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DrumBeat: July 9, 2008
Posted by Leanan on July 9, 2008 - 8:07am
Topic: Miscellaneous
$4 gas helping revitalize small towns
THOMASVILLE, Ala. - Residents in once-sleepy Thomasville have started complaining about traffic jams on Route 43, which runs right through the town.Much of the new traffic is coming from shoppers, squeezed by $4-per-gallon gas, who are staying closer to home instead of driving 100 miles each way to the nearest malls in Mobile or Montgomery.
"I just don't drive as much," said Herman Heaton, a 72-year-old retired lumber mill worker, leaning against a Chevy Silverado pickup that now costs him $80 to fill up. "We don't go to Mobile as much as we used to for shopping." Heaton said he now spends about $600 a month on gas, about 10 percent of his income and about double what he spent last year.
So now he says he's shopping locally.
Lula May Increase Brazil's Oil Take as Tupi Spurs Rules Review
(Bloomberg) -- Brazilian President Luiz Inacio Lula da Silva may boost the government's stake in oil fields after the largest discovery in the Americas since 1976 prompted a review of rules for how petroleum deposits are developed.Lula is examining how Brazil and producers will share revenue from offshore deposits that may hold more than $6 trillion of oil at current prices. Lula said the Tupi discovery and nearby prospects will at least triple Brazil's crude reserves, and he wants the wealth to be shared nationwide.
OTTAWA – Soaring oil prices are proving too much of a good thing to energy exporting Canada and the high price of crude has started to deliver more pains than benefits to the overall economy, says a new report.An analysis by Bank of Montreal economist Douglas Porter argues that oil prices at about US$120 or US$130 a barrel have passed the ``tipping point" where they become a net drag on the Canadian economy.
Americans have spent the past year or so complaining about the rising price of everything from bread to gas, and bemoaning the ways in which it has changed their lifestyle.Now, as the reality of a down economy begins to sink in, experts say consumers are starting to embrace the simple life: staying close to home, cooking more, planting a garden and even delighting in bargain hunting. Some retailers, trying to make the best of the situation, have begun looking for ways to latch onto the trend as well.
Kazakhstan: Work begins on gas pipeline to China
Construction on a gas pipeline linking energy-rich Kazakhstan with China started Wednesday, a Kazakh construction company said.The pipeline should be completed by June 2010 and will have an initial annual capacity of around 160 billion cubic feet of natural gas, Kazstroiservis said.
Russian environmentalists push pipeline reroute
A pipeline for an oil and gas project led by Exxon Mobil will threaten endangered whales and other species, Russian environmentalists said in a letter to the company's chief executive on Wednesday.Twelve environmental groups, including WWF and Greenpeace Russia, asked Exxon Mobil Corporation CEO Rex Tillerson to consider other routes for the oil pipeline at the Sakhalin-1 offshore oil and gas development project in Russia's Far East.
Mercedes to cut petroleum out of lineup by 2015
In less than 7 years, Mercedes-Benz plans to ditch petroleum-powered vehicles from its lineup. Focusing on electric, fuel cell, and biofuels, the company is revving up research in alternative fuel sources and efficiency....Mercedes is looking into electric vehicles, both battery-powered and fuel-cell powered. Not only are models in development, but we’ve also seen the company making steps towards its zero-petroleum goal right now, from better cabs in London to li-ion battery improvements. The company also has about 100 Smart electric cars undergoing testing in London, with that favorite 2010 year as the projected market release date.
Mercedes is making serious investments, already putting nearly $4 million into the pot of its long-term Sustainable Mobility plan, with another nearly $1.4 billion going in before 2014.
Argentina's military threat raises fears over Falklands
Argentina raised the prospect of posting military forces in the Antarctic region yesterday, with the announcement of plans to use troops to defend its interests.President Cristina Fernández de Kirchner told defence chiefs that Argentina must be prepared to assert its sovereignty and protect its natural resources, as nations compete to claim areas of the region believed to be rich in oil.
Gazprom Offers to Buy All Libya's Oil and Natural-Gas Exports
(Bloomberg) -- OAO Gazprom offered to buy all of Libya's oil and natural gas destined for export as Russia's largest energy producer strives to expand on global markets.
Global Fertilizer Demand May Rise 14% on Higher Food Demand
(Bloomberg) -- Global fertilizer demand may rise 14 percent by 2012 as farmers increase plantings to benefit from high prices and growing food consumption, the International Fertilizer Industry Association said.Demand may increase to 193 million metric tons by 2012, from 169 million tons in 2007, the Paris-based industry group forecast today during a presentation at a Shanghai conference.
Top Democrat may back new offshore drilling: report
NEW YORK (Reuters) - A top U.S. Democratic senator said in a newspaper interview published Wednesday that he would consider supporting opening up new areas for offshore oil and gas drilling."I'm open to drilling and responsible production," Senate Majority Whip Richard Durbin told The Wall Street Journal, adding that Senate Majority Leader Harry Reid could also support the move.
However, Durbin said his support for opening new areas to drilling was contingent on setting requirements that oil and gas companies begin production within a specified time frame on acreage they have leased from the government.
Entergy rate hikes in Miss. slammed by consumers
"Mississippi rate payers are taking a hit," he said. "They face higher fuel costs, higher food costs and now they're taking a hit with these increases. The question that comes up is we're taking a hit, are their shareholders taking a hit?"Louie Miller, director of the Mississippi Sierra Club, called for a freeze on Entergy Mississippi's current 28 percent rate increase, which is in effect through September to defray fuel costs that the company said were unexpectedly high.
Data center power: the cost reality
More IT executives are coming to grips with a grim reality: Data-center power and cooling costs are the hidden enemy of IT departments. They creep up on unsuspecting CIOs like deadly mists and choke off their ability to deploy new equipment and applications."If a CIO has not had to build a new data center recently, this is likely to be a huge surprise," says Ken Brill, founder and executive director of the Uptime Institute, which provides consulting services to more than 100 data center operators.
Two years ago I began this column, thinking The End of the World would always be fun. The web-postings of survivalists, religious wacko-bongos, free-market fundamentalists, and paranoid old farts would always provide something amusing to write about. And there wasn't much chance their apocalyptic scenarios would come true....But lately The End of the World isn't fun anymore. It's not only because George Bush, contemplating his place in history, keeps saying, "Like I care? We'll all be dead then, anyway." It's also because a good many intelligent and sane people keep saying that It's The End of The World As We Know It.
A Different Climate Change Apocalypse Than the One You Were Envisioning
The world has gotten a bit warmer and a bit drier over the past 50 years. The presumption is that it will get even warmer and drier over the next 50 years, so if economic changes from the past can be understood, perhaps future economic changes can be estimated. Here is the gist of their findings:Our main results show large, negative effects of higher temperatures on growth, but only in poor countries. … In rich countries, changes in temperature have no discernible effect on growth.What does this mean? Among other things, it may mean that many Americans — who are by definition rich — are worried about the wrong thing. Instead of thinking about weather apocalypses, they should instead be thinking about border invasions: the huddled masses from the poorest countries who will be seeking refuge as their own economies collapse. This would be Darwinism on the most epic scale imaginable — but instead of the finch with the shorter beak becoming extinct, it’ll be the poorest millions, or perhaps billions.
Last exit for the Holocene: What follows is a place unfit for the human race
"Damn! I think we just passed the last exit for the Holocene!""I'm sorry, honey, I wasn't looking."
"We have to get off this highway. What's the next exit?"
"It's a long way ahead. Goes to somewhere called Perdition."
(Ragged chorus from the back seat) "Are we there yet, Daddy?"
Kevin Rudd: Doing nothing is not an option for survival
THE science tells us that continued high levels of carbon pollution have led to global warming and if the world continues on a business-as-usual trajectory the consequences for us all will be significant. The economics tells us that the cost of responsible action is much less than if we as a planet fail to act on climate change now. The longer we delay, the higher the cost.And Ross Garnaut tells us the case for Australia is particularly acute because we are already a hot and dry continent.
That is the reality the Australian Government faces today.
The chickens have come home to roost
I will make one prediction: As the cost of energy continues to rise, the influence of extreme environmentalists will decline. If Americans can't have both, they'll choose the smell of money over fresh air.
Kenya: Farmers Buying Fertiliser to Be Vetted
The National Cereals and Produce Board will vet those buying fertiliser that the Government has imported to ensure only genuine farmers benefited."The board will verify that those purchasing fertiliser are genuine farmers and not businessmen out to rip off farmers and if anyone is found masquerading as a farmer action will be taken against them," said the board public relations manager Kipserem Maritim.
The Toxic Consequences of the Green Revolution
JAJJAL VILLAGE, INDIA—Four decades after the so-called Green Revolution enabled this vast nation to feed itself, some farmers are turning their backs on modern agricultural methods—the use of modified seeds, fertilizer, and pesticides—in favor of organic farming.This is not a matter of producing gourmet food for environmentally attuned consumers but rather something of a life-and-death choice in villages like this one, where the benefits of the Green Revolution have been coupled with unanticipated harmful consequences from chemical pollution.
High Oil Prices: Hype's Impact
By 2015 the world will be faced with a legitimate and serious oil supply-and-demand problem. Many oil insiders have told me that it will be an enduring energy crisis that has the potential to radically reorganize our economic society.
Australia: Energy crisis tipped to drag on
The State’s energy woes appear set to drag on for longer than expected after revelations there will be delays in plans to fire up old coal plants in Collie and in fixing a gas-fired plant at Pinjar.
Real reasons for hiking oil prices
The world is facing price increases for every commodity and service, and not just energy. By the way, when we talk about an energy crisis, it is misleading to single out oil as the core of it. Oil meets no more than a third of global energy requirements, and the other two-thirds are met by gas, coal, nuclear and other types of energy. So, why is this unnecessary emphasis on oil? Most probably because most of it comes from Middle East and Russia, two regions the West can not fully trust - again, an oil conspiracy! Some credible economists see the energy crisis facing the world as an issue of scarcity. Whether global oil production has peaked or is about to, there seems to be a consensus that cheap oil is over. Natural gas cannot plug the gap in energy supply if oil is not enough to meet rising demand.
Russia has overtaken Niger to become the world's fourth largest uranium producer, after Canada, Australia, and Kazakhstan. Russia received its new rating in 2007, when it produced 3,527 tons of uranium.It has ambitious plans to mover even further up the league, based on promising deposits in Eastern Siberia and other regions, and opportunities for mutually advantageous cooperation with countries rich in uranium ore.
Hidili Says Coking Coal Prices to Trade at Record
(Bloomberg) -- Hidili Industry International Development Co., southwestern China's largest producer of coking coal, said purchases by steelmakers for rebuilding after the May earthquake will keep prices at a record through 2009.
Viet Nam - Power producers should feel at fault for shortage: official
The country’s energy shortage is undermining economic growth, said a government leader Tuesday, urging state-owned corporations to expedite electricity and fuel production projects.“No matter what the cause, the energy sector should feel at fault any time its people experience a power shortage,” said Deputy Prime Minister Hoang Trung Hai at a Ministry of Industry and Trade session in Hanoi.
Tight supply, strong demand drive oil prices higher: BP official
Doha • The key driver of higher oil prices is tighter supply and demand fundamentals rather than speculation and tighter refining capacity, according to Mark Finley, General Manager, BP Global Energy markets and US Economics.He said if there were refining capacity constraints there would have been large quantities of crude oil on the market forcing the price down which is not the case.
Soaring aviation fuel costs ground many pilots
WICHITA, Kan. - Soaring aviation fuel costs are grounding many pilots from recreational flying, extending the reach of the economic drag on the nation's general aviation industry.While much public attention has focused on the financial woes of struggling airlines, the myriad of aircraft companies that cater to private pilots are scrambling, too. Makers of piston-powered aircraft favored by leisure flyers saw their shipments plunge during the first quarter of this year, while pilot training schools, fixed base operators and others have watched fewer pilots take to the skies.
America and China: The Eagle and the Dragon Part Three: onward and upward
Now, at a time when the most important global debate is about dwindling resources and the perils of untrammelled growth, China - a culture where as recently as 40 years ago personal possessions were regarded as a symbol of pernicious bourgeois decadence - is staking its future on becoming the biggest consumer society on earth.
Why Europe backpedals on biofuel targets
London - Europe is signaling a retreat from its bold commitment to biofuels as concern mounts that the plant-based alternative to gas and diesel, once heralded as a panacea for climate change, is contributing to spiraling global food prices.
Inflation surge hammers construction industry
ABU DHABI // Contractors who enjoyed lucrative returns as recently as last year are now being swamped by rising costs that have left many struggling to eke out a profit.Record fuel prices, the skyrocketing cost of building materials and shortages of skilled labour are rapidly eroding financial returns.
Why Brazilians Should Demand the Renationalization of Petrobras
It is imperative that the Brazilian government follow a major global trend and start renationalizing as soon as possible the Petróleo Brasileiro SA (Petrobras).
US Senate bill has money for N.D. refinery study
BISMARCK, N.D. - Sen. Byron Dorgan, D-N.D., said a new appropriations bill will include $500,000 to study the costs of increasing petroleum refining capacity in North Dakota.
The problem isn’t that Charles Schwab chief investment strategist Liz Ann Sonders has concluded that oil prices are in a “bubble” that is going to burst. The problem is in how she arrived at that conclusion. Her methodology raises serious questions about Wall Street’s ability to analyze oil at a time when every investment decision in the world is affected by the crisis in oil.
Australia: 'Coast could become economic backwater
TOWN planner Roger Brewster has slammed the Federal Government's climate change report for avoiding the oil crisis.The former president of the Royal Planning Institute said the report by Professor Ross Garnaut had ignored the long-term effect on food prices and overcrowded cities, which could have a flow-on effect on the Gold Coast economy.
Russia mulls cutting oil export duties - Sechin
MOSCOW (Reuters) - Russia's government is working on its pledge to cut oil export duties as part of a wider tax reform but is unlikely to make further cuts to the mineral extraction tax on oil, a top government official said on Wednesday.Deputy Prime Minister Igor Sechin told a briefing he was not concerned about stagnation of Russian oil production in the first six months of this year, as new fields were coming on stream to help the country sustain production levels.
Shell ends force majeure on Nigeria Bonga exports
LAGOS (Reuters) - Royal Dutch Shell lifted force majeure on oil exports from its Bonga offshore field in Nigeria on Wednesday, three weeks after an attack by militants forced it to shut the facility for several days."We lifted force majeure at Bonga at 12 noon local time (1100 GMT)," said Precious Okolobo, a spokesman for Shell in Nigeria. He declined to give any further details.
Scramble for oil profits puts Nigeria reform at risk
LAGOS (Reuters) - President Umaru Yar'Adua risks undermining Nigeria's hard-won reputation for fiscal discipline if he fails to keep the country's cash-hungry state governors from squandering its soaring oil revenues.
Pelosi Asks Bush to Draw From Petroleum Reserve to Combat Surge in Oil Prices
House Speaker Nancy Pelosi asked President Bush on Tuesday to draw down a portion of the country's Strategic Petroleum Reserve as a way to reduce crude prices and help motorists who are suffering from the rising cost of gasoline.The House Republican leadership responded to Pelosi's proposal by noting that she was supporting a supply increase — something the Republicans have rallied behind in the form of increased offshore drilling, which the Democrats oppose.
Sue OPEC? Congress Should Sue Itself
Over the last 30 years, elected U.S. officials blocked nuclear build-out and spent fuel storage construction; impeded the construction of oil refineries; refrained from passing meaningful alternative energy legislation; imposed an import tax on cheaper Brazilian ethanol; prevented offshore drilling in Alaska, California and Florida; delayed tighter auto fuel-efficiency standards for 30 years; blocked the construction of liquefied natural gas ports; killed wind farms in their own backyards (and back bays); and neglected opportunities for public-private sector partnerships on energy research and development.
S Korea to take further steps to tackle oil price surge
SEOUL, July 9 (Xinhua) -- South Korea will enforce extra energy-saving measures earlier than planned if international crude oil prices surpass 150 U.S. dollars per barrel, Yonhap news agency quoted the Ministry of Strategy and Finance as saying.According to the ministry, the second-phase contingency plan could include restriction of private-sector vehicles and outdoor lights usage in addition to possible oil tax cuts.
Nuclear 'scare' against Iran exposed
WASHINGTON - A 15-page paper on the process requirements for casting and machining of uranium metal into hemispherical forms - said to useful only for making the core of a nuclear weapon - has been raised by the United Nations' International Atomic Energy Agency (IAEA) in recent months as evidence of an alleged Iranian intention to build nuclear weapons.
Economic chill looms heavy over Ireland, Vancouver
"You guys should stop spending money on gadgets," said my father to my brother and me last week. My brother was examining my sleek, video and wireless-enabled MP3 player."You're going to need your money for gasoline and food."
My father, in his 80s, doesn't understand why my brother and I are interested in sleek, video and wireless-enabled MP3 players. But he also went through the Depression, the unimaginably bleak 1930s which as far as post-millennial public collective memory goes might as well have been the 1830s. Having grown up on a farm where the family at least had food but no cash, Dad is intimately acquainted with scarcity. His warning about an impending need for thrift, a notion also long disappeared from collective memory, is part of an increasing unease in the land about our economic future. Canadians are wondering if they should be scared.
Remember when oil ran up back in 1979 and 1980, when the entire Iranian oil industry collapsed in the wake of Ayatollah Khomeini’s Islamic Revolution? About five million barrels of oil per day simply left the world marketplace. It was gone — poof! Not there. No tankers.Even though five million barrels went away, people could still look to places like the North Sea, Alaska, Angola and elsewhere. And they could feel certain that sooner or later, there would be future oil supplies flowing down the pipelines.
But that’s not the case today. When people look ahead now, they don’t see from where the oil of the future will come. Most of the world’s current large oil fields are in decline.
Bin Laden, Oil Prices & Inflation
Sometimes your worst fears come back to bite you in the rear. Case in point: In the New York Times, on October 14, 2001 the managing director of an oil consulting firm warned: "If Bin Laden takes over and becomes king of Saudi Arabia, he'd turn off the tap ... he wants oil to be $144 a barrel."At the time, oil traded at $23, and $144 a barrel seemed downright impossible. Well, terror mastermind Osama Bin Laden, safe in his undisclosed rat hole, must be grinning like a Cheshire cat, because last week oil soared past $144 a barrel.
Peak Oil: Crisis alters lifestyles
Aaron Newton has a foot in two worlds.Four days a week, the 33-year-old husband and father of two works as a land planner in Concord.
In his free time, Newton prepares for a time when energy could become unreliable or too expensive for his family.
“I don’t know exactly what is going to happen because I don’t know what that future is going to look like,” Newton said. “It’s important to be flexible.”
If reporter Morgan Josey Glover's "Peak Prospects" series wasn't enough of a wake-up call concerning America's shaky future with oil, take a look at what happened when Hurricane Katrina affected energy supplies in North Carolina.Similar disruptions could occur during "peak oil," the time when global demand for petroleum products exceeds supply, creating higher prices, shortages and other instability. Many energy experts think we are already, or will soon be, at peak oil.
Volkow also said the report does not properly factor in the impact of peak oil on transit in the next 30 years.Peak oil describes the time when worldwide oil production reaches its maximum. Some experts believe this will be followed by a sharp decline in oil availability.
A Burnaby staff report says that, while Transport 2040 does mention peak oil, the discussion is incomplete.
"It gives the impression that we have many years in which to prepare," the Burnaby staff report said.
Can We Harness Hydrocarbon Energy without Burning Hydrocarbon Fuels?
Perhaps the first question to be asked is whether or not petroleum is running out. Most evidence suggests that the world’s major deposits of petroleum are in fact being diminished at an unsustainable rate, even as global demand increases at (economically and ecologically) alarming rates. The scientific world is not, however, completely unanimous as to the finite nature of petroleum deposits.
Report urges U.S. to embrace nuclear power growth, despite risks
WASHINGTON (UPI) -- A report from a State Department advisory panel says a coming large expansion in global nuclear power generation poses proliferation risks, but the United States must embrace it to ensure that nuclear supplier nations build safeguards into the growing market.
GM installs world's biggest rooftop solar panels
The largest rooftop solar power station in the world is being built in Spain. With a capacity of 12 megawatts of power, the station is made up of 85,000 lightweight panels covering an area of two million square feet.Manufactured in rolls, rather like carpet, the photovoltaic panels are to be installed on the roof of a General Motors car factory in Zaragoza, eastern Spain.
Environment: Queen and Charles join race to build government-sponsored ecotowns
The Queen and the Prince of Wales have joined the race to be part of the government's controversial ecotown scheme, with the crown estate acting as partner in a consortium that hopes to built a town of 5,000 houses near Nottingham.
Alberta to spend billions to cut emissions
CALGARY, Alberta (Reuters) - The oil-rich Canadian province of Alberta said on Tuesday it will put C$4 billion ($3.92 billion) into two funds that will be used to pay for carbon capture and storage programs and to boost use of public transit to cut the province's carbon-dioxide emissions.
Suit seeks ban on oil companies disturbing wildlife
ANCHORAGE, Alaska (Reuters) - Two environmental groups on Tuesday filed a lawsuit seeking to overturn new federal regulations that grants permission to oil companies working in the Chukchi Sea to disturb the polar bears and walrus that live there.
Russia limits oil, mining share sales to foreigners
MOSCOW (Reuters) - Russia laid down official limits on the sale to foreigners of shares in strategic and raw materials companies on Wednesday, giving new regulatory force to the government's grip on Russia's natural resources wealth.The new ruling by the state markets regulator codifies what the Kremlin has long made clear: the government is loath to see more of Russia's strategic and extractive industries fall into the hands of outsiders.
Iran test-fires long- and medium-range missiles
TEHRAN, Iran (AP) — Iran test-fired nine long- and medium-range missiles Wednesday during war games that officials say are in response to U.S. and Israeli threats, state television reported.Gen. Hossein Salami, the air force commander of Iran's elite Revolutionary Guards, was quoted as saying the exercise would "demonstrate our resolve and might against enemies who in recent weeks have threatened Iran with a harsh language."
Learsy: High Oil Prices: Is That The 800 Pound Russian Bear Dancing In The Trading Pits
OPEC, speculation in commodities market, hedge funds, the falling dollar, peak oil theorists, all play a part in the current run up in oil prices. Yet one of the major players has escaped both scrutiny and careful analysis.
The Market Is Responding to the Oil Shock
The leaders of the G-8 and of major developing countries will discuss how to respond to energy security and climate change tomorrow. Their first instinct will likely be to propose new regulations. Yet market forces may already be solving these problems, as high oil prices drive a shift away from the polluting, petroleum-fueled internal combustion engine to cleaner forms of transportation.
I can't work up much passion for blaming speculators and manipulators for the predicament we're in. My faith in human nature, especially when it comes to energy traders, is shallow. However, my faith in the power of financial gravity is bottomless. If speculators and manipulators have somehow managed to get prices too high, then those prices will come back to earth as surely as apples fall from trees and meteors land in Arizona. The price decline will inflict billions of dollars of losses on those speculators and manipulators—just desserts.On the other hand, if by some chance the speculators and manipulators are correct—that oil prices could go even higher, based on supply and demand—then they will have done all of us a favor by ringing the alarm bell. High prices today are inciting suppliers to produce more oil and consumers to use less, which will ease the transition to a future of costly energy.
Gas-saving products boosted by high fuel prices
NEW YORK - With fuel prices soaring, sales of products designed to boost gas mileage are also rising — even though the government says they're not worth the money.
School cafeterias struggling to keep food on the table
Rising costs for fuel, food and labor are forcing school cafeterias nationwide to raise prices, cut jobs and, in some cases, dip into "rainy day" funds to put food on trays, according to congressional testimony to be delivered today.
A Peak Oil Prophet Imagines Life in America After Wal-Mart (interview)
James Howard Kunstler's new novel describes a small town in upstate NY where a chain of global crises has forced the community to fend for itself.
Funding rises for clean-tech start-ups
Despite the slow economy, venture-capital funding of clean-tech start-ups in the USA and abroad is on pace for a record year, according to a report released Tuesday.In the second quarter, venture funding for nearly 100 biofuel, solar, wind and clean-water start-ups hit a quarterly record of nearly $2 billion — a 58% jump from the same time last year, says the Cleantech Group, a market research firm in San Francisco.
Bush: 'Significant progress' on climate change
TOYAKO, Japan - President Bush on Wednesday hailed the move by G-8 leaders to coalesce behind a broad climate-change strategy, saying in a valedictory to summitry that "significant progress" has been made on global warming.
Rich nations pledge action on food, oil, but deadlock on climate
TOYAKO, Japan (AFP) - Leaders of the world's eight richest top industrial powers vowed Wednesday to act to bring down soaring oil and food prices but failed to bridge deep differences with poor nations on how to fight climate change.
Forced Commodity Long-term Investment liquidations Coming?
http://www.marketoracle.co.uk/Article5046.html
That's just dumb. The Hunt Brothers held 55 million ounces of silver, 10% of the world supply. They weren't buying futures contracts and rolling them over.
Edit: link for those who care: Hunting for oil villains
Right. The only way they were able to manipulate the silver market was by insisting on physical delivery of silver.
The only way oil speculators would be able to manipulate the price of oil would be by insisting on physical delivery of oil, and they couldn't do that because there's no way to store it. It's not something you can store in your garage.
The CFTC has done studies on the positions held by large funds, and they found that as the number of longs held by the funds grew, the number of shorts held by other market participants grew.
This is just more ignorance from someone who doesn't understand the markets at all.
Hey Moe;
Off Topic, but if you're still dropping in at the RIO for the World Series events, come by the ESPN final table and say hello. I'm on the camera crew. Noon to 1am most days..
We just bid adieu to Ray Romano last night. Nice Guy, did a lot with a short stack.
Bob
The point (and benefit) of speculation is that it helps to moderate prices and prevent wild swings... By speculating, buyers can (try to) lock in a low price for a longer term, and sellers can (try to) lock in a high price for a longer term. These two forces help stabilize prices in the long term (although 'stabilize' is a relative term when oil prices are rising about 1% a week). Without speculation, both the buyer and seller are subject to the forces of the market at the time of the transaction... The buyer could pay much higher (or lower) on one day than the previous day, and the seller could do the same, which would result in wild price swings.
The uncertainty that wild price swings would bring could force the seller to produce less, and the buyer to consume less; in the case of oil, it would mean that oil producers would pump less and/or refiners would refine less, causing more serious issues for the end consumers (us).
By having speculation present (but no hoarding), all of the bumps are smoothed, the markets operate more efficiently than they would without speculation, and in the end the consumer benefits by having more stable (relatively) prices for gas, diesel, distillates, etc. It is to the end consumer's advantge to have speculation present in the market, and if/when (probably when) it's taken away, the results are going to have some nasty consequences for all involved... Like, I'd be willing to bet $20/day swings in oil prices could begin to happen...
Well, it's important to make a distinction between speculation and hedging. An actual consumer of oil might hedge by locking in a long term contract. This helps them in planning long term finances for the company (see SouthWestern Airlines for example). Both buyer and seller in this situation value the stability of a longer term price than the opportunities for short-term profits on day-to-day market swings.
I don't believe (though I could be wrong) that congress is aiming at hedgers, but only at the speculators who are not actual consumers/producers of crude oil or its derivatives.
Every contract requires 2 parties. When a hedger wants to hedge one way or the other, they need someone to take the other side of the contract. That's where speculators come in. Without speculators, it becomes harder to hedge, and harder to hedge at the economically efficient price. The volume traded on the exchanges goes down and volatility goes up.
JD has a post on FUTURES PRICES DETERMINE PHYSICAL OIL PRICES. ACK, WISH HE'D LOSE THE CAPITALS. He says futures actually do have a role to play:
That's from OPEC Pricing Power (PDF). This is what Paul Krugman et al don't know about, sez JD. What think you?
Some private sales are set based on futures prices. Some are not. That's old news, and it doesn't mean that futures prices determine oil prices. The Saudis, for example, change the formula all the time when they don't like it. There was just a headline this week that they were raising prices.
The thing JD misses is that, if fundamentals don't support the price the Saudis want to charge, NO ONE WILL BUY THE OIL. In fact, exactly this is happening to Saudi Arabia (light sour oil) and Iran (heavy sour oil). They are asking more than people are willing to pay, so people aren't buying.
Prices are set by supply and demand. I just don't get why that is so hard for people to understand. If there is excess supply, suppliers will undercut each other until the price falls far enough. If supply is unconstrained, prices will usually fall to close to the production price. Otherwise, suppliers will ALWAYS charge the maximum price the market will bear. That's what businesses do. And that's what is happening with oil now.
You propose that by taking away the flood of hot cash that speculators use to take positions in the market the volatility will INCREASE?
I would recommend that we all stop talking about whether the "philosophy" of speculation is good or bad and start looking the actual issue at hand - oil prices. Pragmatics and the ability to look at a situation with "soft eyes" should trump ideologies.
Historically the oil futures market was dominated by oil producers who sold forward to end users such as refineries and airlines who needed to lock in a price in order to do proper accounting. They were buying insurance policies, so to speak, that allowed them to determine what their costs would be several months in the future. I have no problem with this kind of market. It serves a useful purpose.
Now enter the "speculators." These are everyone from pension funds to purchasers of USO shares who wish to buy a claim on oil but will never take possession of the product. These "speculators" are in direct competition with the original hedgers - the airlines and refineries. If an airline needs to lock in a price for oil three months hence they have to make a bid even though the price is much higher than it would have been had the non-using speculators with their hot money were not in the market.
Because of the inelasticity of the market (changes in actual oil consumption due to price changes takes significant time to develop) the speculators can force the actual buyers to pay a premium due strictly to the fact that they have bid up the price on a product they have no intention to use. The "speculator" is free to enter and leave the market at will - there is no inertia because there is no product changing hands.
The real issue is HOW to remove the speculators. That's a very tough issue. If we pass a law saying that pension funds can't invest directly in oil futures and force them to divest their holdings it could have a temporary effect of driving prices down a bit. But the real "speculators" in the sense of controlling the market just may be the national oil companies. Consider how many US Dollars are being sent to OPEC and Russia right now. Wouldn't the sovereign investment funds of those countries have an interest in using the incoming dollars to take a position in oil futures if they believe oil is going up? In effect they would be exchanging dollars for a claim on oil. It's what I would do in their position.
If that's so then they can invisibly regulate the price of their product. When the price gets too high they can sell off their positions and force it lower. But, given their vast reserves of cash, they remain firmly in control.
I think governmental attempts to regulate speculation that eliminate ETF's and pension fund investment or require oversight of OTC exchanges will fail simply because the big players in the market are outside the US borders. All the US can do is make it impossible for the little guys to play.
False statement. They are not in direct competition and until you understand why, you are missing how the market works. Since this has been explained repeatedly here and you have apparently ignored it, I'm not going to explain it yet again.
Greyzone,
LJR is just echoing an argument made here:
http://www.nakedcapitalism.com/2008/07/hussman-likelihood-of-60-oil.html
I don't know anything about LJR, but there are some of us who are new to the game and would like to see a rebuttal. Most of the commenters on Naked Capitalism agree with Hussman's analysis and think it shows some wonderful new insight. I suspect Hussman's argument is flawed, but don't know enough myself to make an intelligent rebuttal. Naked Capitalism has become such a hot bed of bubble and conspiracy theorists that one can no longer have an intelligent, dispasionate discussion there concerning oil prices.
I read all of Hussman's piece, and I see some serious deficiencies in his overall framework of inflation vs. deflation into which he fits oil prices. He seems to think there is little probability that those countries who already hold huge reserves of U.S. dollars and continue to accumulate them will either stop accumulating them and/or want to divest their accumultions. Hussman's real blind spot seems to reside in his failutre to notice that the US is no longer captain of its own ship. It's like the guy who wants to buy a new car. If he has the cash in the bank, he can just go down and write a check. However, if he doesn't, he is dependent on someone else to loan him the money. There's a big difference, which seems to be lost on him.
Down South...Thanks for your post. I read Hussman's article at Naked Capitalisim and purpously avoided posting a link to it here because TOD has become, to a large degree, a hot bed of anti-bubble posters.
No one can mention the fact that tons of money has fled into commodities markets because there is no other area of the economy where a return over inflation is available. Granted their are a few stocks that are doing ok but who is good enough to pick them consistently?
No one can mention that some of the excess liquidity created by the Fed and intended to help out Wall St and eventually Main St instead found it's way into the commodities markets.
The slightest hint from a poster here that oil prices might be somewhat effected by refinery constraints or huge liquidity flowing into the commodities brings cries of derision.
There is no intelligent debate, only rage by those bent on retaining their imbedded notions. If it looks like a duck, walks like a duck, and quacks like a duck, it is probably a duck. The same is true of bubbles. I have seen a lot of bubbles come and go and this steep commodity run up, in all commodities, in such a short time span certainly has aspects I have witnessed in past bubbles. Even Greenspan famously said that bubbles are difficult to identify except in hindsight.
Then there are the posters on TOD that are talking their book. They have no place in the debate and should butt out. Otherwise, they are simply charlatans.
One last thought...
'In the choice between changing ones mind and proving there's no need to do so, most people get busy on the proof.'
John Kenneth Galbraith
or YOU could be wrong and it's not speculators (since we have seen demonstrated again and again that lately there have been net SHORTS, not longs) - explain to me again how more $ betting that oil is going to fall, than rise, results in the price going up?
you can mention "all the $ pouring into commodities" as much as you like - and when you demonstrate in any coherent fashion how that effects the market I will sit up and take notice - until then I will listen to people like Moe who actually put their $ at risk every day and actually prove their points with references and links - rather than yet more shrill cries of "I'm being shut out! We aren't allowed to express ourselves at TOD!!!" - hmmm, maybe if you actually tried to prove your point with #'s and charts and links, your conspiracy of speculation would be taken more seriously
it's all a conspiracy! and the TOD posters who patiently explain to you over and over again that speculation can't really drive the price up much at all are all a part of it!!!
or am I just trying to kill debate?
But you can do it without hindsight, right?
I agree wholeheartedly. It is why I'm so harsh on the bubble types -- not a shred of proof, just a lot of untrue and misleading statements based on a lack of understanding of markets. But then you don't need proof if you can identify bubbles without hindsight, I suppose.
Hey River,
Yes, I've seen how they beat up on you here on TOD sometimes. It's unfortunate that it's broken down into these two Manichaean camps. But I suppose that's just human nature. As Jacques Barzun writes:
Gauging by her comments that accompany her posts, I don't think Yves is quite so extreme, and most of the topics that she posts on don't evoke such passion. But when she posts on oil prices the discussion becomes entirely too one-sided. Everybody wants to be part of the chorus. I personally don't believe that, anything short of a prolonged world-wide recession, we will ever see prices drop below $100 per barrel again. And we might not even see them then, as things are not exactly the same as they were back in the 80's when prices came crashing down. But no, some insist that we can have continued economic growth and abundant, cheap oil for at least another 50 years. Life is all cherries and cream!
As to speculation, I saw an article on Fortune yesterday that said the reason the controversy cannot be resolved is that there just isn't enough information. I suspect that comes closer to the truth than either one of the warring camps would like to admit. The recomendation was to put some surveilance in place to better observe what is going on. Wouldn't that tell us once and for all what's going on? Would that be so unlike the frequent calls from Peak Oil advocates to send auditors in to do reserve assesments in Saudi Arabia?
And as to oil prices, I beleive there are entirely too many wild cards. Will China and/or the OPEC countries de-peg from the dollar? Will Bush and/or Olmert bomb Iran? Would OPEC curtail production in order to defend some price floor? Will the Fed raise interest rates sufficiently to provide a real positive rate of return? These and many others are all policy decisions that entail human actors. A broad range of human emotions will therefore come into play, making the outcome all that much more unpredictable.
"I personally don't believe that, anything short of a prolonged world-wide recession, we will ever see prices drop below $100 per barrel again." And such a recession would surprise you? I hope you are right but I'm not betting on it.
No, Doom and Gloom Dad, it wouldn't surprise me at all. But the flip side of that is, instead of deflation, we could just as easily have run-a-way inflation. And I can't think of any better hedge against inflation than oil in the ground. So if it's deflation, cash is the better investment. But if it's inflation, oil reserves are the better investment.
It all goes back to what Niccolo Machiavelli said in The Prince:
I don't think I will ever be certain one way or another what the impact of speculation is. I do the best I can in reading the various analyses and then trying to reach some sort of tentative conclusion based on that. Sometimes, what seems like common sense or what looks like a duck just isn't.
Everyone is free here to give their best shot supporting their position. I don't think you have done that and have decided just to attack TOD and people that hold a position different than years. Give the argument your best shot. Then let the chips fall where they may. Don't complain just because people don't agree with what you think is obvious. That won't cut it here. People here are just too damn smart for that.
If there is derision, deal with it and then make your best argument. This is a tough crowd.
TstreeT, Down South, I was out checking on a rental. All ok, I replaced a hw heater. I have a couple of rentals that I should have sold some time ago but did not. Luckily they are on beach side and renting them is easy and they are not costing me much. :)
I do not mind derision, I do not mind tough crowds, I do mind personal insults but I can and do dish them out as well when I receive them. I believe that the line should be drawn at personal insults and snide but meaningless remarks. That is up to the board monitors to control or not.
I cannot prove that we are in a commodities bubble and with some demand destruction going on in the US and probably elsewhere one more factor has been added to an already very difficult analysis. We have an administration that is full of former oil people. Cheney conducted a lot of secret energy meeting before becoming VP and after. This admin has stood by and in some cases aided in the rape of the US economy and the debasement of the dollar. I do not believe for a second that they would not manipulate commodities if there was a dollar to be made doing it. I do not believe that there is any market anywhere that is immune to manipulation...shrewd people will find a way.
I believe that we are in an oil bubble based on the speed of the run up and the amount of hot money that has rushed into the oil sector compared to the amount of demand increase (which is really anybodys guess based on a bunch of guys gauging the tanker levels sitting in bays around the world and other inacurate and partial data from various questionable sources). In the past I have seen these two simaltaneous actions create bubbles. Hence, I am saying that I have a hunch we are in a bubble in oil. Nothing scientific about a hunch, just a feeling based on what I have seen happen in the past. Take it or not, I don't care...But I would be extremely careful about taking long positions in oil now, regardless of the claims of some on TOD that crude oil prices are going to the moon. Some are talking their book. BTW, I have never held any position in any commodity. Read 'Way of The Turtle' and then read 'The Black Swan' and then tell me about experts in the commodities, stock, bond, insurance or any other market. I am a gold bug and have delt in physical gold for a very long time.
As far as future prices of oil...who can say. PO is a fact but the timing is unknown and I contend that it is unknowable except in hindsight. That does not mean that preparations should not be underway. I think high oil prices have the benefit of encouraging some to prepare. Down South is right about all of the variables that he pointed out. Anything might happen and it will depend on the actions of those that we have no influence over. Just sayin...
Peace, brothers...Remember, I am pulling for ya', we are all in this together. Red Green.
My operating assumption is that oil is a commodity, and like all commodities its price goes up and down. I am also assuming that the long term trend will be up, meaning that there will be more ups than downs, and the ups will be up more than the downs will be down.
You assume that all the speculators are buying oil. If that was so, then that probably would drive up prices. But most, if not half, of the speculators are selling oil, so the whole theory fails.
The idea of distinguishing between hedgers and speculators is absurd and completely unworkable. Every individual and every company, even pension funds, directly buys oil derived products, therefore everyone could legitimately claim to be hedging.
If you want, go ahead and close the oil exchanges for 2 months, and see if it makes any difference. I predict that won't happen, because it will remove a convenient excuse for inaction, and people might then have to deal with the real issues.
LJR - all garbage. If you and I bet on the price of oil, say you bet up and I bet down, we are not driving the price of oil either up or down are we? Did all of those people who bet on the New England Patriots drive the team to victory? How about the triple crown Big Brown bettors - did they drive Big Brown to victory? Bettors, gamblers, speculators, whatever you want to call them do not determine the outcome - that is why it is a bet, that is why they play the game. These people are just bystanders trying to make a buck.
Exactly. We have at least one historical case, as described at this Wall Street Journal article: The Onion Ringer.
Also take iron. There is no futures market for iron. Iron has gone up as much as oil has (BTW, that's a real problem for the "blame the speculators" types, but you won't hear them talk about iron). The global iron market is in the process of creating a futures market for iron to restrain prices and reduce volatility.
I will try to explain this once again. Supply and demand drive prices. The product that is traded on oil futures markets is oil futures contracts, i.e. pieces of paper. If the supply of paper was limited, and lots of money flowed into the market, then the price of the paper would go up.
This is what happens with stocks. The number of shares outstanding is limited. If you want to buy a share of stock, you need to outbid the other people who want to buy a share. This drives up the price.
This is not what happens on oil futures markets. The supply of contracts is not limited. Anyone can create a new one at any time. The people who talk about the "hot cash" flowing into oil futures invariably point to the huge increase in "open interest" as evidence of this. However, an increase in open interest represents an increase in the supply of futures contracts, not an increase in demand. One can reasonably infer an increase in demand from the increase in contracts, but one cannot reasonably infer any change in the balance between supply and demand. Remember: contracts are the product traded on futures markets. Therefore an increase in open interest represents an increase in the supply of what is traded.
Furthermore, every futures contract has one person betting prices are going up and one person betting prices are going down. That, coupled with the dynamic supply, means that money flows are neutral. Prices respond to other things, but they do not go up just because money is flowing in. What makes the idea even more absurd is that speculators are now net short. How can people shorting something drive the price up?
In short, the "hot cash" flowing into futures markets isn't "hot cash". It is liquidity (in the proper sense of the word). It makes it easier to buy a contract and easier to convert a contract into cash. It greases the wheels of the market and makes it more efficient. But guess what? The price of oil is going up. Liquidity isn't going to keep it down. Shooting all the speculators isn't going to keep it down.
I can understand how a peak oil denialist would look to blame the high prices on anything but supply problems. What I don't understand is why people who are peak oil aware can't accept the basic principles of Econ 101. Production has been flat for 2+ years. Net exports are down. Net energy is down even more. Demand over that time has increased. Reserve oil capacity is almost non-existent, and what there is, is mostly heavy and/or sour. What more evidence do people need that the driver behind oil prices is (at least in large part) a supply-demand imbalance? This is almost exactly like global warming denialism: the evidence is right out front, but people are still digging around in every bush looking for an exaplanation other than what is right in front of their face.
Would you mind emailing the above explanation to our elected officials? My senators don't seem