
(image: eggstudio/flickr)
The other day I asked the question “Why is the U.S. still exporting petroleum products -such as gasoline- when the price for such products keeps going up domestically?”
Well, I thought it was because the CFTC still hadn’t put reasonable limits on how many positions a ‘speculator’ could hold in the futures market. Example: buy gasoline on the spot -actual market- for $2.90 and sell the futures contract for $3.60; if storage costs between now and when the futures contract calls for delivery is 30 cents, then that’s a nice 40 cent profit(almost 15 per cent ROI).
So I happened to come across a couple of articles today that somewhat answered my question and also noticed that Obama is in Florida talking about how he’s helped the situation and watching over the issue.
Which, as usual from Obama, is slick -Clinton has nothing on him- and without any real substance.
WikiLeaks: Saudis often warned U.S. about oil speculators:
“The Obama administration, the Bush administration before it and Congress have been slow to take steps to rein in speculators. On Tuesday, the Commodity Futures Trading Commission, a U.S. regulatory agency, charged a group of financial firms with manipulating the price of oil in 2008. But the commission hasn’t enacted a proposal to limit the percentage of oil contracts a financial company can hold, while Congress remains focused primarily on big oil companies, threatening in hearings last week to eliminate their tax breaks because of the $38 billion in first-quarter profits the top six U.S. companies earned.
The Saudis, however, have struck a steady theme for years that something should be done to curb the influence of banks and hedge funds that are speculating on the price of oil, according to diplomatic cables made available to McClatchy by the WikiLeaks website.
The cables show that the subject of speculation has been raised in working group meetings between U.S. and Saudi officials, in one-on-one meetings with American diplomats and at least once with President George W. Bush himself.”
So even if the second largest supplier of oil to the U.S. has been telling the government for years that speculators are subverting the market, nothing gets done.
As one would expect, it’s all moans and groans from the American Petroleum Institute:
““First of all it is a very small amount,” says John Felmy, chief economist for the American Petroleum Institute (API), which lobbies for the oil industry in Washington. Mr. Felmy estimates exports represent 4 percent of total US gasoline production.
He says the exports are helping some in the refining industry stay in business since they have been buying expensive crude at the same time that domestic demand has been declining. “They are losing money on every gallon they sell and they can’t make it up on volume,” he says. “But people are willing to pay higher prices for gasoline on the international market.”
“Brockwell says gasoline exports, on a four week average, are now running 600,000 barrels a day compared to 200,000 barrels per day a year ago. He says this is the equivalent of three of the largest refineries in the US exporting most of their gasoline production.
“Instinctively, I understand the API not wanting the American public to know so much is exported and tied to high prices,” he says.
If the exports were not taking place, Ebinger at Brookings says it might be possible to argue the refiners would be flooding the market with gasoline which would reduce prices. “If people knew there was a surplus of gasoline, you might get some entrepreneurs in to sell it at lower prices to stimulate demand,” he says.
But, Brockwell says it’s showing up on the so-called “spot market” – the daily buying and selling of actual petroleum products – which he says is soaring. “If demand is so low, how can that be?”
So I have my answer which fits most large and multinational corporations (why Obama thinks it’s necessary to lower the corporate tax rate is simply unfathomable); it’s all about greed.
Oh, and BTW: Average stock held for 22 seconds (up from 20)
Could it all be any clearer?



13 Comments

Thanks ubetcha. More regulatory capture.
Gary Gensler was supposed to have gotten religion at some point, and as I remember it, Brooksley Born even then gave him her official okey-dokey. Then all the stalls about figuring out position limits, and numbers of contracts, yada yada. And then his friendship with Jon Corzine caused him to have to recuse himself from investigating MF Globa, heh heh…
But I just saw this page of charts this morning that Ian Welsh linked to about energy consumption…pretty interesting. Ian made the case that it’s all part of the Big Plan to make sure that all the disposable workers in the US…keep being disposed and invisible.
And he hammered home the point that ‘no one cares, cuz they don’t have to’.
Lot of interesting comments, though I can’t begin to claim to know which ones are correct, or more correct.
http://www.goldismoney2.com/showthread.php?28967-It-s-Not-Just-Gasoline-Consumption-Tanking-It-s-All-Energy-Charles-Hugh-Smith
Only a little OT, but you’ll love this story:
http://www.zerohedge.com/news/bailed-out-aig-posts-huge-beat-tax-gimmick-will-not-pay-taxes-years
We are making efforts to decrease our driving and our gas consumption. Where do you see gas prices going in the next six months? They are higher lately. Will they hit $5.00/gallon? Seeing several news articles today about the impact to small businesses.
Greed isn’t okay for people and businesses trying to get by.
Yeah,’love’ like in more data to make me hurl. And when you add in that Lehman could have been ‘rescued’ for a lot less than what Paulson pushed through just because Paulson had a feud going on with the head of Lehman from years past, it just add the obviousness of the corruption that has become entrenched around the world.
Got a diary I’m posting in a bit that will also be evidence of the corruption in foreign policy that has and is plaguing the world.
No idea where they will end up; probably see Obama release oil from the reserve as a response when the issue is refining and greed.
hey I just though it would be nice to chime in here… my Prius gets about 46 mpg…
I bought that little bastard car, after I rented one, cause I got “T-boned” on Broadway and 7th, girl didn’t stop on the red, she killed my toyoter p/u, and put me and my mom out on the street, but good thing… the police dept is one block away, and the desk sargent was right on the scene, they heard the bang of the crash… boy oh boy, tell you what, I was pretty glad to see the cop come up and say howdie doo.
Greed kills ,it ‘a a feature.
The oil consumption correlation to GDP is changing – but not fast enough. That chart does not mean what the fellow says it means.
Meanwhile the hedge funds drive speculation – and they do it for political purposes on occasion.
So does Obama kiss hedge fund butt to get contributions to get elected, or does he come down hard on speculation so as to get gas prices that will not hurt his re-election?
I’m betting on kissing hedge fund butt continuing.
Keystone is planned as an “export” – none of the benefit, none of the oil supply, stays in the US – it just provides jobs at the Saudi owned refinery in Texas.
A pipeline to the closed refineries in the Mid-Atlantic and New England area would at least lower product cost in the US as oil supplies increased.
Indeed as planned, Keystone drains the current oil supply out of the mid-west causing a $20 per gal increase in the cost of gas in the mid-west.
Could you explain how speculation leads only to price increases? For every speculator that buys, their has to be one willing to sell, that is: for everyone that makes money on the upside, their must be somebody losing money. Given that, how does speculation drive up the price?
It’s not just speculation but the limits on that doesn’t drive up the price because the offsets(read hedging) via other trading mechanisms obviates the risks.
I too am scratching my head over the intense interest in speculators. As I see it, speculators add liquidity to the market, sort of the way that specialists on the floor of the NYSE add liquidity to that market.
Speculators must both buy and sell for any transaction, or they must deliver or accept actual oil. Since, by definition, speculators are not in the business of handling actual oil, every position must be closed before the delivery date. When speculators buy, as with any purchaser, it moves the price up. When they sell, it moves the prices down. Since they must both buy and sell, they have no long term impact on the market price.
Without the speculators, people that are hedging their need for oil would have wider price swings because of a more illiquid market.
We are looking for a bogeyman behind every corner. Why is it not the old law of supply and demand? Oil is essentially fungible and the increased demand in the rest of the world is going to drive prices up. The thing we can control is supply. While oil consumption is problematic, until we have a reasonable alternative, we need to produce more.
It’s more profitable to sell “US” oil elsewhere. Oil corporations don’t want low prices in the US.