May 22, 2008
Elaine Meinel Supkis
Frantic finger pointing continues with Congress and the President, two major causes for high global energy prices, and our bankers, the other half of the feeding frenzy, pretending to be clueless. Even the most ill-informed American dimly realizes the weak dollar regime is causing oil prices to go up. But the idea that the US is the primary mover on every level is not talked about. Articles talking about oil consumption love to mention China. But not the US who is the #1 oil consumer on earth by a tremendous amount. This business is all connected and the black hole here is the US and our imperial policies. The 'fixes' for various financial problems all end up costing us more for energy.
Oil Rises Above $135 on Concern OPEC Is Powerless to Halt Rally
Crude oil rose to a record above $135 a barrel as OPEC ministers said they could do nothing to stop a rally that may be heading to $200 a barrel.Oil has risen 19 percent this month as analysts increased their price forecasts because of supply constraints and demand growth. OPEC has ``no magic solution'' to the surge, Qatar's oil minister said. Prices are ``out of the hands'' of the organization, according to Libya's top oil official.
``Everyone's jumped on the bandwagon,'' said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp., Japan's biggest trading company, in Tokyo. ``There's agreement that $200 is possible and that's getting more people into the market. We have very little supply cushion going forward and that's playing into the minds of investors.''
Congress has the cheek to sit there and grill their donors. This is a charade brought to TV by Congress and the oil executives who funded Bush's take over as well as owning all good politicians seeking campaign contributions. The corrupt Congress people talk tough on TV, the oily executives all pretend to cringe and whimper. OPEC is going around the planet telling everyone, 'We have nothing to do with this.' Which happens to be the truth.
And so what? Let's look again at this interesting graph:
Yesterday Pelosi, the Democrat multimillionaire who runs the House, was in Israel saluting the Star of David and demanding, yes, demanding the US embargo all of Iran and prevent any Iranian oil from being shipped out! Hell's bells! Anyone wants to know why oil futures are going through the roof? But not one American newspaper is carrying this obvious story or making this obvious connection. Pelosi and her gang of Zionists all imagine their wonderful cloaking device will hide their hands that are working tirelessly to insure that the world's #3 oil reserve nation can't sell oil.
The oil executives know this. The other members of OPEC laugh behind their hands because they know this. And Congress definitely knows this connection between their own actions and the price of oil futures! The one thing all these parties have to do is fool the American people. The American people have this huge temptation: we think we can nuke our way to easy oil. The Saudis worry about the possibility the US will attack them. This is why they are triangulating with China and Russia more and more intensely. This is why any moves by the US in the Gulf can trigger WWIII. Remember: WWI, when it broke out, revealed a huge substrata of secret understandings and treaties! Often in conflict with stated public policies. The media had to egg on everyone to take definite sides and this quickly escalated the rhetoric of the leaders and thus, the war preparations.
The world is on much more a hair-trigger situation. Instead of moving troops around via trains, we silently move nuclear subs into position. We can annihilate Iran or any nation in a flash. But this is equally true for the other nuclear superpowers! Do we want to find out their counter-strategy the hard way? Do we want to destroy 50 to 100 million Americans just so we can nuke Iran? This is not a sane trade off.
'Squawk Box' Guest Warns of $12-15-a-Gallon Gas
It may be the mother of all doom and gloom gas price predictions: $12 for a gallon of gas is “inevitable.”
Robert Hirsch, Management Information Services Senior Energy Advisor, gave a dire warning about the potential future of gas prices on CNBC’s May 20 “Squawk Box”. He told host Becky Quick there was no single thing that would solve the problem, due to the enormity of the problem.
“[T]he prices that we’re paying at the pump today are, I think, going to be ‘the good old days,’ because others who watch this very closely forecast that we’re going to be hitting $12 and $15 per gallon,” Hirsch said. “And then, after that, when oil – world oil production goes into decline, we’re going to talk about rationing. In other words, not only are we going to be paying high prices and have considerable economic problems, but in addition to that, we’re not going to be able to get the fuel when we want it.”
What we are seeing is price rationing. People with little cash will begin to die. During the other oil shocks, people froze to death. The elderly were pitched into the streets. I saw this during the seventies. It broke my heart. It was hard, going around, dealing with this horror. I used to carry extra money when shopping so when an elderly person was seen shoplifting, I would take them by the hand and say, 'I'll pay for this. Don't worry. Here is my card. We can help you.' It was so tragic. The elderly in Japan are now shoplifting food, for example. The stresses on the systems in the G7 will rise as oil shoots up in price. Japan has clung to a cheap yen despite this 175% hike in oil costs. The US vacillates between a strong and a weak dollar, pursuing a fractured foreign trade policy that cannot reconcile with itself its own contradictions.
For a weak dollar=>high energy costs=>higher trade deficits=>more inflation. But it also increases exports of manufactured goods! Which the US wants. The idea that we can have rationing at home, tariffs on imported energy and imported manufactured goods and then sell to the world. This is not even considered! The rest of the world might put up trade barriers. But so what? They ALL depend on the US markets! We don't depend on any of their markets. Since we have a deficit with nearly every nation on earth.
One thing economists, Congress and the media refuse to talk about is this harsh fact of life: when we have rising energy costs, we ALWAYS go into inflation of necessities and deflation of consumer buying of other goods. After a short spurt due to everyone frantically buying more efficient energy systems and transportation, things come to a grinding halt. So this time is no different! Bernanke thinks all we need is more loans and voila! Things will boom again.
But they cannot! They NEVER did this in the past! They won't do this in the future. History is adamant about this. Just like all post-war periods mean deflation or frantic government induced inflation, often both at once. For winners and losers both!
Blame Wall Street for $135 Oil on Wrong-Way Betting
Oil's rally to a record above $135 a barrel came as traders bought crude to cover wrong-way bets that prices would decline, according to data from the New York Mercantile Exchange.The number of outstanding futures contracts, known as open interest, fell 8.1 percent in a week to 1.36 million at the same time that prices rose 2.6 percent, the data show. Falling open interest and rising prices are signs that traders are buying to exit so-called short positions that would profit if oil fell, and lose money as they rose.
``In a market like today, which is trending higher while open interest is falling, it's a sign that money is moving out of the market,'' said Stephen Schork, president of Schork Group Inc. in Villanova, Pennsylvania. Open interest in Nymex crude futures peaked this year at 1.5 million on March 13.
Did traders think oil would drop back then? Curiously enough, they thought thanks to the late-February boggle in global stock markets, they accurately assumed the bubbles were going to pop and oil would drop in price as world consumption fell. But this is all about timing: great fortunes can be made if one can see into the future accurately. This is why rulers since the dawn of time have sought out wizards and seers to tell them what is going to happen next. I would be a great person if this were true, actually. But it is not true nor ever was. For the last thing rulers want is the truth. Ask Cassandra. Or any seers. 'Beware the Ides of March, Caesar!' always falls on deaf ears. Traders want desperately to see the future but cannot bear being left out of any stampede. I warned investors back in March that, yes, the banking collapse would happen. But no, one can't be a bear so easily because the central bankers of the G7 nations will first move heaven and earth to cover up this collapse. So there would be a time lag in all this. The banking collapse coincided with the collapse of the Japanese carry trade business. But in late February, 2007, the Japanese carry trade hit a glitch due to the relative value of the yen versus the falling dollar. This was the warning shot in the coming economic chaos.
From my own news service back on 3/11/2008:
As the price of raw materials, food, oil and gold rise relentlessly in tandem, it is time yet again to revisit the history of such events. We start, as usual, with today and move backwards in time to see how nothing happening today is new at all but actually part of a very ancient pattern going back to the beginning of civilization. Knowing this, we can look forwards. In this case, it is increasingly obvious that commodity markets will hit their peak the same hour that the rulers of the top empires cease playing with their currencies and restore currency values via either instituting the gold standard again or raising interest rates to the roof. Also, we note a common balance point here: the longer the rulers wait to raise rates or restore the gold standard, the more painful it is. If rates are dropped to 1% below the rate or commodity inflation during commodity inflationary periods, then they have to raise it an extra 3% or more above the rate to fix this. If they delay for years, doing this, it takes a greater rate hike. Up to 20% or they could even wait until the total destruction of the currency reaches infinity while rates are low like in Germany in 1924. In other words, we must look into the befuddled brains of our rulers to guess which choice they will make [in our own case in America, it will be the worst choices].
This might be true today but OPEC knows perfectly well what is really driving this: the US threats on Iran. for History is very clear about this matter: wars in, around or by oil pumping nations=>rise in risk in oil markets=>higher premiums on future oil deliveries=>restrictions in future contracts=>inflation as the oil consumers in the West try to cheat the oil producers by buying oil with Funny Money™ cranked out by the central bankers.
Then the Day of Doom arrives: loans have to be made easier and easier in order to be passed on. 0% loans on hyper-expensive cars are offered. Real estate dealers offer 'teaser rates' and 'free gifts.' The more we see 'free gifts' the more likely we are about to see the inevitable reversal of easy money. Now, relentless inflation appears. No longer to the 'fun' things go up in value, they begin to collapse in value. The 'hard' things such as food, fuel and taxes, all begin to climb. If a country refuses to pay taxes in the teeth of this inflation, they go bankrupt within a few years. If a country allows food and fuel to continue their relentless inflationary climb, we see riots, insurrections and revolutions. Eventually, inflation will outstrip incomes and starvation sets in. This is a big motivator towards revolution.So we just passed through about 7 years of the Fatted Cow's reign and are now entering the Thin Cow's realm. This is why gold hasn't shot up. People NEED fuel. So oil continues it climb. But gold is optional. The more food and fuel eat into discretionary income, the less money there will be for all other things. This is the relentless logic of all inflationary systems. The dead last thing to stop inflating is always food. This is when either brutal starvation enters and culls 1/3 of the population or there is a violent revolution. Any government that refuses to track the pain of food and fuel escalation while pretending there is no inflation, FALLS. To revolutionaries or a coup. The US is insisting on following a bizarre and I would suggest, CRIMINAL concept that food and fuel do not signal inflation. So they refuse to take this into account.
If traders are bidding up the price of oil to cover their earlier trades, they are doing this because someone gave them money to do this. And who, pray tell, was this personage? Why, the Federal Reserve itself! The frantic commodity traders who tried to short the markets would go bankrupt as they richly deserve but they have a sugar daddy who is bailing them all out. The banks are sitting on lots and lots of IOUs from the central bankers who are funding the government which is hitting record budget deficits this year. The bankers need to move these Treasuries into 'money making' regimes. They are so frantic to do this, they are dropping the down payment on house buys to just 3%. So of course, they are lending huge sums to trading houses which are then using this to play the oil commodities futures. They can cover losses by bidding up the oil forever if the money flows to them forever without a hitch. But this is again, the dread Ouroboros snake eating its own tail.
There is a huge pit that opens up: oil profits soar for any oil pumping nation selling its oil on the futures markets. This flood of money is flowing more and more towards the energy producing nations who, in turn, are seeing rapid inflation. The dynamics of this system are growing greater as more and more money flows into it. The frantic attempts at keeping this business rolling is causing a complete collapse of the world's #1 consuming economy, the US. For we can sense the cold bitter winds blowing across the nation. Naked fear is replacing simple irritation. What are we going to do when the frantic speculators bid up the price of future oil to above $200 a barrel? It is rapidly heading there and I see no way it will stop at this point. Will the G7 band together to attack OPEC? Russia? And what about the G8 member, China? China has more and more ties to Russia. And is increasingly angry with the US.
Crude for delivery in December 2016 ended yesterday at $142.09 a barrel, signaling investors anticipate prices will gain for years. Some traders speculate oil will reach $200 this year. The price of a December 2008 option contract that allows the holder to buy 1,000 barrels of crude at $200 each jumped 67 percent in three days to $1.72 a barrel yesterday on the Nymex.U.S. oil executives told Congress yesterday that prices should be between $35 and $90 a barrel. John Hofmeister, president of Shell Oil Co., the Houston-based subsidiary of Royal Dutch Shell Plc, pegged the proper range ``somewhere between $35 and $65 a barrel.''
If the dollar was strong, the price of oil would be lower. But the dollar can't be strong because the US economy is weak. Nations that import most of their energy and goods get weaker and weaker as profits drain out and as the money sent abroad comes back in the form of buying up all that nation's resources, infrastructure and banking systems. Which is exactly what is happening to the US. The dollar fiat regime that enriched us for the first 30 years has morphed into pure poison which has destroyed us the following 30 years just as the fiat pound did to England. England, like the US, fought all its wars starting in 1860's Crimean war, using this fiat money. This, in turn, allowed England to spend all the time beyond her means on war making. After the spectacular failure of WWI, England rushed into more fiat spending because the pound was now artificially floating thanks to the US propping it up. The exact same way China is propping up the dollar today.
Oil will be $90 a barrel only if we pay for it in yuan. This reality has yet to dawn on anyone. Or perhaps it will be $65 a barrel. But only if we buy it with euros. The US has, in its entire foreign currency reserves, only $30 billion in yen and $35 in euros. This is pure madness. Japan and China both have more than a trillion dollars in FOREX holdings. They will probably use these reserves in the end to buy up the remaining US facilities across the planet. While the US has to strengthen the yen and yuan the proper way: by buying and holding their currencies. Which we then use to buy energy. This changes the nature of our entire society. The free ride of the fiat currency of the world will end. We may as well face this inevitability and take strong measures to protect our society from the obvious drop in energy consumption we will all experience.
Skyrocketing Oil Prices Stump Experts
Executives from the giant oil companies say it's partly the fault of "speculators" or financial players. Key financial players say it's really a question of limited supply and expanding global demand. Some members of Congress accuse the Organization of the Petroleum Exporting Countries for bottling up some of its production capacity. And OPEC blames speculators, wasteful U.S. consumers and feckless U.S. policy.Almost everyone points at China's growing appetite for fuel.
*snip*
"People don't get it," said Sen. Herb Kohl (D-Wis.) at a Judiciary Committee hearing yesterday at which senior oil company executives were grilled about prices. Kohl said: "Demand is not crazy. Why are prices going crazy?"While the share of blame for soaring oil prices may be blurry, the impact of those rising prices is painfully clear. They are damaging the profits of oil-intensive industries, tearing holes in the pockets of American consumers, offsetting the stimulant effect of tax breaks, sapping more than $1.5 billion a day out of the U.S. economy for oil imports and diverting ever-bigger gushers of dollars to oil-producing countries such as Saudi Arabia, Russia, Iran and Venezuela.
And that, in a nutshell, is the crazy American response: blame China. And OPEC is 100% correct here. Not that we will listen to them. China has a RIGHT to buy more oil. They earned this the old fashioned way: through trade and capitalist profit accumulations. China can reap the benefits of labor-value-added business. The US opts for the more debts, more consumption model. We know the end of this sad tale. The ant lives, the grasshopper dies. The turtle beats the hare. The little piggie in the brick fortress lives while the piggie in the straw hut is eaten by the Derivatives Beast.
Well, today has been so fuct. Surely. I am very nearly ready to present my huge DOOMSDAY thread. It's coming. Sorry for the inconvenience, folks.
Posted by: blues | May 22, 2008 at 04:16 PM
$200 a barrel oil is about $5.30 at the pump.
Driving habits haven't changed any that I can see in the last few years. The pundits are saying the decrease is about 3% but I don't think so.
One is reminded that Rasputin plead with Czar Nicholas II to, at any cost, bring trainloads of flour and butter into the cities. One is reminded, as Jagger put it, that Anastasia screamed in vain. One recollects Stalin's aphorism, "One death is a tragedy, a million deaths is a statistic."
What needs to be done is so simple but so difficult. As political will hardens with time unfortunately the problem will grow yet more rapidly and become increasingly intractible.
Some political messiah will arise (I see many wannabes) promising to rescue the suffering from their oppressors and he will be greeted with relief and mystical hope. He will be wildly fashionable. He will, instead of bringing back the easy life, instead bring back those old Four Horsemen who long predate the Revelation of Saint John.
There is a great deal of room for hope. As individuals we must seek the truth and cleave to it only. Virtue and honor will see you through if they are not discarded as useless rubbish, as but empty words. There is no strength without them.
Posted by: Market Watcher | May 22, 2008 at 08:10 PM
an anonymous post from the comments at 'the automatic earth' today summed it up for moi:
Greyzone said...
"So... what are the banks doing with all the money that Helicopter Ben is loaning them? Are they lending to each other? To individuals for mortgages? To companies to expand?"....
The big investment banks are taking Butt Boy Ben's Phunny Money and gambling with it like crack whores doubling down at a Vegas crap table.
They're gambling on commodities, the only game left with a shot at high returns to build reserves.
This is insane if it were with their own money but they're gambling double or nothing with BORROWED Phunny Money, a truly suicidal move.
Jacking up commodities to cover up their crimes will kill a lot of people, they don't care, they're High Return Junkies and they Need a Fix Now.
What they're doing now in commodities speculation is a crime against humanity.
May 22, 2008 5:12 PM
Posted by: Rosco | May 22, 2008 at 10:02 PM
That is correct, Rosco. My charts show that the spread between profits from lending to home buyers had collapsed when the Fed raised the rates so the lending moved towards speculators.
Posted by: Elaine Meinel Supkis | May 23, 2008 at 07:31 AM
Oil price mocks fuel realities
US margin rules of the government's Commodity Futures Trading Commission allow speculators to buy a crude oil futures contract on the Nymex by paying only 6% of the value of the contract. At the present price of around $130 per barrel, that means a futures trader only has to put up about $8 for every barrel. He borrows the other $120.
This extreme "leverage" of 16 to one helps drive prices to wildly unrealistic levels and offset bank losses in subprime and other disasters at the expense of the overall population.
...In the US, stockpiles of oil climbed by almost 12 million barrels in April according to the May 7 EIA monthly report on inventory, up by nearly 33 million barrels since January. At the same time, MasterCard's May 7 US gasoline report showed that gas demand has fallen by 5.8%.
...energy price climb to $128 and beyond is driven by billions of dollars' worth of oil and natural gas futures contracts being placed on the ICE. Through a convenient regulation exception granted by the George W Bush administration in January 2006, the ICE Futures trading of US energy futures is not regulated by the Commodities Futures Trading Commission (CFTC), even though the ICE Futures US oil contracts are traded in ICE affiliates in the US. And at Enron's request, the CFTC exempted the over-the-counter oil futures trades in 2000.
http://www.atimes.com/atimes/Global_Economy/JE24Dj02.html
Peak Oil is nothing more than a fraud perpetrated onto the public by the usual suspects headed by Goldman Sachs & JPMorgan, banks, oil traders and the big oil majors underwritten by the Federal Reserve and members of our illustrious government.
"A nation can survive its fools and even the ambitious. But it cannot survive treason from within. An enemy at the gates is less formidable, for he is known and he carries his banners openly against the city. But the traitor moves among those within the gates freely, his sly whispers rustling through all alleys, heard in the very halls of government itself. For the traitor appears no traitor; he speaks in the accents familiar to his victim, and he wears their face and their garments and he appeals to the baseness that lies deep in the hearts of all men. He rots the soul of a nation; he works secretly and unknown in the night to undermine the pillars of a city; he infects the body politic so that it can no longer resist. A murderer is less to be feared. The traitor is the plague."
- Cicero
Posted by: rockpaperscizzors | May 23, 2008 at 02:16 PM
Elaine,
Check this out at Life After The Oil Crash, Breaking News for May 28th: a short distance down, there is a graph comparing the price of oil in US$ vs. annual production in billions-of-barrels per year. It looks like a map of Japan! Which reminds me of the Japan Carry Trade, which is one of the ROOT CAUSES of this!
http://www.lifeaftertheoilcrash.net/BreakingNews.html
Posted by: Ed-M | May 29, 2008 at 02:19 AM
Rock, we are at a peak in production. It gets harder, more expensive and less in volume as time passes. We are at the MAXIMUM not the minimum. The price hikes right now are due to wars over oil, not oil itself. But the peak arrives according to CONSUMPTION, not 'how much oil is there.'
If we consume more and more, the peak arrives faster. This may be hard for people to understand. Do not mix up wishful thinking with geological reality. Only places left for oil searching are deep oceans and ice-locked land masses of Antarctica and Greenland.
Posted by: Elaine Meinel Supkis | May 30, 2008 at 11:04 AM