Tuesday, November 27, 2007

Oil Traders Seize Control of World Oil Prices

A shadowy cabal of international "oil traders" have seized control of the world's markets and the price of oil. That's not the opinion of a crazed "conspiracy theorist". It is the informed opinion of an expert market analyst interviewed by the prestigious Foreign Policy magazine.

As oil reached $100 recently, Foreign Policy magazine asked the question: who stole the oil? Fadel Gheit, one of Wall Street's top energy analysts, believes that the world price of oil is no longer tied to the market. In other words, powerful international traders have seized control of the world's primary source of energy.
I truly believe that major investment banks and a large number of very high-risk-taking financial players have seized control of the oil markets, especially in the last six months. During that time, oil prices moved in one direction and market fundamentals really moved sideways or even lowered. Demand has slowed down significantly. We have seen all kinds of indications that we are reaching a breaking point here. We’ve seen what happened to gasoline margins on the West Coast; they’ve dropped to an almost 18-year low. All this is an indication that something is wrong with the system, that supply and demand fundamentals do not justify the current price. But if the current price is based on speculation, there is no limit to how high oil prices can go. Basically, as long as there is somebody willing to bid higher, the price of the commodity will move higher.

-Fadel Gheith, Seven Questions: The Price of Fear, Foreign Policy
Oil, of course, was rising concurrent with the dollar's fall. OPEC's take was simply the rise in oil offset their own dollar losses in the currency markets. It was in middle October that many analysts had already written that many investors trying to hedge their dollar losses amid predictions that another cut in US interest rates would drive the buck even lower, and oil even higher. Gheith is probably correct about oil. The question then is: qui bono? Who benefits most from both the dollar's fall and the rise of oil?

In October, crude had already reached an historic high above $80 a barrel. In the same breath analysts pointed to the "weakening dollar" and inflation. Inflation of course, threatens consumer spending, even cheap Chinese imports from Wal-Mart. The future is now. Or --is it?
To my knowledge, there is no oil shortage. Any willing buyers will not have a problem finding oil. Global inventories are over 4 billion barrels. In simple math, that is the equivalent of all the oil produced in the Middle East for six months. So, the fear premium, in my view, is totally exaggerated; it’s not justified by logic or market fundamentals.

--Fadel Gheith, Seven Questions: The Price of Fear, Foreign Policy
I find it incredibly interesting that only those oil barons, typified by Dick Cheney's Energy Task Force, are precisely the group fingered by Gheith as benefiting most from the spread. In other words, US war hawks have probably lost nothing from the dollar's fall that hasn't been made up with the sale of oil.
... it’s very difficult to quantify fear. But that is the psychological factor, in my view, that is bringing oil prices to these unprecedented levels. For instance, I don’t believe that Iran is going to cut oil exports, because Iran needs the revenue more than the world needs Iran’s oil. We have to be logical in assessing the risk. And obviously, financial players want to exaggerate the situation so that the risk premium increases and they make more money.

--Fadel Gheith, Seven Questions: The Price of Fear, Foreign Policy
Bush created the task force in his second week in office. Officially known as the National Energy Policy Development Group, it was charged with developing a national energy policy. When documents related to their secret meetings were, at last, released, it was clear that the "Energy Task Force" had simply carved up the Middle East, just as surely as Hitler had intended to carve up the resources of Europe and Russia.

I smell a rat...or just the evil stench associated with Bush's oil regime?

Iraq War

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