Gasoline prices and investors.

 
What role Wall Street investors play in the high cost of oil is a hotly debated topic in "Washington. Despite weak demand, the price of a barrel of crude oil surged more than 25 percent in the past year, reaching a peak of $113 May 2 before falling back to a range of $95 to $100 a barrel.

The Obama administration, the Bush administration before it and Congress have been slow to take steps to rein in speculators. On Tuesday, the Commodity Futures Trading Commission, a U.S. regulatory agency, charged a group of financial firms with manipulating the price of oil in 2008. But the commission hasn't enacted a proposal to limit the percentage of oil contracts a financial company can hold, while Congress remains focused primarily on big oil companies, threatening in hearings last week to eliminate their tax breaks because of the $38 billion in first-quarter profits the top six U.S. companies earned."  KC Star

------------------------------

Jump ball! 

- There is no oil shortage presently driving high prices.

- We are being screwed by traders, hedge fund managers, etc.

-  The Saudis do not love us.  They will probably join in the "screwing" soon, if not already.

Go for it.  pl

Read more: http://www.kansascity.com/2011/05/25/2903397/saudis-often-warned-us-about-oil.html#ixzz1NlU59pvo

 

Comments

[arbogast]

The price of gasoline in the United States can be tracked at:

http://www.eia.gov/dnav/pet/pet_pri_gnd_dcus_nus_w.htm

It just dropped a dime a gallon to 3.90.

Whatever else is true, Obama cannot go into the election with rising gas prices. He will do what it takes.

Theoretically, the Saudis could decide they want a Republican President. Given Obama's lordosis on Bahrain, they probably prefer the Devil they know.

This is a fascinating site:

http://www.theoildrum.com/

[Adam L. Silverman]

Sir,

McClatchy just did a report on this, based on material from wikileaks, about the 2008 run up indicating that the Saudis knew it was speculative, kept telling the Bush Administration that when they would ask for the Saudis to pump more, and that the US needed to properly regulate the speculators. Here's the link:
http://www.mcclatchydc.com/2011/05/25/114759/wikileaks-saudis-often-warned.html
Hat tip to Matt Taibbi, who has more on this:
http://www.rollingstone.com/politics/blogs/taibblog/wikileaks-cables-show-speculators-behind-oil-bubble-20110526

[William R. Cumming]

Actually my understanding is that the Saudis have consistently argued that the US openly allows manipulation by the traders and should police it!

[Grimgrin]

I thought the Saudis disliked high oil prices, as they tend to bring competing sources online and weaken their position in the market.

The only reason they might have for screwing over America is that they're loosing out on the profits from the oil that are currently going to the speculators.

I'd see the either Saudis lobbying very heavily for restrictions on the commodities market, or failing that, hiking production or slashing prices to try to crash oil prices for a while. If speculation is taking place in the futures market, they might be able to burn some of the traders very very badly. (Porche did something similar to people speculating on VW stock a while back.)

[securecare]

I had forgotten about this which, of course, is part of the mix.

"Prince Alwaleed bin Talal said an oil price of $70 to $80 a barrel is in the best interests of Saudi Arabia because it diminishes the urgency in the U.S. and Europe to develop alternative energy sources.

“We don’t want the West to go and find alternatives,”..."

http://www.bloomberg.com/news/2011-05-28/alwaleed-says-saudi-arabia-seeks-70-to-80-oil-to-preserve-sales-to-west.html

[ISL]

As I understand, the Saudi's already are - they have refused to increase production as they need high oil prices to bribe local discontent - so no help for Obama there. Of course the markets could be punished by sporadic strategic reserve sales, but that would hurt the speculators. The absence of such actions to me indicates that pleasing the speculators (Goldman Sachs, et al.) is far more important than risking not being re-elected.

[J]

Correct me if I'm wrong, but when oil was $150/barrel during the speculator's heyday, the Saudis only received a little over $3/barrel at their well-heads and it cost them roughly $.40 to pump a gallon to the surface. After seeing the raking that Saudi took at the hands of the speculators, the Saudi king subsequently suggested that a barrel of oil on the markets should be $75/barrel. I have no idea the current Saudi profit margin on their oil.

The speculators at the International Petrol Exchange in London have been raping our planet since they found out that they (and their partners on Wall Street) could manipulate oil prices with no fallout to themselves.

[Walrus]

When corruption makes too much of a stench in Indonesia, which it does every few years, a scapegoat is nominated, the appropriate Minister, joined by dozens of police and media, then makes a very high profile arrest.

The scapegoat confesses at a very public trial and is banished to a distant prison for a long time...where he is joined by his family...lives luxuriously....and after a suitably short interval is released and recompensed for his time and trouble. Public decency and honor are upheld and then it's business as usual again a month or Two later.

The last of these I remember involved a very public arrest by the Education Minister of one of his own senior officials at a Jakarta bank. The man had in his possession a list of (imaginary) teachers to be paid their wages from Departmental accounts.

I assume the hedge funds and Wall Street will arrange for similar Kabuki to occur. Plea bargains are such wonderful things.

[Patrick Lang]

grimgrin

You don't get it. They are angry with us for dumping Mubarak and have decided that we are not worth propitiating. pl

[Patrick Lang]

All

Many of you people are hopelessly mired in economic determinism and forget everything you might have learned as soon as anyone points at a drum pf oil. Let's see, is it really worthwhile the amount of time I spemd on this... pl

[highlander]

Well,the fact is,oil companies are only about 110th in the rankings of overall corporate profitability.

But,thanks to Bush and Cheney's moves, we have no real way of knowing, what is happening offshore in the oil markets.( I haven't noticed Barry Obama rushing to rectify the previous administration's moves. Kinda makes you wonder, who paid to get him elected, doesn't it?)

If you really don't like what you pay for gas, I suggest you start by gutting our corrupt political class(both parties) in wonderful Washington DC.

We all know that isn't going to happen. So get use to paying the piper.

[Roy G]

Why worry about the Saudis screwing us, when Wall Street is doing such a bang up job?

I'm not here to defend Bradley Manning, but there are far bigger traitors to this country, and unfortunately, they have captured the system and are beggaring the USA. Wall Street has divorced itself from not only Main Street, but the United States as well, given that so many of them have offshored their corporations and shell accounts.

I am thankful for Wikileaks. This is exactly why 'they' don't want us to see it.

[Grimgrin]

pl: I phrased the first two lines very badly.

High oil prices are a global phenomenon. Even if they were to launch an embargo against America, the US only gets about 10% of it's oil from the Saudis. Other producers could take up the slack, or oil could be diverted from wherever the Saudis wind up selling their excess.

That's what I was trying to get at with the 'only motivation' line. The Saudis inflating oil prices don't make sense as a means of punishing the US. I know, decisions are not always taken rationally, but by the same token, people who are upset don't always react in irrational ways.

The only exception I see to this is an oil shock in the run up to the election with an eye to damaging Obama, assuming the Saudis have decided that the decision to abandon Mubarak represents Obama and not the American policy establishment.

[rjj]

Not oil, but hosing in general.

http://www.youtube.com/playlist?p=PLD20B905414A886BC

found @ MoA.

[quibble] Gratifying as it is to blame it all on Rand's Russo-Californian Objectivist quackery. it is too easy -- reminds me of the Bircher's Benjamin Spock scapegoat. [/quibble]

[Fred]

Grimgrin,

This is the same style of manipulation that Enron performed in the California electricity markets, not Saudi Arabia punishing Obama.

[Jake]

The sad thing here is that neither the republicans nor the democrats are doing anything to pressure the CFTC in capping the amount of leverage the traders can access. Some speculation is good for the economy, but not uncontrolled. Now This capping is some 3 years overdue as the Dodd/Franks legislation directed. So we cannot just blame Obama without pointing the finger at the republicans either... Plainly more political bullshit from both parties...

The financial well being of the republic is in the hands of the mad hatter's....

[Farmer Don]

Let me put this as bluntly as possible.
It is your own fault.
The US has spent $1,200,000,000,000.00 on wars since 2001.
What if part of this money had been spent on wind or solar or nuclear energy? What if all this energy developement in the US had created good jobs for US workers, managers and scientists?

You've wasted your money.

[Lysander]

Whatever the cause of the price, I must say:

1) It is typical that whenever there is a shortage of a commodity (real or perceived,) there is speculation.

2) Whenever prices go up due to either a) genuine shortage or b) devaluation of the currency, the government **ALWAYS** blames speculators. They are never going to say "this is an obvious and unavoidable consequence of the loose monetary policy all our central banks have adopted over the years."

3) What's everyone's explanation for gold going from 250$/ounce 10 years ago to 1500+ today?

4) Yes, there is speculation that exaggerates oil prices to the upside for now, but then to the low side eventually.

OTOH, I see no problem with raising margin requirements for oil traders.

[Paul Escobar]

pl said: "We are being screwed by traders, hedge fund managers...The Saudis do not love us. They will probably join in the "screwing" soon.

Seems some form of regulation is needed. But the political culture may not allow it.

The Israelis & their neo-conservative propagandists keep telling us they favour lower oil prices.

Yet their actions & interventions only seem to promote the instability that excuses higher oil prices.

The Israeli's can get their American supporters in congress to cheer against their own president...even support outright treason. Yet they can't get them to implement needed regulation which could help lower oil prices?

[JohnS]

Bubbles bubbles everywhere! Because too much $$$ is now concentrated in the hands of too few, who are ever on the lookout for new places to park it. Which makes for a pretty good case that it's less disruptive for an economy to have money spread around more. At least maybe for those who think burst economic bubbles that vaporize large amount of wealth in a nanosecond are bad things...

[Gordon Wilson]

Having been raised to believe the proposition that governments are instituted among men for the purpose of defending their property, we are confronted by one that seems bent on facilitating the theft thereof. While not entirely accurate, oil and commodity speculators are no better than the coin clippers past that derived a profit from the clippings of gold and silver while speculating that eventually the government will be forced to repurchase the clipped coins, at face value, to get them out of circulation as they debase the worth of the currency.

[Marcus]

Oil speculation (any commodity speculation) is a red herring. There is always speculation in commodities if there are markets. The main reason for the rise in commodities is the fall (and lack of faith) in the dollar.

The real danger going unheeded by the vast majority is the coup by the financial powers.

From the Federal Reserve which backstops failed foreign and domestic "too big to fail" (TBF) banks, to broken regulating agencies and corrupt ratings agencies, the system is broken and no serious attempt at fixing or reforming it is on the horizon.

Until these types of games stop: the Federal Reserve buying bonds from Treasury and toxic assets from failed banks, while at the same time "loaning" money at 0% interest, so banks can buy same bonds back at 3%, these same underwater firms will continue to suck the life blood of the economy.

This is not the worst though. The assets still on the balance sheets of these TBF banks are a ticking bomb. The 1.5 trillion the Fed paid for various "assets" in an attempt to float these banks is inadequate. And with inflation in commodities and deflation in middle class wages forget about the real estate revival.

Too Big to Fail as a concept must be rejected and we still have yet to go through the capitalistic process of creative destruction and the legislative process of real financial reform. The longer we wait the more wealth will be drained.

[Byron Raum]

I am not really sure I understand why people think that low profitability is somehow an inverse measure of political corruption caused by an industry. This was also often bruited about during the healthcare debate. Profits are counted after Board and CEO salaries and bribe expenses, etc., are all subtracted from income.

All that means is that the shareholders are getting very little.

[Grimgrin]

Fred: Yes, and I'm sure the Saudis would like to get both control of the oil market and the 'rake' the speculators are now bringing in back.

The problem is that higher oil prices don't do that, while at the same time they damage Saudi interests.

Maybe they'll play a game of chicken where they say to the US government "we will raise oil prices up to and above your threshold of pain until you reign in commodities brokers". I don't know. It seems like an awfully big role of the dice.

[Lysander]

@Marcus,

Excellent comment.