact in the last ten years there has been what is called a "Black Gold Rush" that has been going on there in those states.. The First Oil Strike in the United States was located, Not in Texas, but in Pennsylvania. There is still oil being searched out,  and drilled for in that state. 

The Modern Methods of locating Oil, using Geology, and Satellites, and exploration methods have reported that there is more then likely the biggest oil reserves still under the Rocky Mountains here in the United States, These Reports have said the Oil Reserves under the Rockies, are as big or bigger then the reserves left in Saudi Arabia! If this is true, why don't they just go after them now.. This find could lower the price of the Oil that in the last two years has more then doubled in price per Gallon at the Pump, since 2008, when the Current President took Office... 

These Higher Prices have done very little to curve the Appetite for Oil in the United States of America, since 2008 when almost in one year the price for Gas doubled at the pump.. I can remember the day when it cost approximately $50.00 to fill my truck, now it costs me over $120.00 to fill my tank when the gauge is pointing just above the large "E"... 

Now to this report I have to say, "DRILL BABY DRILL!!!"  

THE QUESTION STILL REMAINS, WHY IS THE PRICE OF DIESEL AT THE PUMP MORE EXPENSIVE THEN PREMIUM GAS AT THE PUMP.. SINCE THE COST TO MAKE DIESEL IS 1/10TH THE COST TO MAKE GASOLINE?? ANYONE? ANYONE??

It is my belief that this price difference is the way that it is because the gas prices at the pump is being controlled by the Secretary of Energy and the President of the United States of America (POTUS)!!.....

If the prices are not being controlled by the POTUS, or Energy Secretary, is probably not set by them, but possibly Suggested by the Energy Secretary, and or the POTUS himself... What I have done here is Speculated.. that the price of Gas and Diesel is set by the Energy Secretary, and possibly even the POTUS... It is funny because Gas/Diesel Prices are set through what is known as Speculators... People that get paid to "Guess" how much oil there is or will be available, by what is going on Politically in the Middle East!!   The difference is that I speculated without getting paid, so I am an Amateur Speculator... HA! 

Definition of Speculator: a person inexperienced or unskilled in a particular activity.........

Sunday, March 13, 2011

Bill Clinton: Offshore Drilling Delays 'Ridiculous' (NewsMax) Friday March 11, 2011






Newsmax


Bill Clinton: Offshore Drilling Delays 'Ridiculous'






Delays in offshore oil and gas drilling permits are "ridiculous" at a time when the economy is still rebuilding, former President Bill Clinton told attendees Friday at the IHS CERAWeek conference. Clinton spoke on a panel with former President George W. Bush that was closed to the media, Politico reported. There also was no video of the event. Still, there were several attendees who confirmed to Politico that Clinton agreed with Bush on many oil and gas issues, including criticism of delays in permitting offshore since last year's Gulf of Mexico spill. "Bush said all the things you'd expect him to say" on oil and gas issues, said Jim Noe, senior vice president at Hercules Offshore and executive director of the pro-drilling Shallow Water Energy Security Coalition. But Clinton added, "You'd be surprised to know that I agree with all that," according to Noe and others attending the conference who talked to Politico. Clinton said there are "ridiculous delays in permitting when our economy doesn't need it," according to Noe and others. Both Clinton and Bush agreed on the need to get offshore drilling workers back on the job. They also agreed on the need for more domestic shale gas production, with Clinton noting that it has been done safely for years in his home state of Arkansas. © Newsmax. All rights reserved.

Wednesday, January 12, 2011

Obama's Ultimate Betrayal (January 12, 2011) Personal Liberty Digest..

Obama's Ultimate Betrayal

January 12, 2011 by John Myers

Obama's Ultimate Betrayal

Welcome to 2011; another year for President Barack Obama, whose energy policies are dictated not from the White House but from Abu Dhabi and Riyadh.

Obama's Christmas gift to the nation was the December announcement by the President himself to clamp down further on domestic oil and gas drilling. Welcome to the New Year where pump prices now average more than $3 per barrel.

Despite the worst recession since the Great Depression, we are paying the highest gas prices since 2008. All thanks to Obama's need to go Green, which is enriching Arab oil producers while putting America's future at risk.

Obama regulators have been busy slipping in ill-advised energy policies. First came the pre-Thanksgiving announcement that oil exploration and drilling in Alaska would be curtailed. All for a good cause, said the Obamaites, to help save vast expanses of polar bear habitat. Then Obama's Department of the Interior made a pre-Christmas policy change that would further cut domestic oil supplies by making energy-rich lands untouchable.

It seems that Obama forgot that designating Federal lands as wilderness areas was supposed to require an act of Congress. Yet the day before Christmas Eve, Obama's Department of the Interior did a coup d'état. As a result, the Obama administration alone is able to judge where oil can or cannot be drilled. In doing this, Obama has thwarted George W. Bush's policy that restricted unilateral action by the White House.

Then there is the drilling in the deep-water Gulf of Mexico. Nearly three months after the Obama administration lifted its ban, oil companies are still waiting for approval to drill the first new oil well in the Gulf. In fact, the petroleum industry expects the wait to continue until the second half of 2011, and perhaps well into 2012.

This long delay by the Obama administration is costing Big Oil billions of dollars that they have tied up in Gulf projects; projects that are now on hold while petroleum companies pay out thousands of dollars every day on rigs that stand idle.

Last week the Wall Street Journal wrote this indictment of Obama' energy policy:

"Their impact goes beyond the oil industry. The Gulf coast economy has been hit hard by the slowdown in drilling activity, especially because the oil spill also hurt the region's fishing and tourism industries. The Obama administration in September estimated that 8,000 to 12,000 workers could lose their jobs temporarily as a result of the moratorium; some independent estimates have been much higher.

"The slowdown also has long-term implications for U.S. oil production. The Energy Information Administration, the research arm of the Department of Energy, last month predicted that domestic offshore oil production will fall 13 percent this year from 2010 due to the moratorium and the slow return to drilling; a year ago, the agency predicted offshore production would rise 6 percent in 2011. The difference: A loss of about 220,000 barrels of oil a day."

All of which leaves America more susceptible to an Arab oil embargo. The last one happened in the 1970s when the U.S. was pumping twice as much oil as it is now.

With the U.S. gulping more foreign crude than ever, Arabs could bring America to its knees. You would think that a President as smart as Obama would understand the risk he is putting the nation in; a nation which he has sworn to protect.

Perhaps the greatest waste of American resources is out West where there is potentially hundreds of millions of barrels in oil reserves and trillions of cubic feet in gas deposits; all of it just waiting to be drilled and pumped to a thirsting nation. Yet our President is obstructing America from meeting its energy needs.

Ben Lieberman of The Washington Times explains:

"Utah is particularly hard hit, with up to 6 million acres in jeopardy of being locked away from development. Rep. Rob Bishop, Utah Republican, told The Salt Lake Tribune, "[This decision will seriously hinder domestic energy development and further contribute to the uncertainty and economic distress that continues to prevent the creation of new jobs in a region that has unduly suffered from this administration's radical policies."

But there is more. Two days before Christmas the Environmental Protection Agency (EPA) undertook a Pearl Harbor-like pre-emptive attack on U.S. refiners with an order that will place severe limits on carbon-dioxide emissions. The EPA, in language Joseph Stalin would have been proud of, said: "The details have yet to be determined."

The Moroccan Candidate
The bottom-line is that under Obama, Washington is certain to increase the cost of converting oil into gasoline. If you are looking forward to spending $5 per gallon at the pumps, you will love Obama's bold new move to make America more green.

The $5 per gallon is not just a number I picked out of the air. The former president of Shell Oil says that's entirely possible as high demand pushes the price of crude oil higher and higher.

Culminating some time by the third quarter of 2012, retail pump prices in places like California and New York will reach roughly $5 per gallon, said former Shell Oil president John Hofmeister.

Former energy secretary Bill Richardson was asked about Hofmeister's stark prediction: "I hope he's wrong, but this is a very volatile energy market and we haven't moved as fast as we should in America towards reducing our dependence on fossil fuels."

Hofmeister underscores the urgent need to develop domestic oil production and he even accuses the Obama administration of being anti-oil.

"I have no problem moving beyond oil but not today, not tomorrow, not 2011 or 2012. We can't. It's simply impractical and unreal," Hofmeister said.

Meanwhile, the Department of Energy (DOE) has put out a statement saying it will continue to pursue responsible oil and gas production while focusing on vehicle efficiency standards and investing in electric vehicles, bio-fuels and mass transit.

Obama's DOE must think America alone can make the Earth green. What the President seems to forget is the fact that China, India and Russia, along with a host of Third World polluters, are using coal and even wood furnaces to drive their industries.

It appears to me that Obama's Green policies are nothing more than collateral damage to a nation that needs domestic petroleum and the jobs that that industry provides. Instead Obama's policies seem to be helping Arab oil exporters.

If you think I exaggerate, consider this from the Dec. 29 Economist, not known as a bastion of conservative ideals: "Mr Obama's team of managing the Middle East is even more inept than Mr Bush's. The American right and many Israelis think he is too pro-Arab."

Dubya Billboard: "MISS ME YET?"
People in the petroleum industry don't believe Obama is pro-North America, at least not when it comes to energy. Canada's oil sands — which help keep America on the road every day—have been labeled "dirty oil" by Obama Democrats (as if the crude they pump out of the Saudi desert was somehow clean). And given the political realities that exist in many parts of Alaska, Sarah Palin has a greater chance of hitting a gusher with an errant shot from her AR-15 than Big Oil has with a drill-bit.

Despite Bush's multiple mistakes in the Middle East, he was a patriot who at least wanted to ramp up domestic oil and gas production. That's not true of Obama, who seems intent on increasing America's dependency on Arab oil.

As I write to you, oil has topped $90 per barrel. I believe that by summer it will break over $100 per barrel. That makes Big Oil a good investment. But at what cost?

Under Obama's presidency we are headed for an energy crisis worse than anything President Jimmy Carter could have engineered. Just how high oil prices will go I don't know. Much depends on what happens in the 2012 election.

Yours in good times and bad,

John Myers
Myer's Energy and Gold Report


Sunday, June 10, 2007

Oil Price Gouging: From Enron With Love (News With Views June 09, 2007)

OIL PRICE GOUGING: FROM ENRON WITH LOVE

 

 

 

David R. Usher
June 9, 2007
NewsWithViews.com

Remember what Enron did to California and millions of investors? It took advantage of deregulation in California, manipulating electricity prices by raiding the futures market, overscheduling power lines, and creating fears about shortages. PG&E went bankrupt because it could not raise rates to customers.[1] The whole thing unraveled, and Enron went down in flames in the biggest bankruptcy in American history.

Enron was a clumsy corporate attempt to raid a captive energy market. It was also a proving grounds testing how much monkey business a single corporation can get away with. Savvy investment firms and avaricious lawyers analyzed the Enron case – realizing they could turn a huge buck on oil futures – so long as they tacitly let oil companies constrain the oil supply without manipulating the supply directly themselves.

Giant speculative investment funds and oil companies now make tremendous profits raiding the oil spot-market, playing seemingly separate but implicitly cooperative roles serving up the same end-effect as Enron wreaked on California. But this time, the victim is the American consumer, not energy producers and distributors.

Federal and state politicians in both parties have failed to address this "Enroning of America" because government is on the take too. Taxes rise with gasoline prices, fattening political contributions while feeding slush budgets and pork barrels at both the state and federal levels.

Oil companies grin like Howard Stern on satellite because outrageous spot market prices drive windfall profits. Record oil-company windfall profits are derived from gross internal company book-value transfers of oil products made between offshore divisions to U.S. operations – the value differential pegged to spot market prices – which also has the concurrent effect of exporting tax liabilities overseas.

Fears of global warming, fears of shortages due to weather or minor refinery disruptions, Middle-East stability, and consumption in China have turned high gasoline prices into an honorable predation in service of imaginary higher moral and political purposes.

National Public Radio first documented this problem in its story "Analyst: Blame Investors for High Gas Prices."[2] The story revealed a truth: "Investment banks from Morgan Stanley to Goldman Sachs are making so much money from oil futures that they've become a hot investment for all sorts of big-money players." Ben Dell, an oil analyst and Sanford Bernstein calls it correctly, if not conservatively: "pension funds and other investors are buying oil to remove it from the market -- which can help drive up demand -- before selling it for a profit some months later":

Dell thinks that mass speculation will end when production capacity meets demand. This is a backwards analysis. Production capacity will never meet demand so long as mass speculation makes unproductivity immensely profitable. According to the International Monetary fund (IMF), oil companies have not invested in additional production capacity – thus intentionally maintaining record oil company profits.[4] Oil companies are negatively motivated to increase capacity in the speculatively-manipulated market because they reap tremendous profits by sitting on their thumbs.

Gouging by playing "Fear Factor"

Oil companies normally buy some spot oil futures against excess production by other oil companies to make sure they will have enough crude. In this legitimate market, there are only so many dollars chasing so many excess barrels of future oil.

Pension and other large speculative bank-owned investors discovered they could manipulate the market out of sheer size. By making huge purchases of futures, they could accelerate fears, take oil offline, drive the price up even more – and make handsome profits in just a few weeks or months. The spot market is now distorted – too many dollars chasing around the same amount spot oil. Minor fluctuations in gas prices became wide swings. The word "hurricane" is all it takes to provide cover for raiders to buy in. Over time, the constant pressure to maintain futures profits has caused steep, consistent rises in baseline crude and refined prices over the past five years.

Analyzing the roughly 566% increase of crude oil prices since 1995,[5] accompanied by a parallel rise in refined-gasoline prices, the International Monetary Fund (IMF) admits that fear is the major factor driving oil price gouging:

"Naturally, given the tightness in the oil market and uncertainties about demand and supply, factors such as geopolitical developments, fears of potential supply disruptions, and speculation have also all played a part in price movements, but largely through their impact on expectations regarding future fundamentals."[6]

After identifying fear as the major factor, the IMF absolved its institutional friends manipulating those fears, suggesting the effect of entry into the market by Hedge and pension funds merely adds "diversity" to the market that can "be a source of liquidity and price discovery."[7] Read between the lines, America: the IMF just admitted that banks and pension funds are "discovering" new oil prices by flooding a brittle market with paper purchases, and laughing all the way back to the bank.

Is There Really an Oil Shortage?

In 1978, I flew to Europe to visit a college friend who worked in London. An oil-trader friend of his from Paris flew in for a weekend restaurant tour with us. When I asked the man what he did for a living, he replied confidently "I f*** the world". I was shocked then, and even more-so today.

If data by the United States Energy Information Agency (EIA) is reliable, there is no actual shortage of either oil or production capacity in relation to consumption.

Between 1980 and 2004, world consumption increased by 30.8%,[8] while U.S. consumption increased only 21.5%.[9] World production increased 23.2%,[10] but U.S. production actually decreased by 40.3%.[11]

In terms of world static supply and demand, in 2004 73,387 thousand barrels/day (TBD) of oil were produced,[12] against demand of 82,594 TBD consumed.[13] This would leave a 12% structural deficit. However, looking at 1980 world data, we also see a 5.7% deficit: 59,557 TBD were produced[14] against consumption of 63,113 TBD.[15]

The EIA data suggests a long-term physical impossibility: world consumption has been actually outstripping world production for many years. I conclude there is data missing from EIA reports. This could consist of under-reporting of production, over-reporting of consumption, or perhaps both.

World distillation capacity rose 81% from 47,049 TBD in 1970, to 85,304 TBD in 2007. However, distillation capacity increased only 6.7% between 1980 and 2007.[16] It is interesting to note that the EIA reports 2007 distillation capacity of 85,304 TBD, which factoring-in demand growth, is roughly in-line with 2004 consumption of 82,594 TBD (post-2004 consumption data is not available yet.

In the United States, distillation capacity actually decreased from 17,988 TBD in 1980 to 17,397 TBD in 2007. The lowest point in U.S. distillation capacity occurred in 1994, when capacity was only 15,034 TBD.[17]

Proven reserve data suggests a very positive future outlook. Proven U.S. reserves rose 734% from 29.81 billion barrels in 1980 to 213.32 billion barrels in 2004.[18] Proven world reserves grew 204% from 644.93 billion barrels in 1980 to 1,317.44 billion barrels in 2007.[19]

Now, we look at spot-market oil prices. In 1974, oil cost about $5 per barrel. By January, 1980 oil nearly quintupled to $24 per barrel. It dropped to a low point of $9.50 in 1999, skyrocketed to $58 per barrel in 2005,[20] peaking at $69.52 in August, 2006.

We see that oil prices exploded 173% between 1999 to August, 2006.[21] This is a breathtaking change for a necessary commodity.

Is there really a shortage? We can say conclusively that we have not seen gas lines in any free world country. This suggests there is no actual shortage in either the United States or the world.

Here is what we can take away from the above information:

1. U.S. oil companies cut back U.S. distillation capacity substantially between 1980 and 2004. This seeded fears. Spot market prices rose tremendously, thus increasing profits to oil companies.
2. U.S. oil companies decreased stateside production 40.3% between 1980 and 2004, driving fears about dependence on foreign oil, and creating an illusion that shortages were imminent.
3. These two items, in conjunction with speculative manipulation of the spot market by banks and pension funds, caused oil company profits to soar. The world's three largest oil companies netted profits of $172,000 per minute during the second quarter of 2006. Profits going forward look similarly bullish.[22]

The Effects of Inflated Energy Costs

Enronesque oil speculation disproportionately affects low-income Americans to the immediate benefit of oil companies, governmental bodies, and upper-class investors. The poorest Americans can least afford transportation, thus marginalizing them.

Economists believe that maximizing private retirement funds will result in lower demands on Social Security as baby-boomers retire. However, the high present-day cost of oil decreases what individuals can afford to contribute to their retirement funds – perhaps taking marginal investors out of the contemporary investment picture entirely.

Robbing the bank today to save the bank tomorrow is a zero-sum game. When low-income Americans can no longer afford to drive longer distances getting to work, they settle for lower wages available close to home. In inner-city and remote rural locations, where employment opportunities are scarce or non-existent, employment may no longer even be feasible. Present-day welfare demands can be predicted to rise, and social security contributions predicted to fall.

This problem is not limited to oil markets. In the name of "deregulation", investors are now raiding electricity markets nationwide. This is driving up home energy costs for everyone, causing utility companies to defer lifecycle replacement of end-of-life equipment, resulting in massive power outages caused by wet or cold weather failures of antiquated step-down equipment never before experienced by customers.

For example, several extended power outages in Missouri affecting over ½ million customers each can be attributed to failure of Ameren U.E. to proactively replace old step-down transformers, which explode when rusting enclosures permit moisture entry during inclement weather. Here is proof: this past February, I counted seven step-down transformer explosions, on one day, within earshot of my home after a large wet snowstorm.

Clearly, constraints must be applied to all energy markets to ensure free resource exchanges within markets undistorted by giant speculative investors.

High energy costs make international outsourcing of manufacturing and exportable service industries attractive in countries where workers commonly walk, use public transportation, ride bicycles, or live in corporate dormitories. High energy costs also raise the bar at which Americans will work, making illegal immigration more attractive to foreigners and American businesses.

The Answer

The U.S. House of Representative recently passed oil price-gouging legislation that would force the major oil companies to break up.[23] This feel-good legislation will not fix the problem because it does not change the passive but orchestrated role played by oil producers and speculators profiting from the gouging game.

For many years, Presidents and politicians have repeatedly promised actions to reduce dependence on foreign oil, while knowingly permitting oil companies to decrease stateside production capacity and increase our dependence on foreign oil. The jig is up. No politician can survive without taking decisive action to end the "Enroning Of America." This must be one of the leading issues in upcoming Congressional and Presidential races.

Five things should be done. A free market will not exist until speculative investing is fully disallowed for critical energy commodities including oil and electricity:

1. Small investors holding retirement accounts should boycott investment firms and mutual funds that tout or place any of their funds in spot market futures. You do not gain by paying outrageous gas prices now only to be paid back in cheaper dollars later.


2. Consumer class-action lawsuits, perhaps invoking RICO should be filed against oil producers and investment firms, to recover illicit profits and return them to consumers. Governmental bodies who received windfall taxes should also be named and forced to return the taxes. With a case like this, it won't be necessary to shop the case out to the corrupt the corrupt bench in Madison County, Illinois.

3. Speculation must not be permitted in mission-critical markets. Congress must enact Federal legislation limiting spot-market trading in oil and utilities to companies that directly produce, refine, or sell oil.


4. Congressional hearings must be had to interview executives in both industries and discover the extent of monopolistic collaboration.

5. If information discovered in Congressional hearings and class-action suits warrants, criminal charges should be filed against executives in both industries who have knowingly collaborated to gouge the American consumer.

Footnotes:

1, Market Manipulation
2, National Public Radio, "Analyst: Blame Investors for High Gas Prices," August 24, 2006
3, National Public Radio, "Analyst: Blame Investors for High Gas Prices," August 24, 2006
4, International Monetary Fund, "The Structure of the Oil Market and Causes of High Prices," September 21, 2005
5, International Monetary Fund, "The Structure of the Oil Market and Causes of High Prices," September 21, 2005
6, International Monetary Fund, "The Structure of the Oil Market and Causes of High Prices," September 21, 2005
7, International Monetary Fund, "The Structure of the Oil Market and Causes of High Prices," September 21, 2005
8, U.S. Energy Information Agency, "International Petroleum (Oil) Consumption," June 5, 2006
9, U.S. Energy Information Agency "International Petroleum (Oil) Consumption," June 5, 2006
10, U.S. Energy Information Agency, "World Crude Oil Production (Including Lease Condensate), Most Recent Annual Estimates, 1980-2006"; May 25, 2007
11, U.S. Energy Information Agency, "World Crude Oil Production (Including Lease Condensate), Most Recent Annual Estimates, 1980-2006"; May 25, 2007
12, U.S. Energy Information Agency, "World Crude Oil Production (Including Lease Condensate), Most Recent Annual Estimates, 1980-2006"; May 25, 2007
13, U.S. Energy Information Agency, "International Petroleum (Oil) Consumption," June 5, 2006
14, U.S. Energy Information Agency, "World Crude Oil Production (Including Lease Condensate), Most Recent Annual Estimates, 1980-2006"; May 25, 2007
15, U.S. Energy Information Agency, "International Petroleum (Oil) Consumption," June 5, 2006
16, U.S. Energy Information Agency, "World Crude Oil Distillation Capacity, January 1, 1970 - January 1, 2007
17, U.S. Energy Information Agency, "World Crude Oil Distillation Capacity, January 1, 1970 - January 1, 2007
18, U.S. Energy Information Agency, "International World Proved Crude Oil Reserves, January 1, 1980 - March 12, 2007 Estimates"
19, U.S. Energy Information Agency, "International World Proved Crude Oil Reserves, January 1, 1980 - March 12, 2007 Estimates"
20, U.S. Energy Information Agency, "World Nominal Oil Price Chronology: 1970-2005"
21, U.S. Energy Information Agency, "United States Spot Price FOB Weighted by Estimated Import Volume (Dollars per Barrel)"
22, Bloomberg.com, "Exxon, Shell Exceed Profit Predictions as Prices Soar"
23, MSNBC, "House approves stiff gas-gouging penalties," May 24, 2007

© 2007 David Usher - All Rights Reserved

E-Mails are used strictly for NWVs alerts, not for sale


David R. Usher is Legislative Analyst for the American Coalition for Fathers and Children, Missouri Coalition and is a co-founder and past Secretary of the American Coalition for Fathers and Children.

E-Mail: drusher@swbell.net

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BS Ranch Perspective

I Just knew the Government had something to do behind the higher prices. At the prices that they have now what is the use of owning your own home, when you have a Gas payment of what a house payment would be...

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