November 13, 2009

Global Oil Scam: There Is No Shortage!

Commodity Futures Modernization Act of 2000

We may never know for sure the combination of circumstances that brought on energy crisis of 2008. But one factor was almost certainly the Commodity Futures Modernization Act of 2000, which allowed unprecedented levels of speculation in oil futures by investment banks and pension funds, bringing the familiar boom-bust cycle home to the gas pump. [Drill Now? Try Regulate Now, Wall Street Journal, April 7, 2010]

To lower international food prices and protect our social interests, the Commodities Futures Trading Commission must use its authority to curb excessive speculation in commodities futures and re-establish strict position limits on speculators (which were successful until removed by the Commodity Futures Modernization Act of 2000). We must regulate and bring transparency to all trading. We can also removing damaging speculative influence on commodities prices by prohibiting participation in commodities markets by those who do not produce, manufacture, or take physical delivery of the commodities. We must create a solidarity economy that puts compassion and care for one another ahead of short-term profits, in the United States and around the world. [The world food crisis: what is behind it and what we can do,, October 23, 2008]

The surge in world food prices can be attributed to the “financialisation” of commodities due to the Commodities Futures Modernization Act of 2000. The game changed for commodities the minute the legislation passed -- ten years ago. That doesn't explain the surge this year but it does explain the increased volatility of the last decade. [
Don't Blame Bernanke: Here's Who's REALLY To Blame For Surging Food Prices, Business Insider, October 12, 2010]

And what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help — there were other players in the physical-commodities market — but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures — agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed. [Matt Taibbi, The Great American Bubble Machine, Rolling Stone, July 2, 2009]

The price of crude oil today is not made according to any traditional relation of supply to demand. It’s controlled by an elaborate financial market system as well as by the four major Anglo-American oil companies. As much as 60% of today’s crude oil price is pure speculation driven by large trader banks and hedge funds. It has nothing to do with the convenient myths of Peak Oil. It has to do with control of oil and its price. [F. William Engdahl, ‘Perhaps 60% of today’s oil price is pure speculation’, Global Research, May 2, 2008]

People of Earth: Prepare for Economic Disaster (Excerpt)

The Economic Collapse
March 5, 2011

It is not just the United States that is headed for an economic collapse. The truth is that the entire world is heading for a massive economic meltdown, and the people of earth need to be warned about the coming economic disaster that is going to sweep the globe.

The current world financial system is based on debt, and there are alarming signs that the gigantic global debt bubble is getting ready to burst.

In addition, global prices for the key resources that the major economies of the planet depend on are rising very rapidly. Despite all of our advanced technology, the truth is that human civilization simply cannot function without oil and food. But now the price of oil and the price of food are both increasing dramatically.

So how is the current global economy supposed to keep functioning properly if it soon costs much more to ship products between continents? How are the billions of people that are just barely surviving today supposed to feed themselves if the price of food goes up another 30 or 40 percent?

For decades, most of the major economies around the globe have been able to take for granted that massive amounts of cheap oil and massive amounts of cheap food will always be there. So what happens when that paradigm changes?

At last check, the price of U.S. crude was over 104 dollars a barrel and the price of Brent crude was over 115 dollars a barrel. Many analysts fear that if the crisis in Libya escalates or if the chaos in the Middle East spreads that we could see the all-time record of 147 dollars a barrel broken by the end of the year. That would be absolutely disastrous for the global economy.

But it isn't just the chaos in the Middle East that is driving oil prices. The truth is that oil prices have been moving upwards for months. The recent revolutions in the Middle East have only accelerated the trend.

Let's just hope that the "day of rage" being called for in Saudi Arabia later this month does not turn into a full-blown revolution like we have seen in other Middle Eastern countries. The Saudis keep a pretty tight grip on their people, but at this point anything is possible. A true revolution in Saudi Arabia would send oil prices into unprecedented territory very quickly.

But even without all of the trouble in the Middle East the world was already heading for an oil crunch. The global demand for oil is rising at a very vigorous pace. For example, last year Chinese demand for oil increased by almost 1 million barrels per day. That is absolutely staggering. The Chinese are now buying more new cars every year than Americans are, and so Chinese demand for oil is only going to continue to increase.

Much could be done to increase the global supply of oil, but so far our politicians and the major oil company executives are sitting on their hands. They seem to like the increasing oil prices. [According to Energy Analyst Peter Beutel: Every penny increase at the pump takes $4 million per day from the American consumer. So a 10-cent increase is $40 million a day.]

So for now it looks like oil prices will continue to rise, and this is going to result in much higher prices at the gas pump. Already, ABC News is reporting that regular unleaded gasoline is going for $5.29 a gallon at one gas station in Orlando, Florida. [A $10 increase in oil prices translates into roughly a 25 cent increase in retail gasoline prices.]

The U.S. economy in particular is vulnerable to rising oil prices because our entire economic system is designed around cheap gasoline. If the price of gas goes up to 5 or 6 dollars a gallon, and it stays there, it is going to have a catastrophic effect on the U.S. economy. Just remember what happened back in 2008. The price of oil hit an all-time high of $147 a barrel and then a few months later the entire financial system had a major meltdown. Well, as the price of oil rises it is going to create a whole lot of imbalances in the global financial system once again.

This is definitely a situation that we should all be watching.

But it is not just the price of oil that could cause a global economic disaster.

The global price of food could potentially be even more concerning. As you read this, there are about 3 billion people around the globe that live on the equivalent of 2 dollars a day or less. Those people cannot afford for food prices to go up much. [Editor's Note: 3 billion people is about 1/4 of the world's population; this coincidentally, or not, is the amount of people that will die by war, scarcity, famine, social injustice, plagues, etc. at the opening of the first four seals (Revelation chapter 6).]

But global food prices are rising. According to the United Nations, the global price of food has risen for 8 consecutive months. Last month, the global price of food set a brand new all-time record high. Many are starting to fear that we could actually be in the early stages of a major global food crisis.

The price of just about every major agricultural commodity has been absolutely soaring during the past year...

Unfortunately, the production of food in most countries around the world is very highly dependent on oil, so as oil goes up in price this is going to make the food crisis even worse.

Hold on to your hats folks.

Also, as I have written about previously, the world is facing some very serious problems when it comes to water. Due to the greed of the global elite, there is not nearly enough fresh water to go around. The following are some very disturbing facts about the global water situation....

These days, one of the trendy things to do is to call water "the oil of the 21st century", but unfortunately that is not a completely inaccurate statement. Fresh, clean water is something that we all need, but right now world supplies are getting tight.

Our politicians and the global elite could be doing something about this if they really wanted to, but right now they seem perfectly fine with what is happening...

Top Five Things Obama Has Done to Raise Gasoline Prices

If past statements from Obama and his administration are any indication, the U.S. could be stuck with prohibitively high gasoline prices: Then-Senator Obama said on the campaign trail in 2008 that he doesn’t object to high oil prices as long as they come about gradually, and Secretary of Energy Steven Chu once famously said he hoped the U.S. would “boost the price of gasoline to the levels in Europe,” where prices are currently about $7 per gallon.

American Solutions
January 3, 2011

With gasoline currently above $3 per gallon nationwide and economists expecting that price to rise even further in 2011, America should be getting serious about producing more of its own resources. But instead of focusing on how to bring more relief to American motorists, President Obama has imposed massive new regulations, restrictions, and even threatened higher taxes on American energy, all of which negatively impact domestic production.

What follows is a list of the five most egregious actions on the part of the Obama administration that have contributed to higher gasoline prices and greater dependence on foreign dictators for our energy:

Cancelling existing permits

Immediately after taking office in 2009, President Obama’s handpicked Secretary of the Department of Interior, Ken Salazar, canceled 77 leases for oil and gas drilling in Utah. The fact that this was one of the administration’s first regulatory decisions meant that American energy companies were immediately concerned about their ability to produce oil and gas in the future, injecting a level of uncertainty into the market that moves the country away from job creation and economic recovery. One year later, the administration canceled 61 more leases, this time in Montana, as part of President Obama’s war on global warming.

Needlessly delaying offshore leasing

Not long after Ken Salazar canceled the Utah leases, he decided to extend for another six months the public comment period for new offshore drilling. As allowed by law, the public had already been given 45 days to comment on the federal government’s pending lease sale to offshore energy producers, after which time the administration would begin developing plans for new leasing. But the Obama administration was so opposed to oil and gas drilling that it wanted to drag the process out further, which meant offshore producers would have to wait even longer before they could start drilling. This was in addition to the 25 years that no drilling was allowed for most of the Outer Continental Shelf due to a congressional moratorium that ended in 2008. Adding insult to injury is that the additional public comments for which the White House asked actually supported expanding offshore drilling by a two-to-one margin, a fact that the administration deliberately kept hidden from the American people. Put simply, the Obama administration did not want any additional offshore drilling, and the fact that the public overwhelmingly opposed them wasn’t going to stop them from pursuing their ideological goal.

Pushing for more taxes on American energy

When the Pelosi-led House of Representatives passed its massive cap and trade energy tax, the Obama administration celebrated. After all, it was then-candidate Barack Obama who happily declared that under his plan of cap and trade, energy prices would “necessarily skyrocket.” Although his target was primarily the coal industry (which suffered badly in 2010 under President Obama’s watch), imposing a tax on carbon dioxide would also heavily impact oil and natural gas production. In fact, there was a new gasoline tax in the most recent cap and trade bill in the Senate, legislation President Obama helped negotiate and would have happily signed had both chambers of Congress passed it. A study from Harvard University found that a carbon cap that was less stringent than what Congress was considering could send gasoline prices soaring to $7 per gallon. When all efforts to pass cap and trade legislatively failed miserably, Obama ignored the message — that Americans strongly oppose new energy taxes — and moved instead to impose a carbon cap administratively through the EPA. Such regulation targets all sectors of the economy, including transportation and oil production and refining, which ultimately means higher gasoline prices at the pump.

Imposing a moratorium on oil and gas drilling

Immediately after the Gulf oil spill began in April 2010, the White House began soliciting input from drilling experts in the National Academy of Engineering as to what the proper response should be. The Obama administration then imposed a six-month moratorium on offshore drilling, claiming that the experts they consulted had advised them to take such an action. Except they hadn’t. The experts stated publicly that they never supported such a moratorium, and that the White House had manipulated their opinions and expertise solely to advance a political agenda. Because the administration had no basis for its ban, two federal courts stated on three separate occasions that the moratorium was unjust. The Obama administration ignored the experts and the courts and kept the ban in place; Salazar said that lifting the moratorium would make him “uncomfortable.” Such a decision ultimately led drillers to relocate their rigs (and hundreds or even thousands of good paying jobs) to other parts of the world, and the long-term impact on domestic production will no doubt be devastating for consumers.

Issuing a new offshore drilling ban

Within weeks of announcing that the moratorium had come to an end, the White House announced a new executive ban on offshore drilling, a ban that is almost identical to what was in place until 2008 when gasoline prices began their climb past $4 per gallon. Amid mounting grassroots opposition to that ban — led by American Solutions’ 1.5 million-member “Drill Here, Drill Now, Pay Less” effort — then-President Bush lifted the executive ban in July 2008, and Congress ended its own quarter-century long legislative ban a few months later, after which gasoline prices plummeted. But President Obama completely ignored that lesson (and the pain consumers felt) and has set the stage for a repeat of the 2008 gasoline crisis by trying his hand at imposing his own ban. Meanwhile, in the few areas where the White House approves drilling, the administration has completely halted new permitting, a de facto moratorium in and of itself. All told, the Energy Information Administration projects that offshore oil production will decline in 2011 by about 220,000 barrels per day (before the Obama administration’s bans, the EIA had actually predicted an increase in production for 2011.)

Why has President Obama led the charge to restrict American energy? The answer is elusive, and it’s anyone’s guess what his administration will do (if anything) to fight for lower gasoline prices. But if past statements from him and his administration are any indication, the U.S. could be stuck (absent major legislative and regulatory changes) with prohibitively high gasoline prices: Then-Senator Obama said on the campaign trail in 2008 that he doesn’t object to high oil prices as long as they come about gradually, and Secretary of Energy Steven Chu once famously said he hoped the U.S. would “boost the price of gasoline to the levels in Europe,” where prices are currently about $7 per gallon.

Flashback: Gas Prices May Reach $7 Per Gallon

The New American
March 8, 2010

President Obama's fiscal year 2010 EPA budget calls for carbon reductions that would require raising the cost of gasoline to $7 per gallon within the next 10 years. A report released this month by Harvard University's Belfer Center for Science and International Affairs explained that for Obama to reach his goal, he would need to employ a one-two punch approach, hitting both utility and transportation sectors with strong emissions-reducing taxes.

The Belfer Center report, Reducing the U.S. Transportation Sector's Oil Consumption and Greenhouse Gas Emissions, criticizes Obama's current plan as short-sighted.

"Reducing oil consumption and carbon emissions from transportation is a much greater challenge than conventional wisdom assumes," warns the report.
It also says subsidies for alternatives such as electric and hybrid vehicles are "extremely expensive and ... ineffective" in the short term.

But don't let their criticisms fool you. The authors of the report call for aggressive climate change policies and illogically conclude,

"Even under high-fuels-tax, high-carbon price scenarios, losses in annual GDP, relative to business-as-usual, are less than 1 percent, and the economy is still projected to grow at 2.1 – 3.7 percent per year assuming a portion of revenues collected are recycled to taxpayers."

Ignoring recent revelations that EPA's greenhouse-gas "endangerment finding" is based on fraudulent data, the report proposes several scenarios which the authors claim will reduce so-called emissions from the transportation sector without significant harm to the economy. The scenarios involve an economy-wide carbon dioxide tax set at $30 per ton in 2010 and escalating to $60 per ton in 2030. The Belfer Center says it would be "a surrogate for a cap-and-trade system like that proposed in the pending American Clean Energy and Security Act." The reference is to H.R. 2454, passed by the House last June and now before the Senate in the form of S. 1733. Many Democrats have suffered in the polls because of their support of these bills, leading Obama to begrudgingly admit final passage is unlikely.

Harvard's solution (in characteristic socialist fashion) is adding to a cap-and-trade tax one or more of the following:

  1. Income tax reductions to offset the burden of a carbon tax on consumers. The authors note there is no such provision in the American Clean Energy and Security Act, but claim including it would significantly reduce economic impacts.
  2. A "strong" gasoline and diesel tax of $0.50 per gallon this year, increasing by 10 percent per year to reach a $3.36 per gallon tax in 2030.
  3. Improvements in Corporate Average Fuel Economy (CAFE) standards to 43.7 miles per gallon by 2030.

The authors argue an economy-wide carbon tax alone would provide little incentive to the transportation sector to curb emissions. Electric utilities would be more adversely affected since they rely more heavily on coal. Therefore, the suggested "additions" listed above are necessary because taxing consumers is the only way to reduce oil consumption and its accompanying greenhouse gas emissions.

The report advises if Obama wants to reduce both emissions and petroleum imports, "consumers cannot continue to drive more and more each year." That is why, according to the authors, electric and hybrid vehicles don't measure up — they only encourage more driving. The report argues,

"The most effective policy for reducing CO2 emissions and oil imports from transportation is to spur the development and sale of more efficient vehicles with strict efficiency standards while increasing the cost of driving with strong fuel taxes."

It ends with the ominous warning that greenhouse gas emissions will continue to grow if the report's suggestions go unheeded.

2003 to 2008 World Oil Market Chronology

Back in 2004 the government’s worst case scenarios had oil reaching $26 per barrel by 2025. This afternoon oil reached $125.98, the fifth day this week we had a record high price for oil. And we are not even halfway through 2008 yet. Goldman Sachs recently pronounced that oil may soon reach $200 per barrel. - The sooner oil hits $200 per barrel, the better!, GreenMonk, May 9, 2008

Wikipedia - From the mid-1980s to September 2003, the inflation adjusted price of a barrel of crude oil on NYMEX was generally under $25/barrel. Then, during 2004, the price rose above $40, and then $50.

A series of events led the price to exceed $60 by August 11, 2005, and then briefly exceed $75 in the middle of 2006. Prices then dropped back to $60/barrel by the early part of 2007 before rising steeply again to $92/barrel by October 2007, and $99.29/barrel for December futures in New York on November 21, 2007.

Throughout the first half of 2008, oil regularly reached record high prices. On February 29, 2008, oil prices peaked at $103.05 per barrel, and reached $110.20 on March 12, 2008, the sixth record in seven trading days.

Prices on June 27, 2008, touched $141.71/barrel, for August delivery in the New York Mercantile Exchange (after the recent $140.56/barrel), amid Libya's threat to cut output, and OPEC's president predicted prices may reach $170 by the Northern summer.

The most recent price per barrel maximum of $147.02 was reached on July 11, 2008. After falling below $100 in the late summer of 2008, prices rose again in late September. On September 22, oil rose over $25 to $130 before settling again to $120.92, marking a record one-day gain of $16.37.

Electronic crude oil trading was temporarily halted by NYMEX when the daily price rise limit of $10 was reached, but the limit was reset seconds later and trading resumed. By October 16, prices had fallen again to below $70, and on November 6 oil closed below $60.

As the price of producing petroleum did not rise significantly, the price increases have coincided with a period of record profits for the oil industry. Between 2004 and 2007, the profits of the six supermajors -- ExxonMobil, Total, Shell, BP, Chevron, and ConocoPhillips -- totaled $494.8 billion.

Annual relative performance of 40 asset classes (in %, expressed   in USD) (in green: profit / in red: loss) - Source: Chris Martenson,   02/04/2011

People of Earth: Prepare for Economic Disaster (Excerpt)

The Economic Collapse
March 5, 2011

...It isn't just the chaos in the Middle East that is driving oil prices. The truth is that oil prices have been moving upwards for months. The recent revolutions in the Middle East have only accelerated the trend.

Let's just hope that the "day of rage" being called for in Saudi Arabia later this month does not turn into a full-blown revolution like we have seen in other Middle Eastern countries. The Saudis keep a pretty tight grip on their people, but at this point anything is possible. A true revolution in Saudi Arabia would send oil prices into unprecedented territory very quickly.

But even without all of the trouble in the Middle East the world was already heading for an oil crunch. The global demand for oil is rising at a very vigorous pace. For example, last year Chinese demand for oil increased by almost 1 million barrels per day. That is absolutely staggering. The Chinese are now buying more new cars every year than Americans are, and so Chinese demand for oil is only going to continue to increase.

Much could be done to increase the global supply of oil, but so far our politicians and the major oil company executives are sitting on their hands. They seem to like the increasing oil prices. [According to Energy Analyst Peter Beutel: Every penny increase at the pump takes $4 million per day from the American consumer. So a 10-cent increase is $40 million a day.]

So for now it looks like oil prices will continue to rise, and this is going to result in much higher prices at the gas pump. Already, ABC News is reporting that regular unleaded gasoline is going for $5.29 a gallon at one gas station in Orlando, Florida. [A $10 increase in oil prices translates into roughly a 25 cent increase in retail gasoline prices.]

The U.S. economy in particular is vulnerable to rising oil prices because our entire economic system is designed around cheap gasoline. If the price of gas goes up to 5 or 6 dollars a gallon, and it stays there, it is going to have a catastrophic effect on the U.S. economy. Just remember what happened back in 2008. The price of oil hit an all-time high of $147 a barrel and then a few months later the entire financial system had a major meltdown. Well, as the price of oil rises it is going to create a whole lot of imbalances in the global financial system once again.

This is definitely a situation that we should all be watching.

But it is not just the price of oil that could cause a global economic disaster.

The global price of food could potentially be even more concerning. As you read this, there are about 3 billion people around the globe that live on the equivalent of 2 dollars a day or less. Those people cannot afford for food prices to go up much. [Editor's Note: 3 billion people is about 1/4 of the world's population; this coincidentally, or not, is the amount of people that will die by war, scarcity, famine, social injustice, plagues, etc. at the opening of the first four seals (Revelation chapter 6).]

But global food prices are rising. According to the United Nations, the global price of food has risen for 8 consecutive months. Last month, the global price of food set a brand new all-time record high. Many are starting to fear that we could actually be in the early stages of a major global food crisis.

The price of just about every major agricultural commodity has been absolutely soaring during the past year...

Unfortunately, the production of food in most countries around the world is very highly dependent on oil, so as oil goes up in price this is going to make the food crisis even worse...

Goldman's Global Oil Scam Passes the 50 Madoff Mark

Phil’s Stock World
November 12, 2009

$2.5 Trillion – That’s the size of of the global oil scam.

It’s a number so large that, to put it in perspective, we will now begin measuring the damage done to the global economy in “Madoff Units” ($50Bn rip-offs). That’s right—$2.5Tn is 50 TIMES the amount of money that Bernie Madoff scammed from investors in his lifetime, yet it is also LESS than the MONTHLY EXCESS price the global population is being manipulated into paying for a barrel of oil.

Where is the outrage? Where are the investigations?

Goldman Sachs (GS), Morgan Stanley (MS), BP (BP), Deutsche Bank (DB), Royal Dutch Shell (RDS.A), Societe General (GLE), and Total (TOT) founded the Intercontinental Exchange (ICE) in 2000. ICE is an online commodities and futures marketplace.
  • It is outside the US and operates free from the constraints of US laws.

  • The exchange was set up to facilitate “dark pool” trading in the commodities markets.

  • Billions of dollars are being placed on oil futures contracts at the ICE; and the beauty of this scam is that they NEVER take delivery, per se.

  • They just ratchet up the price with leveraged speculation using your TARP money.
  • This year alone they ratcheted up the global cost of oil from $40 to $80 per barrel.

A Congressional investigation into energy trading in 2003 discovered that ICE was being used to facilitate “round-trip” trades. Round-trip” trades occur when one firm sells energy to another and then the second firm simultaneously sells the same amount of energy back to the first company at exactly the same price. No commodity ever changes hands. But when done on an exchange, these transactions send a price signal to the market and they artificially boost revenue for the company. This is nothing more than massive fraud, pure and simple.

“Traders of the the ICE core membership (GS, MS, BP, DB, RDS.A, GLE & TOT) wouldn’t really have to put much money at risk by their standards in order to move or support the global market price via the BFOE market. Indeed the evolution of the Brent market has been a response to declining production and the fact that traders could not resist manipulating the market by buying up contracts and “squeezing” those who had sold oil they did not have. The fewer cargoes produced, the easier the underlying market is to manipulate.” – Chris Cook, Former Director of the International Petroleum Exchange, which was bought by ICE.

How widespread are “round-trip’‘ trades? The Congressional Research Service looked at trading patterns in the energy sector, and this is what they reported: This pattern of trading suggests a market environment in which a significant volume of fictitious trading could have taken place. Yet since most of the trading is unregulated by the Government, we have only a slim idea of the illusion being perpetrated in the energy sector.

DMS Energy, when investigated by Congress, admitted that 80 percent of its trades in 2001 were “round-trip” trades. That means 80 percent of all of their trades that year were bogus trades where no commodity changed hands, and yet the balance sheets reflect added revenue. Remember, these trades are sham deals where nothing was exchanged.

Duke Energy disclosed that $1.1 billion worth of trades were “round-trip” since 1999. Roughly two-thirds of these were done on the Intercontinental Exchange; that is, the online, nonregulated, nonaudited, nonoversight for manipulation and fraud entity run by banks in this country. That means thousands of subscribers would see false pricing. Under investigation, a lawyer for J.P. Morgan Chase admitted the bank engineered a series of “round-trip” trades with Enron.

You can chart the damage done by Goldman Sachs and their gang of thieves by looking at commodity pricing pre- and post-ICE. Before ICE, commodities followed a more or less normal growth path that matched global GDP and was always limited in price appreciation by the fact that, ultimately, someone had to take delivery of a physical commodity at a set price.

ICE threw that concept out the window and turned commodity trading into a speculative casino game where pricing was notional and contracts could be sold by people who never produced a thing, to people who didn’t need the things that were not produced. And in just five years after commencing operations, Goldman Sachs and their partners managed to TRIPLE the price of commodities.

Goldman Sachs Commodity Index funds accounted for $60Bn out of $100Bn of all formula-managed funds in 2007, and investors in the GSCI lost 15% in 2006 while Goldman had a record year. John Dizard of the Financial Times calls this process “date rape” by Goldman Sachs as the funds index rolls cost investors 150 basis points of return annually ($9Bn on the Goldman funds); but GS, under the prospectus, is able to “manage our corresponding position,” which means that it has to deliver a price at the end of the roll period. If Goldman can cover that obligation at a better price, they will, and GS pockets the difference. This is why we see such wild moves in the day’s before rollover—there are billions riding on GS hitting their target every month…

It is not surprising that a commodity scam would be the cornerstone of Goldman Sach’s strategy. CEO Lloyd Blankfein, rose to the top through Goldman’s commodity trading arm J Aron, starting his career at J Aron before Goldman Sachs bought them over 25 years ago. With his colleague Gary Cohn, Blankfein oversaw the key energy trading portfolio. According to Cook:

It appears clear that BP and Goldman Sachs have been working collaboratively—at least at a strategic level—for maybe 15 years now. Their trading strategy has evolved over time as the global market has developed and become ever more financialised. Moreover, they have been well placed to steer the development of the key global energy market trading platform, and the legal and regulatory framework within which it operates.”

“It appears to me that what has been occurring in the oil market may have been that—through the intermediation of the likes of J Aron in the Brent complex—long term funds have been lending money to producers—effectively interest-free—and in return the producers have been lending oil to the funds. This works well for as long as funds flow into the market, or do not withdraw in quantity, but once funds withdraw money from the market, there is a sudden collapse in price.”

“A combination of market hype, the opacity of the Brent Complex, and the relatively small scale of trading of the benchmark BFOE crude oil contract enabled the long run up in prices, and several observers believe that the dramatic spike to $147.00 per barrel was the specific outcome of the collapse of SemGroup, which that company’s management subsequently blamed mainly on Goldman Sachs.”

Mike Riess issued a study of “Modern Market Manipulation” in which he describes how GS, MS, DB et al have systematically created an environment that rewards those who manipulate the system, robbing the poor to send the money up they company ladder in exchange for record bonus payouts, which (by design) are the majority of their traders’ salaries:

Before the ‘80’s, there were just us traders. “Rogue” traders arrived on the scene with the large institutional participants, both private and public. Today’s companies and government marketing boards are large enough for senior management to distance itself from controversy, including market manipulation.

In a competitive, amoral environment, middle managers in these mega-organizations have the authority to hijack an institution’s reputation and the financial clout to manipulate the market—and they do. As long as they succeed, they enjoy promotions and perks and, sometimes, the fruits of embezzlement. If the manipulation unravels, the company denies any knowledge and hangs the rogue out to dry. We’ve seen this over and over again, most recently with D’Avila and Codelco, Hamanaka and Sumitomo, Leeson and Barings and Tsuda and Daiwa Bank.

The CFTC’s definition of manipulation is:

  • A planned operation that causes or maintains an artificial price.

  • Unusually large purchases or sales in a short period of time in order to distort prices.

  • Putting out false information in order to distort prices.
In mid-2008 it was estimated that some $260 billion was invested in the Brent energy markets on the ICE while the value of the oil actually coming out of the North Sea each month, at maybe $4 to $5 billion at most. NYMEX trading follows a similar path with 258,000, 1,000-barrel contracts open for December delivery (258M barrels), which were traded 327,000 times yesterday alone yet, at the end of the period, less than 40M barrels of oil will actually be delivered as that is the total capacity at Cushing, OK—where NYMEX contract deliveries are settled. Every single one of those traders know it is not even possible for 80% of the contracts they are trading to be fulfilled—its a joke, but the joke is on YOU!

Over the course of an average month at the NYMEX, 5 BILLION barrels of oil will be traded, with a fee being collected on every single transaction which is ultimately passed down to US consumers, yet less than 40 million barrels will actually be delivered. That is just 8 tenths of 1 percent of actual demand for the product that is being traded—99.2% of the oil transaction fees being paid by the American people do nothing more than create fees for the traders and record profits and bonuses for the trading firms!

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 United States has added to the Strategic Petroleum Reserve over the last five years.

Today, in many commodities futures markets, they are the single largest force. The huge growth in their demand has gone virtually undetected by classically-trained economists who almost never analyze demand in futures markets.

As money pours into the markets, two things happen concurrently: the markets expand and prices rise. One particularly troubling aspect of Index Speculator demand is that it actually increases the more prices increase. This explains the accelerating rate at which commodity futures prices (and actual commodity prices) are increasing.

Before ICE, the average American family spent 7% of their income on food and fuel. Last year, that number topped 20%. That’s 13% of the incomes of every man, woman and child in the United States of America, over $1 TRILLION EVERY SINGLE YEAR stolen through market manipulation. On a global scale, that number is over $4Tn per year—80 Madoffs!

Why is there no outrage; why are there no investigations? Well the answer is the same—$4Tn per year buys you a lot of political clout, it pays to have politicians all over the world look the other way while GS and their merry men rob from the poor and give to the rich on such a vast scale that it’s hard to grasp the damage they have done and continue to do to the global economy.

CIBC Chief Economist, Jeff Rubin, issued a report last year that blames the current recession on high oil prices, saying defaulting mortgages are only a symptom. According to Rubin, these higher oil prices caused Japan and the Eurozone to enter into a recession even before the most recent financial problems hit. Higher oil prices started four of the last five world recessions; we shouldn’t be too surprised if they started this one also:

Oil shocks create global recessions by transferring billions of dollars of income from economies where consumers spend every cent they have, and then some, to economies that sport the highest savings rates in the world. While those petro-dollars may get recycled back to Wall Street by sovereign wealth fund investments, they don’t all get recycled back into world demand. The leakage, as income is transferred to countries with savings rates as high as 50%, is what makes this income transfer far from demand neutral.

There is NO shortage of oil. OPEC alone has 6-7 Million barrels a day of spare capacity, more than the total disruption of any single country and any two countries other than Saudi Arabia could offset. Additionaly ICE partners Total and JPM are part of the cartel that is totally skewing the global demand picture by storing 125M barrels of oil in offshore tankers. That’s 15 days of US imports that have been “ordered” but never delivered so they show up as an extra 1Mbd of global demand, even though nobody actually wants them.

Land-based storage is also bursting at the seems, with global supplies up to 61 days of total consumption (84Mbd) up from 52 days last year. That’s 5 BILLION barrels of oil already out of the ground, in barrels and ready to go AND THEY KEEP MAKING 86M MORE EVERY DAY!!!

Where is the shortage? Mainly, it is media hype pushed by “analysts” at the very firms that profit the most from high oil prices. Goldman Sachs issues bullish opinions on oil and builds large positions in oil, while it is the cartel’s job to hide oil in off shore tankers, and then sell forward all the oil, with futures contracts, locking in the high price. Of course they have their media hounds as well, most notably the Drudge Report. As noted by Goldmansachsrules:

Type in the word “OIL” inside the “Drudge Report” search engine. It returns 1,965 headlines with the word “OIL.” Over the last couple years, the Drudge Report has ran 1,965 headlines with the word “OIL.” Most of these articles were hosted by the worthless organizations of Yahoo, Breibart, APNews, and Reuters. The Drudge Report just creates the headline, and links it the article hosted by who ever is doing the “hyping.”

Search on the word “credit crisis” and you only get 12 archived headlines. The word “bailout” yields only 268. The word “bank” returns only 568. So you have the Drudge Report hyping the oil market, because they bring it up almost 2,000 times. Unlike the “credit crisis” or “Wall Street Bailout” that actual did happen, the oil market and what did/didn’t happen between Israel/Iran is plugged 10 times more!

Of all the 1,965 articles that the Drudge Report ran with the word “OIL” in the title, most were hyping the oil market. The most notorious cases, a few times a week, were hosted by Yahoo, Breibart, and AP News. Most of these articles were plugged with the same paragraph that stated if “Israel were to attack Iran, Iran would retaliate by taking over the straits of Hormuz, the largest pathway for oil and we all know what that would do to the price of oil.

It truly takes a global village of manipulators and their lackeys to pull off a con on the scale of oil, but it’s also the most profitable scam ever perpetrated on the people of this planet as they take control of a vital resource and then create artificial shortages and drive speculative demand in order to charge you an extra dollar per gallon of gas. You don’t complain because it’s “only” $15-$20 every time you fill up your tank, but that’s what they count on and that’s where you’re wrong—it’s $20 from you and $20 from EVERY SINGLE ONE of your customers once or twice a week and $20 more dollars that your employees need just to get to work. It’s money that could be going into your business instead of a new gold bathtub for a Saudi Prince or a Goldman trader.

Global drivers consume 1.7Bn gallons of gas every single day—that $1 is $50Bn a month, a Madoff per month that is being taken away from YOU and YOUR business and the non-energy/financial businesses you invest in. Of course we can give up and invest in those sectors (we do) but that doesn’t do much for the global economy. And, even as you sit here now, not doing anything, those oil and profits have been plowed into the copper and gold markets.

And now the same Goldman energy cartel is bidding to take over your clean air (through Carbon Credit trading) and your clean water. Maybe when they are charging you $80 a gallon for water and 10 cents a breath you’ll want to do something about it.

I think I’ll start right now and you can too! Here are the e-mail addresses and fax numbers for all of yor Senators, Congresspeople and Governors. Send this article to them and let them know you’d like to see an investigation. Take a few minutes of your time to save a few bucks on your next gallon of water!

Speculators Blamed for Oil Price Spikes

By Kevin G. Hall, McClatchy Newspapers
July 28, 2009

The chairman of the Commodity Futures Trading Commission signaled Tuesday that his agency is likely to limit financial speculators' ability to drive up prices for oil and other fuels.

Excessive speculation, suggested CFTC chief Gary Gensler, drove the price of oil to a record $147 a barrel a year ago, making it unnecessarily more expensive for Americans to heat their homes and fuel their cars.
"I believe we must seriously consider setting strict position limits in the energy markets," Gensler said at the start of a public hearing to consider limiting the number of contracts that an oil trader can hold.
Gensler's comments mark a stark shift from the Bush administration's view. When a Republican headed the CFTC last year, the agency concluded that market forces of supply and demand, not financial speculators, drove record increases in energy prices. However, Gensler and at least one other commissioner, Bart Chilton, think that speculation, at a minimum, drove the price of oil higher than it would've gotten otherwise.

Investors, many of them big pension funds working with Wall Street investment banks, poured speculative money into futures, or contracts for future delivery. This inflow, as much as $300 billion, appears to have pushed prices to record levels, and helped them rebound again during the past six months from their winter lows.

Testifying Tuesday before the CFTC, representatives from utilities, the airline industry and petroleum marketers all called on the agency to restrict Wall Street speculators to prevent a return to last year's price volatility.
Allowing such a return would have "serious impact on the national air transportation system and the economy," including airline bankruptcies or mergers, warned Ben Hirst, general counsel for Delta Airlines, testifying on behalf of the Air Transport Association.
Gensler signaled that the question of limits on speculative investment isn't a matter of if but when.
"As we move forward in considering position limits, I believe that we should apply consistent, across-the-board regulations to all futures market participants," Gensler said, noting that the agency, and not individual exchanges, should set the new limits. "With competing exchanges, regulations must be applied equally to similar contracts in different markets. The CFTC is in the best position to apply limits across different exchanges, and we are most able to strike a balance between competing interests and the responsibility to protect the American public."
The CFTC is also weighing whether to take back exceptions granted over decades to big Wall Street powers such as Goldman Sachs and Morgan Stanley that allow their investments in energy contracts to be regulated as if they were airlines or refineries, free from limits on the number they can buy.

Commercial fuel users are exempt from position limits because they actually take delivery of the product. Wall Street firms, which don't take delivery, received the same exemptions, first from the CFTC and later from commodity exchanges, on the grounds that they needed to hedge against risks that they've taken through private bets on the price of oil.

These private bets are called swaps. The swaps market dwarfs the regulated futures markets. Lack of transparency in these markets, and uncertainty about who actually owes what to whom, has amplified the global financial crisis.
"It became more apparent to me today than it ever has before that the agency should be the one to grant hedge exemptions," Chilton said in an interview. He noted that exchanges have incentives to grant exemptions to big players who bring more trading volume, and thus profits, to the exchanges. "Our job is to protect consumers and ensure these markets are working effectively and efficiently."
Executives from Goldman Sachs and Morgan Stanley are slated to testify Wednesday before the CFTC. They've denied that the flood of investment they helped direct into commodities drove up oil prices, arguing that global concerns about inadequate oil supplies explain the run-up.

Why High Oil Prices Are Likely Here to Stay

U.S. Global Investors
April 11, 2011

A number of forces continued to push oil prices higher last week, reaching their highest levels in the U.S. since September 2008.

One factor fueling the run has been the continued decline of the U.S. dollar. You can see from the chart that oil and the dollar historically are negatively correlated. This means that a rise in oil prices generally coincides with a decline in the dollar, and vice versa. The U.S. dollar has seen a dramatic decline since the beginning of the year as oil prices have moved some 30 percent higher. This could be due to fact that roughly two-thirds of the U.S. trade deficit is related to oil imports.

Oil vs. U.S. Dollar

Despite the run up, oil’s upward rate of change is still within its normal trading pattern over the past 60 trading days. Accordingly, this may imply that it isn’t a spike and we haven’t crossed into the extreme territory like we experienced in 2008 and 2009.

Conversely, oil prices are positively correlated with gold prices, which also saw a bounce this week. Looking back over the past one- and 10-year periods, oil and gold have roughly a 75 percent correlation. This means that three out of four times, when prices for one go up, prices for the other increase as well.

Another factor pushing prices higher is the seasonal strength that oil prices historically experience leading into the summer driving season. This chart shows the five-, 15- and 28-year patterns for oil prices. You can see that prices historically bottom in February before rising through the end of the summer.

Defined Seasonal Patterns for Oil Prices

We discussed in detail how these seasonal factors affect oil prices a few weeks ago. Click here to read “Oil’s March Madness a Boost for Refiners.”

Rising oil prices are also a result of what the Financial Times calls the “new geopolitics of oil.” The FT says three elements creating this new environment are becoming clear:

  1. Young populations with high unemployment rates and a skewed distribution of income are a volatile combination for the people in power.
  2. To placate these groups, oil-producing countries are increasing public expenditures.
  3. Governments are also to extend energy subsidies to shelter the country’s consumers from rising energy prices.

Large, unemployed Youth Population a Resipe for Unrest

A Deutsche Bank chart plots the share of population under the age of 30 for selected North African and Middle Eastern countries against the unemployment rate of this group. You can see that large oil producers such as Saudi Arabia have a high level of unemployment among youth populations.

This is why King Abdullah of Saudi Arabia has announced a total of $125 billion worth (27 percent of the country’s GDP) on social programs for the public. For King Abdullah, this is the cost of keeping peace but has driven up the breakeven price for Saudi oil production to $88 per barrel, according to the FT.

Keeping these young populations happy and working is not only domestically important for these governments but for global oil markets as well. You can see from this chart that a significant portion of the world’s oil production comes from the Middle East.

Much of global oil production comes from the middle east

With the unrest in Libya—a top-20 oil producer—essentially knocking out the country’s entire production, any further unrest in another country could threaten global supply. Upcoming elections in Nigeria have the potential to disrupt production for the world’s fifteenth-largest producer.

But it’s not just geopolitics that is threatening production. Natural decline rates from mature fields such as Mexico’s Cantarell oil field are starting to make a dent in global production. Reuters reported this morning that Norway, the world’s eleventh-largest oil producer, is experiencing a significant slowdown in production from the Oseberg oil field in the North Sea. Production is expected to be cut by 26 percent in May to only 118,000 barrels per day.

Meanwhile, oil demand has been picking up significantly in both emerging and developed markets. Oil demand in China and the U.S. has been rising since mid-2009, well before the uprisings began in the Middle East.

In China, a big driver has been growth in the Chinese automobile market. Auto sales increased 2.6 percent in February, and March data released by the Chinese Auto Association over the weekend shows auto sales grew 5.36 percent on a year-over-year basis in March.

The G7 economies have been in an up cycle since last year. In the U.S., employment rates and consumer spending have been steadily improving. Oil prices rising too fast remains a threat to this recovery but BCA Research estimates that oil prices need to rise above $120 per barrel before “significantly undermining consumer and business confidence.”

Exxon Mobil Now Supports Carbon Tax, But Is It All That Surprising?

By Daniel Taylor, Old-Thinker News
January 10, 2009

The media is hailing Exxon Mobil's announcement in favor of carbon tax proposals as a shocking, unbelievable move. But is it really that surprising? Could well meaning environmentalists be in for a shock to find that a seemingly "grass roots" movement has from the beginning been initiated from the top down?

As the Calgary Herald reports:
"Exxonmobil Corp., the world's largest crude oil refiner, supports taxing carbon dioxide as the most efficient way of curbing greenhouse gas emissions, its chief executive said."
The announcement came from Rex Tillerson, CEO of Exxon Mobil, speaking at the Woodrow Wilson international center for scholars in Washington, which has served as a platform for discussing various globalist initiatives for many years. That Tillerson would make this announcement is interesting, due to the fact that the Rockefeller family, who built Standard Oil [Standard Oil of New York later became Mobil, a predecessor to Exxon/Mobil], recently identified him as "resistant" to "take the threat of global warming more seriously." Are we to accept this story? Was there any real resistance in the first place?

A May 2008 article from the International Herald Tribune painted a glowing picture of the Rockefeller family in their quest to "press for change at Exxon." As reported:
"David Rockefeller, retired chairman of Chase Manhattan Bank and patriarch of the family, issued a statement saying, "I support my family's efforts to sharpen Exxon Mobil's focus on the environmental crisis facing all of us."
The Rockefeller family has held a very special interest in environmental matters for decades. Population control and reduction is a central directive of many Rockefeller initiatives. The recent focus on global warming is no different. Steven Rockefeller's Earth Charter is an example.

There are countless real environmental issues such as genetically engineered organisms being released into the environment causing unknown mutations, consuming potentially dangerous cloned animal products, mass honey-bee die offs, etc. However, global warming was identified by the Club of Rome's 1991 report The First Global Revolution as a unifier to funnel the energy of citizens and businesses alike into supporting globalist initiatives. The report states:
"In searching for a new enemy to unite us, we came up with the idea that pollution, the threat of global warming, water shortages, famine and the like would fit the bill... All these dangers are caused by human intervention... The real enemy, then, is humanity itself."
Many of the "green" proposals to fight global warming will have a direct impact on your standard of living. Obama has admitted that sending "price signals" to change behavior is an option. Obama stated during a 2007 PBS interview:
"We're gonna have to cap the emission of greenhouse gasses. That means the power plants are gonna have to adjust how they generate power. They will pass on those costs to consumers."

Investment Banks are Big Players in Energy Markets

June 19, 2008

Investment banks are big players in the energy markets, where an oil price boom has increased demand from a whole range of companies for products that can offset the risks of volatile prices.

The banks also can trade on their own account, so-called proprietary trading, where they bet their own cash in the oil futures and over-the-counter markets.

Some also make investments in energy-related infrastructure assets, such as pipelines, transportation and storage facilities.

The top three players are Goldman Sachs (GS.N), Morgan Stanley (MS.N) and Barclays Capital (BARC.L), the investment bank arm of UK bank Barclays Plc.

Goldman Sachs and Morgan Stanley, once know as the "Wall Street refiners", have been active for two decades, Barclays Capital has built its business over the past 10 years.

Banks are increasingly active in the physical oil markets, where they say they need a presence to satisfy client needs and to gain access to information.

Both Morgan Stanley and Barclays Capital, for example, trade physical crude oil.

The futures markets where oil is traded include the New York Mercantile Exchange NMX.N, the world's biggest energy futures market, and ICE Futures Europe, owned by Atlanta-based Intercontinental Exchange Inc (ICE.N).

Oil and other energy derivatives are also traded over-the-counter. These markets are estimated to be between 10-15 times bigger than the ICE and NYMEX.

Other banks have expanded in energy and commodities, but fallout from the credit crunch has forced some of the newer participants to cut back or pull out.

Lehman Brothers LEH.N has been expanding as well as Citi (C.N) and Deutsche Bank. French banks BNP Paribas (BNPP.PA) and Societe Generale (SOGN.PA) have also have a presence.

Some of the banks' recent moves in energy and commodities are listed below.

* BANK OF AMERICA CORP (BAC.N) early this year shut its commodities and energy trading desk in London, becoming one of the first big investment banks to trim operations.

The U.S. bank said it would close its London commodities and trading desk and centralize operations in New York.

* BARCLAYS CAPITAL (BARC.L) - The investment bank arm of the UK banking group plans around a 30 percent increase in staff in its commodities business in the next two years.

The bank currently has around 250 staff in energy and other commodities, spanning oil and refined products, metals, power and gas, coal, agriculturals, emissions and investment products.

It has entered into a 5-year partnership with China Development Bank CHDB.UL to develop a commodities business in the country.

The firm recently started trading physical crude oil and has also entered the physical gasoline barge market in Europe and is also active in diesel trading.

* CITIGROUP (C.N) - The U.S. bank has been building up commodities in Europe over the past couple of years.

Its emphasis has been on newer markets such as freight, power and gas, carbon emissions and coal, but the firm also trades oil, precious and base metals and agricultural markets.

* CREDIT SUISSE (CSGN.VX) - The Swiss bank started expanding in commodities in a partnership with physical commodity trading group Glencore that was set up in early 2006.

In March, the bank hired 8 new staff, including 4 for its oil trading business, based in London ID:nL10814702

* DEUTSCHE BANK (DBKGn.DE) - The German bank began expanding its commodities business in late 2006 and has been adding staff and entering more markets, including carbon emissions, gas storage and transportation.

David Silbert, who was previously with Merrill Lynch MER.N, is global head of the business, which recently opened a new office in Houston in the United States.

* JP MORGAN CHASE & CO (JPM.N) - The U.S. investment bank will begin trading physical oil by the year-end, as part of plans to expand commodities and energy trading.

The U.S. bank added 50 people to its commodities and energy trading and investment team last year and aims to hire a similar number this year, giving it a team of 450 globally.

JP Morgan is taking on staff from the energy business of Bear Stearns, the rival investment bank it is in the process of taking over.

* MERRILL LYNCH MER.N - The U.S. investment bank began trading physical oil on a limited basis last year and has around 70 people globally specializing in oil and oil product trading.

The firm trimmed some energy traders and back-office staff in April in the United States and Europe.

* UBS - The Swiss bank (UBSN.VX) began a build up in energy and commodities but has now scaled back some expansion plans.

It had expanded its crude oil trading operation into Europe, after trading crude in North America since 2005 and subsequently launched power and gas in Europe.

But in January of this year, the bank announced that the European power and gas business would focus on northwest Europe and the UK and that it would place more emphasis on client business, reducing its proprietary trading activities in European power and gas.

Big Oil Companies Nearly Doubled Their Profits in 2010 Compared to 2009; the Top Five Oil Refiners Control More Than Half of the Domestic Refining Capacity in the U.S.

Oil Prices and Profits Rise While Big Oil Defends Its Tax Loopholes

American Progress
January 31, 2011

Oil prices are high and rising at an alarming pace. After hitting a low of $38 per barrel in January 2009, the price of oil doubled to $76 per barrel just a year later. By January 2011, prices rose another 14 percent, and the average barrel now costs around $87. And there is little reason to believe this will change anytime soon, as political instability in the Middle East may cause prices to rise even further.

As oil prices rise, so do Big Oil company profits. But even with their cash registers overflowing with dollars from struggling families, Big Oil is mobilizing to defeat President Obama's proposal to invest $4 billion annually in clean energy programs by ending unnecessary tax loopholes for this highly profitable industry.

big five oil companies' nominal profits, 2001-2010

The big five oil companies—BP, Chevron, ConocoPhillips, ExxonMobil [Rockefeller-owned], and Shell—made a total profit of nearly $1 trillion over the past decade. The three oil companies that have reported their 2010 profits nearly doubled their profits compared to 2009. (see chart)

Their profits closely follow the rise in oil prices from 2005 to 2008, when the average price rose from $55 to $95 per barrel. Profits for the major oil producers rose from $13 to $21 per barrel. ExxonMobil did much better than its competitors, with profits rising from $16 to $25 per barrel.

These profits are likely to grow as oil prices continue to rise. CNN reported on January 31 that,

"Exxon Mobil posted quarterly earnings Monday that topped Wall Street expectations, thanks to rising oil prices and increased production."
Its 2010 profit of $31 billion is nearly two-thirds higher than its 2009 profit.

And we can expect oil prices and profits to rise even more as a result of instability in the Middle East. AP reported that,

"Growing political unrest in Egypt drove oil prices higher over the weekend, pushing benchmark crude up $3.70 to $89.34 a barrel on the New York Mercantile Exchange."
This provides nearly a $4 per barrel windfall to oil companies because the oil is worth more though the cost of producing oil remains stable and relatively low. The Energy Information Administration estimates that production costs:

... can range from as little as $2 per barrel in the Middle East to more than $15 per barrel in some fields in the United States, including capital recovery. ... technological advances in finding and producing oil have made it possible to bring once-expensive deepwater Gulf of Mexico oil into production for less than $10 per barrel.

ExxonMobil, for instance, will make nearly $9 million more every day that the oil price includes Friday's spike. Prices will rise further if this instability spreads to other oil-producing nations such as Iran, Libya, or Algeria—all of which produce much more oil than Egypt.

Rising oil prices aren't the only factor driving bigger profits. Big Oil companies have invested a huge percentage of their profits into buying back shares of their own stock over the last few years, which helps drive up the price of the remaining shares. ExxonMobil, for instance, spent $35 billon—the equivalent of nearly 80 percent of its 2008 profits—on common stock purchases that year. It spent $700 million more on common stock purchases in 2009 than its profits of $19.2 billion. Meanwhile, ExxonMobil invested less than 1 percent in clean energy technologies the year of its record 2008 profit of $45 billion.

While Big Oil is busy raking in profits, American families are struggling with the worst economy in 80 years. One way to spur more job growth is to invest in energy efficiency and renewable energy technologies. President Obama proposed during his State of the Union address that Congress eliminate unnecessary tax breaks for Big Oil companies to pay for these investments.

"To help pay for [clean energy investments], I'm asking Congress to eliminate the billions in taxpayer dollars we currently give to oil companies. ... I don't know if you've noticed, but they're doing just fine on their own. So instead of subsidizing yesterday's energy, let's invest in tomorrow's."

The administration estimates closing these Big Oil tax loopholes would save "approximately $4 billion per year in tax subsidies to oil, gas, and other fossil fuel producers." These tax giveaways include the "domestic manufacturing tax deduction" that creates an incentive to keep manufacturing plants in the United States. Former CAP Senior Policy Analyst Sima Gandhi described the absurdity of extending this special tax break to Big Oil and gas companies since they cannot move an onshore or offshore oil field to another nation.

"Companies that manufacture, produce, or extract oil and gas or any primary derivative receive a manufacturing subsidy provided that the product was made in the United States. But since removing this subsidy does not affect the production of oil [in the U.S.], the subsidy does not significantly affect business decisions."

The Congressional Joint Economic Committee determined that excluding Big Oil companies from this provision "will not increase consumer energy prices." Oil prices rose from $42 to $90 per barrel since this tax break was created in 2004, so it did nothing to keep prices down.

The oil and gas industry argues its tax breaks are essential to its ability to create jobs, but the evidence indicates that clean energy investments are a more cost-effective job creator. A University of Massachusetts study found that investment in clean energy creates anywhere from two to four times more direct and indirect jobs compared to the same investment in oil and gas production. Investing $1 million to retrofit buildings to make them more energy efficient creates three times more jobs than a $1 million investment in oil and gas. An investment in wind energy creates two and a half times more jobs compared to the same investment in oil and gas. At a time when the federal government must reduce its spending while creating more jobs, it makes much more sense to invest tax dollars in the most cost-effective programs to increase employment.

Taxpayer handouts for oil companies have proven to be ineffective. Domestic oil production has continued to decline since the early 1970s in spite of multiple, generous tax subsidies. Gandhi reports that "the Treasury Department estimates that ending subsidies will affect domestic production by less than one half of 1 percent."

President George W. Bush, a former oil man, noted in 2005 that high oil prices have eliminated any remaining reason for tax breaks.

"With $55 oil we don't need incentives to the oil and gas companies to explore. There are plenty of incentives."

Oil and gas production can be a risky, dangerous business that provides an essential fuel for the American economy. The Big Oil companies deserve to make a profit. But it makes little economic sense for these same companies to receive billions of dollars in tax breaks while they benefit from rising oil prices that take a huge bite from families' wallets.

President Obama noted in his State of the Union that "the first step in winning the future is encouraging American innovation." Some special interests such as the U.S. Chamber of Commerce believe that America cannot meet this challenge, saying the "administration has [an] unrealistic approach on energy."

We believe that we can innovate, compete, and grow if we make investments in the clean energy technologies of the future. Eliminating tax loopholes for enormously profitable oil companies to provide incentives and seed capital for investors in this $2 trillion industry is essential to our economic recovery and competitiveness.

Oil and Gasoline Inventories Moving in the Opposite Direction

Bespoke Investment Group
March 30, 2011

This week's release of energy inventories for the last week reinforces a trend that has been in place for the last several weeks. While oil inventories have been rising and coming in ahead of expectations, gasoline inventories have been declining and falling at a faster than expected rate. At this rate, it is only a matter of weeks before gasoline inventories will fall below average. For oil, May is when inventories typically begin their seasonal period of decline, so that will be a key time to watch and see how things trend this year versus historically.

What Causes High Gas Prices? (Excerpt)
May 24, 2007

...In the past, gasoline prices pretty much mirrored the price per barrel of oil. If oil was in short supply and the price increased, gasoline prices would also increase. However, in the early part of this decade, we saw a new anomaly with gasoline prices: they started to spike.

It would appear something other than the price of oil has a much greater affect on the the price of gasoline. While oil prices do have some affect on gasoline prices, it’s apparently not that much. After all, when oil was half the price it is now, gasoline wasn’t half its price. Something else is at work.

When the oil companies get their oil, they transport it to refining facilities across the country, most of which are in Texas. The refining facilities are responsible for taking the crude oil and converting it into usable products.

Consolidation in the refining industry has limited our refining capabilities. The three biggest American oil companies ExxonMobile [Rockefeller-owned], ConocoPhillips, and ChevronTexaco used to be six individual companies. There was a time when the oil industry wasn’t making a profit (hard to believe, but it wasn’t that long ago). When they combined, they also bought out some of the smaller refiners.

The top five refiners now control more than half of the domestic refining capacity in the United States. Unfortunately, this has allowed the big refiners to tightly control gasoline reserves thus greatly affecting availability and prices. Is this bad? It depends. If they are deliberately reducing refining capabilities to reduce the amount of gasoline they produce, thus increasing their profit margins, then yeah … it is.

Without a competitive market, the consumer will continue to suffer because there is no incentive for Big Oil to increase refining capacity when there is a shortage. Spending millions to construct new refineries to produce gasoline faster will only lower their profit margins. They like the prices high because it costs them the same amount of money to make the gasoline regardless of its price...

OPEC Could Reap $1 Trillion This Year

National Journal
March 30, 2011

The Organization of the Petroleum Exporting Countries (OPEC) is set to make a record-breaking $1 trillion in export revenues this year if crude oil prices remain above $100 a barrel, an the International Energy Agency official told the Financial Times.
"It would be the first time in the history of OPEC that oil revenues have reached a trillion dollars," Chief IAEA Economist Fatih Birol told the Financial Times. "It's mainly because of higher prices and higher production."
The possibility of a record-breaking year comes as continued unrest in the Middle East and North Africa, engagement in Libya, and signs of an economic recovery renew debate among policymakers over how to deal with rising global oil prices and their ties to national security.

President Obama will weigh in on the issue today when he speaks about his new four-part “Plan for America’s Energy Security” at Georgetown University. And Republicans and oil state Democrats have argued for expanded offshore oil and gas drilling in light of rising prices and foreign oil dependence.

On Tuesday, House Natural Resources Committee Chairman Doc Hastings, R-Wash., introduced legislation that expands drilling and the Interior Department said in a report this month that the oil industry isn’t using a large portion of their drilling leases.

The report, along with other energy security concerns, will likely be discussed at Hastings’ Natural Resources Committee hearing this morning, where Bureau of Energy Management, Regulation and Enforcement (BOEMRE) director Michael Bromwich is scheduled to testify on his FY 2012 budget.

Morgan Stanley Cancels All Libya Oil Trade

March 7, 2011

Wall Street bank Morgan Stanley (MS.N) has stopped trading oil with Libya, a trade source said on Monday, in an early indication that sanctions could hit exports from the north African producer.

The firm canceled all crude oil and refined products in the past week "due to the OFAC," the source familiar with the firm's transactions said, referring to the U.S. Office of Foreign Assets Control, which controls trade sanctions.

President Barack Obama signed an executive order on February 25 freezing the assets of Libya's President Muammar Gaddafi, his family and top officials, as well as the Libyan government and the country's central bank.

Traders said Morgan Stanley has regularly sourced oil from the North African country to feed the UK Grangemouth and the French Lavera refineries but did not know how much the bank was buying from Libya.

The bank also traded gasoline with Libya, sources said.

Morgan Stanley declined to comment.

Most estimates suggest around half of the country's 1.6 million barrels per day (bpd) of oil production capacity has been suspended due to clashes between government forces and rebels.

Some trade sources expect other oil companies to follow the bank's lead and halt oil trade with Libya, effectively halting exports to the international market.
"Players won't be able to buy Libyan crude even if it's there. It won't matter if they are producing or not," said a crude oil trader.
Austrian energy group OMV (OMVV.VI) said on Monday it was still getting oil from Libya despite severe output disruptions.

U.S. Could Tap Oil Reserves as Gasoline Price Surges

March 7, 2011

The U.S. government reiterated that it could tap its strategic oil reserves in order to safeguard economic growth as surging gasoline prices increase pressure for action.

While longstanding U.S. policy is to release reserves only in the event of a significant and immediate supply shortage, some analysts say the Obama administration may feel compelled to try to tamp down prices that are being fueled both by outages in Libya and concern unrest could spread in the Middle East.

Reflecting market worries over unrest, crude futures prices were trading in Asia on Monday around their highest levels in more than two years.

Echoing comments made by a number of Obama officials over the past week, White House Chief of Staff William Daley told NBC television's "Meet the Press" on Sunday:
"We are looking at the options. The issue of the reserves is one we are considering."

"It is something that only is done -- has been done -- in very rare occasions. There's a bunch of factors that have to be looked at and it is just not the price," he added. "All matters have to be on the table when you go through -- when you see the difficulty coming out of this economic crisis we're in and the fragility of it."
He spoke just before a survey showed the second-largest two-week rise in gasoline pump prices ever. The national average for a gallon of self-serve, regular gas was $3.50 on March 4, according to the influential Lundberg Survey of about 2,500 gas stations, up 32.7 cents from the February 18.

Congress has pressured the Obama administration to look to the emergency oil supplies as an option to ease consumers' fears over rising U.S. gasoline prices, which are nearing the all-time high of $4.1124 per gallon hit on July 11, 2008, according to the Lundberg Survey.

Higher oil prices could undermine the fragile U.S. economic recovery and damage President Barack Obama politically as he moves toward a 2012 re-election bid.

NOT 2008

The U.S. Strategic Petroleum Reserve holds 727 million barrels of oil, or about 38 days of consumption, and has only been tapped a handful of times since it was created in the mid-1970s after the Arab oil embargo. It was last used in 2005 following Hurricane Katrina.

Thus far the International Energy Agency (IEA) -- which coordinates reserves policy among the world's major energy consuming countries -- has made clear it will rely first on OPEC to fill the void left by the violence in Libya, which has cut off an estimated 1 million barrels per day (bpd) of output.

IEA members South Korea and Japan, among the world's top 5 crude oil importers, have no immediate plans to tap into strategic reserves, sources said.
"There is no concern at all over supply shortages," said an official with Japan's Trade Ministry, which is in charge of the country's strategic oil reserves.
The official declined to be identified because he is not authorized to be quoted by the media.

OPEC powerhouse Saudi Arabia has stepped up production significantly, but oil prices remain high. The risk for markets is that the wave of North African and Middle East protests could spread to major Gulf oil producers, cutting off supplies that would be impossible to make up from other producers.

Despite longstanding U.S. policy on the SPR, there are reasons to believe the reserves could be used more liberally now.

Unlike in 2008, when oil prices shot to nearly $150 a barrel in a demand-led rally, the rise this year is driven by a loss of supply -- a distinction that could give Obama more latitude to tap the reserves, even though Libya ships only a fraction of its oil to the United States.

In addition, the global economy is in a more precarious state than was generally believed at the start of 2008, prior to the financial crisis.
"Sovereign debt issues need time and growth to resolve. High oil prices threaten that outcome. No leader will want to preside over a recession that they had the tools to avert," said Lawrence Eagles, head of oil research at JP Morgan.
His outlook calls for a possible SPR release if Brent crude pushes materially above $120 a barrel.

It traded above $117 a barrel on Monday, up more than 14 percent in the last two weeks. [A $10 increase in oil prices translates into roughly a 25 cent increase in retail gasoline prices.] Last week, the price hit its highest level since 2008. U.S. crude futures rose to more than $106 a barrel on Monday, also their highest level since 2008.

U.S. federal law allows the government to tap the reserve during a national energy supply shortage that raises petroleum prices and could damage the economy. The president has the authority to determine such an emergency.

While the reserves could help make up for lost supplies, it is unclear how effective they would be in tempering fears that unrest could spread to other, bigger producers including Saudi Arabia, where security forces have detained at least 22 minority Shi'ites following protests last week.


U.S. Treasury Secretary Timothy Geithner last week played down risks to oil supply, but also reminded lawmakers of the emergency stockpile.
"If necessary, those reserves could be mobilized to help mitigate the effect of a severe, sustained supply disruption," Geithner told the U.S. Senate Foreign Relations Committee.
But there has been growing support among Senate Democrats for tapping America's emergency oil supply.

U.S. Energy Secretary Steven Chu on Wednesday had ruled out releasing oil from the reserve, saying ramped-up oil production in Saudi Arabia should lower the crude price.
"We're hoping market forces will take care of this," he added.
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Oil Isn't 'Expensive', the Dollar Is Cheap
Aware of the historical relationship between gold and oil, Reagan deduced that oil was due for a correction based on a 20% drop in the price of an ounce of gold since his election. Sure enough, by December of 1981 the price of a barrel of oil was nearly 20% lower than it had been one year before. Looked at over a longer timeframe, from 1970 to 1981 the price of gold rose 1,219 percent, versus a rise in the price of oil 1,291 percent. This wasn't coincidental. With gold and oil both priced in dollars, and with gold serving as the best proxy for the latter's value, a jump in the gold price neatly foretold the oil "shocks" of the 1970s that were merely dollar shocks ... Oil hasn't become expensive this decade; rather the dollar has become very cheap. Strengthen the dollar, and worries over nosebleed gasoline prices will quickly become a thing of the past. Absent that, to hope that something will become inexpensive when the unit of account in which it's priced continues to fall is to indulge in fantasy.

Updated 4/25/11 (Newest Additions at End of List)

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