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 PolicyOil, 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 PolicyI 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 PolicyBush 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?
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11 comments:
This cabal was probably created in Cheny's energy task force, created I believe unofficially before Bush took office.It officially was created in 2001. On June 25, 2004 the Supreme Court set aside a lower Court ruling which ordered Vice President Cheney to hand over documents relating to this task force. These records would have exposed all the deals this group made creating higher oil and energy prices.
In Ca. we experienced a major energy crisis in 2000-2001. Cheney had his hand in this."In depth investigation shows how Vice President Dick Cheney pressured federal energy regulators to conceal evidence of widespread market manipulation by energy companies during the California electricity crisis in 2001"
But thanks to this ultra conservative and friendly Bush Court the records are sealed.
Hi Len, interesting post. The speculative money has definitely been crucial in the 30% increase in crude prices since September, and the runup before that as well (it's also the dollar's weakness and tight OPEC supplies).
It's a moving bubble, the tens of billions that formerly were part of the .dotcom runup, and after that the real estate boom. The crowd will move on, but wily traders will remain to needle the price when they think a dollar can be made on the margin.
Steve LeVine, author
The Oil and the Glory
http://www.oilandglory.com
There is a silver lining in the dark cloud of expensive oil, in that the rising price will cut consumption, leading to less environmental pollution.
It may also trigger the search for alternate sources of energy.
The fact is that we in North America pay the least for the oil we put in our vehicles, compared with the rest of the world. For instance oil prices in Europe have always been far higher than here.
So I see the current oil price hike as not being altogether a bad thing, despite it making Dick Cheney much richer than he already is.
Great post Len. I've had a bad feeling about those oil barons for a long time. Everything, I mean everything, has it's roots in the evilness of those oil barons known to the world as Bush/Cheney and Co.
"The Last Prisoner of Qari"
www.ilovepoetry.com/viewpoem.asp?id=93971
Still another piece of the puzzle in the coming 'thousand year legacy'?
diane b said...
In Ca. we experienced a major energy crisis in 2000-2001. Cheney had his hand in this."In depth investigation shows how Vice President Dick Cheney pressured federal energy regulators to conceal evidence of widespread market manipulation by energy companies during the California electricity crisis in 2001"
I remember that very well and, as I recall, it preceded the fall of Enron which had a hand in putting the screws to CA. In fact, Enron traders were "taped" cackling about how they were "screwing" CA.
Steve said...
It's a moving bubble, the tens of billions that formerly were part of the .dotcom runup, and after that the real estate boom. The crowd will move on, but wily traders will remain to needle the price when they think a dollar can be made on the margin.
Welcome to the Cowboy, Steve. And thanks for the link. I will add your sites to my blogroll. Don't be a stranger. You'll enjoy the regulars who comment here. It's always great stuff.
Christopher said...
There is a silver lining in the dark cloud of expensive oil, in that the rising price will cut consumption, leading to less environmental pollution.
You are absolutely correct and the opportunity should be exploited. At last, this "shadowy cabal" will pull out --making yet another fortune by selling. If the price falls sufficiently, solar et al will --once again --be left to its fate. What we need is a big technological break-through that will make alternative, green fuels competitive whatever games the oil cabal might try to impose upon the markets.
liberality said...
Everything, I mean everything, has it's roots in the evilness of those oil barons known to the world as Bush/Cheney and Co.
I wish you were wrong. But, alas, they are so transparent. It doesn't take a genius to figure out what they are up to. Everyone but "big media" seems to have figured it all out.
--Len
We have been writing about this situation for almost a year now. I've covered oil markets for better than 20 years and I've never seen such blatant manipulation. However, there are several culprits here, including a trio of oil producers incl Russia, Iran and Venezuela that have increased their participation and poured petro dollars into the speculative arena with one dictate..buy. Then Wall Street takes over and the Peak Oil theorists add to the momentum. But its about to come apart as inflation heats up in the Middle East. Normally protected against inflation, oil producing countries are seeing the cost of everything they import soar.
Of course the US in its infinite wisdom continues to fill the Salt Domes known as the SPR at these prices. Stop by our oilintel site for blow by blow oil coverage.
Just in passing, Vineyardsaker has some terrific analysis on the Annapolis "peace process"(also here). Meanwhile, Abdelhaleem Ashqar and Sami Al-Arian, two US academics who have argued publicly over many years for Palestinian rights, have been jailed in the US in a blatant political exercise. They refused to provide details about Hamas political figures who ran the legally elected Palestinian government before it was overthrown in the US backed coup that installed Abbas. Ashqar, a former associate professor of business, has been given eleven years in a US jail for refusing, as a matter of principle, to provide testimony that he believes would lead to the assassination of Hamas members by Israel or Abbas. This is the US using the law to imprison dissidents. There.Is.No.Peace.Process.
thanks, Tom, for the heads up on oil coverage at Oil Energy News It's good to know that oil issues are being covered by professionals on the net. And thanks, too, to Damien, for more great resources.
The "rat" is only the big P word.
The OPEC knows oil producing nations have all passed their peak.
Therefore everybody involved in oil production and refinery are pushing prices up in order to amass as much money as they can while oil last (because they know it won't!).
Problem is, oil price is now like a bed comforter that is tugged between the middle-eastern oil producers and the western refiners: Refineries needs cheaper oil to make better profits, while oil producers need refineries to reduce their profit margins so the former can charge a little more per barrel without provoking havoc at the pump, or having to pump more oil, thus depleting their reserves a lot faster.
This whole thing is about to turn uglier as we approach halfway through the after-peak slope.
I would say right in the middle of the next decade.
The funny thing is, this is going to get a lot harder for American oilmen in waging war for oil: so far i haven't seen no American military industries coming up with a hybrid tank...
Byron Ellis noted as far back as 2006 that Middle East instability offered traders an opportunity to profit from rising crude oil prices, see http://www.jethroproject.com/Energy%20Prices-Rev4.pdf
"So, what is driving up the price of crude oil? The main reason for the increase is instability in the Middle East. Instability causes traders to bid up future prices and
provides refiners with the opportunity to charge as much as the market can bear. And, hints of preemptive strikes on Iran create further market instability and heighten the belief of future crude oil shortages. Perceived future shortages means that the future price of a barrel of
crude oil will continue to increase."
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