The Observation Deck

Bush explaining that NOW we are dependent on overseas oil, where in the past we got most of our oil from there in the USA.

Not since the 40s.

FWIW


.

As I took the train to work today, I looked at the street beside and saw dozens and dozens of cars, many SUV's, each with a single occupant.

So clearly the solution is to drill for more oil in nature reserves.

Yes because lifting the ban on drilling off the coast and in ANWR will deal with the 4 buck a gallon prices now. That is the problem, people are too gullible. They will fall for any pie in the sky idea that slick (debatable) politicians will spew out. Even if we were to lift the ban in Jan. it would take 4-5 years before we even saw oil coming out of those places. By that time oil will be 200-300 dollars a barrel (yes I just made that number up) and like Brad said in another post we will all fall at the feet of big oil and praise them for killing all those baby seals errr..... I mean 198 dollar barrels of oil. Oh and we will also have wasted all time we could have been comeing up with real solutions. What a joke.

the prospects of extracting oil off the east or west coast are interesting. Technically it is national property. So there would be no justification for whichever entities build the extracting machinery to make great profits. It would almost have to be run as a utility(before utilities were "de-regulated").

Things people never think about.

We know there is oil in ANWAR, and we know how much in theory is there. At BP it was explained as enough oil to power the USA for three months. Which is a lot of oil but not enough in global terms.

Just cause we know it is there, and know the size in theory does not mean we can get it out easily. Wells still come up dry when drilling, it cost millions to drill, and millions more to get it out. They will drill one well at a time, until it is found then add. So it could take years and years to find it then pump it.

Yesterday there was testimony on the hill that what is driving the price of oil up is specualtion. This was allowed during the secret energy conferences that Cheney had with the heads of Enron. That if the market stopped this
practice the price of oil would fall 25% over night. McCain's advisor Bob Gramm is one of the people that made this possible and still backs the work of those that were at the meeting and the "Enron Team" in their new efforts.

Last night they were playing tapes of conversations on Countdown, with oil execs laughing over how they control the cost of oil, and can make it rise and fall at will. Oil companies will again see record profits, while we "the sheep" blame everyone but them.

That they are pushing the cost up to deregulate drilling, and processing for their own gains and profits.

This is what happens when a country falls asleep, and let's their government run crazy without checks and balances.


FWIW



.

Yesterday there was testimony on the hill that what is driving the price of oil up is specualtion.

First it was the tech stock bubble....then the sub prime mortgage fiasco...I have no doubt that the commidity exchange for oil represents the same game as flipping a house.

But, of course, we are dependant on oil. Even with the promise of causing a collaspe of the global economy, the speculation will continue to artificially inflate the cost of oil, some corporations will get very rich, until the entire house of cards collaspses.

Jeff

Jim O'Bryan wrote:This is what happens when a country falls asleep, and let's their government run crazy without checks and balances.


FWIW



.

Bingo

Jeff and Jim, tell me, just who are these “speculatorsâ€

skyrocketing oil and gas prices trigger an antipathy in the American public. This is generally focused on middle eastern oil exporting countries and maybe Russia. It is not generally focused on American commodities traders/investors, or our own consumer infrastructure. Politicians exploit this by simply talking tough about Iran/Iraq/Russia. Then they say something about Ronald Reagan, and lower capital gains and higher tiered income taxes on profits from speculating.

A book called "liar's poker" by Michael Lewis explains how mortgage backed securities came into being. It also goes into leveraged buyouts and how they fueled mergers and acquisitions and liquidations which lead to a bull equities market.

The mortgage backed securities bubble is over. We need a new bubble to keep rich people out of trouble. That is why I created an idea for a new bubble.

The Pay-Day-Loan-Backed-Securities bubble and Credit-card-balance-securities bubble have the potential for rich people to get more rich all over town.

While we are on the subject of bush lying and bubbles. I sure hope the Not-Talking-To-Your-Enemies-And-Expecting-Peace-To-Materialize-Because-You-Say-So bubble will burst this January. Who knows maybe we could get some oil out of it.

Now Lieberman wants to join the crowd who would interfere with free markets. He must be running for Vice President....

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atNNHM4PxKh4

Listen up folks, either we have free markets or we have no markets. Take your pick and let me know please. Either way, I'll adapt....

Sellers won't sell for under what they perceive to be fair value. The surest way to ensure oil supply shortages is to chase buyers away. All Lieberman will accomplish is to ensure future shortages.

Hey I have an idea. Let's print up some “Whip Speculators Now!â€

Tim

I'm probably wrong, but I think part of the problem here is that, in the case of oil, much of the free market analysis that is appropriate with other commodities is absent. Again, correct me if I'm wrong, but doesn't BP have an equity ownership interest in the North Slope oil? Aren't they, in essence, selling it to themselves when their exploration division sells it to the refening division?

Again, I'm probably wrong, but I think that makes this "free market" significantly different from the farmer selling his wheat to Pillsbury. The companies buy wheat to make flour tey to buy it as cheaply as possible....their cost impacts their profits. Again, I'm probably wrong, but when Bp pays itself for what it alreay owns, that purchaser has a disincentive to keep the price low, especially since the cost will easily be passed on the ultimate user and all the profit realized by the company the pumps and refines the oil. I think it represents a verticle monoply. And while certainly individuals can also participate in commodities purchsing, they aren't the ones who are dictating the market. The market is dictated by those who are refining the crude...they are the ones buying it, and they are also the ones selling it.

Jeff

Jeff I really don't know who owns what. But what I do know is that the process we have today, regulated marketplaces like the NYMEX, do manage to put willing, unfettered buyers and sellers together to effect a transaction, and thereby set a price. And I'm sure that the vast majority of these buyers and sellers have no conflict of interest, they just wanna make money one way or the other. Folks like the aforementioned Jimmy Rogers. I'm sure that parties like the ones you mention do trade on the commodity exchanges, but I would presume they do so for the purpose of locking in profits on oil that may still be in the ground, much like farmers do with their crops. Do they impact the price. Perhaps. Who can blame oil companies for selling their 2010 production to the Chinese for $140 a barrel. But that in fact REDUCES prices if in fact they are selling oil now in the ground. They are establishing a ceiling, not a floor.

And remember, when conflicted parties are buying and selling, their counterparties are selling and buying. I just don't believe that the oil companies themselves have the ability to manipulate prices within an open market like the NYMEX. There is just too much money in the hands of disinterested, potential counterparties, the rest of the world. Besides, I don't think that conflicted trading is what people are referring to when they talk about "speculators", I think they are talking about people like Jimmy Rogers, who they resent because he has made a(nother) fortune trading oil futures. And countries like China and India buying up future production, who have way more money than big oil ever will. They keep the process honest.

Now, there may in fact be "excessive speculation" in oiil but that would be caused by factors that apply equally to all commodities. Such factors are "easy money" (artificially low interest rates), which as we know caused excessive speculation in housing. Another such faactor, a big one I think that is not widely understood, would be fractional reserve lending, the ability of banks to lend far more money than they have on deposit. Again, this is easy money. You can create easy money but you cannot mandate how it is spent. The falling dollar has also cause the prices of all commodities to rise.

I think the real difference here, between oil and other commodities, is that oil may be the only commodity that we rely on so heavily and for which there is no substitute. You can't put orange juice, wheat, or even coal and natural gas into our cars. Only oil. And we're addicted to motoring. So we beat up on "speculators."

Jeff you are younger than me but I bet you remember when the Hunt brothers were speculating on silver. They drove the price up relentlessly. But we weren't trashing them, in fact we were gleefully selling them our silver coins, junk flatware and such. At least I was (I was just out of college). Heck that's when the lovely Dawn finally fell head-over-heels, when I took a jar full of silver coins she had saved and brought her back a check for a couple thousane bucks.

He're how to stop speculation in oil futures. Reduce the demand for oil. To do that we need to (1) impose a substantial gas tax and (2) make massive investments in public transit, including passenger rail. At one point I had thought we should also (3) forbid continued building of exurban infrastructure but I think (1) will take care of that. (3) may be sign the Kyoto Treaty. Long-side futures investor will lose their shirts if we do this.

I am not necessarily opposed to comodity trading (futures). And trading anything certainly is speculation...hell the stock market is just a respectible form of gambling.....

But the oil issue is not the same as Hunt with silver (or Eddie Murphy in Trading Places, cornering the OJ market).

Remember, the profit margin on the sale of a gallon of gas has remained pretty static. The daily price fluctuations are as a result of increase in the cost of crude. And yet, big oil has shown record profits. Why? Well, certainly not because their margin of profit on a gallon of gas sold to the ultimate consumer has increased. No, their huge profits are made on the increase in the cost of oil. In any other business model, if the raw material you needed to make the final product increased by 400% you'd be soiling your pants, and trying to figure out how to stay in business (ask an Airline). But since BP is selling the raw material they already own to itself, why not increase the cost by 400%? As long as you can pass that on to the consumer...


I'm not talking about an individual going along for a speculative futures ride.....even individuals with significant amount invovled....I'm talking about the handful of oil companies that control the material at the wellhead. It is in their own self interest to push that bubble as far as it will go, and most analysts agree that the current cost of oil has no rational relation to increased market demand. But, churning the futures Conocco selling to Exxon to BP to Shell to Phillips has been able to artificially inflate the costs....and to whatever degree they can continue that inflation, their profits, stock options and bonuses will likwise be equally inflated.

Your solution is correct....we just haven't reached the point where the pain is suficient to effectuate the change. But the oil companies will continue to push the price higher, probing for the point of market collaspe. Then they will back it off, once they know how much pain we will tolerate.

Jeff