Latest Obama re-election lie - gas prices

President Barack Obama is talking about how he will investigate alleged manipulation of gas prices before they hit $5 a gallon at the pump.

President Obama said today his Justice Department is creating a team to "root out any cases of fraud or manipulation in the oil markets that might affect gas prices."

"That includes the role of traders and speculators," Obama said at a town hall-style meeting in Reno, Nev. "We are going to make sure that no one is taking advantage of American consumers for their own short-term gain."

To which I say: "Really?"

Let's see.

Six months before you were elected, oil was at $147 a barrel, even above the $110 now. While Peak Oil and a surging (pre-crash) global economy were partial reasons, many analysts thought commodities speculators, hedge funds, etc., were adding $20 a barrel, or more, to oil's price.

Let's see, part 2.

During what passed for financial regulation reform, commodities and derivatives regulation (along with regulations of CDOs and other speculative alphabet soup from the mortgage world) got token discussion ...

And zero action.

So, again, why should we believe you now, Mr. President? You're the man with all the Goldman Sachs/Robert Rubin acolyte financial advisers. You're the man who took more Wall Street money than John McCain.

So, no, I'll pass on believing you now.

Beyond that, Obama knows that daily pump prices, as opposed to actual per-barrel prices, have little to nothing to do with speculators.

Shockingly, Obama did mention the word "conservation" in the town hall.

Oil at $150?

Well, not immediately. Maybe by 2015, though?

China has already passed the U.S. in coal use. By 2020, it may pass us in oil consumption. And, that "surge" cannot but impact oil prices.

Since we may well have hit "Peak Oil" three years ago, if China doubles its oil use in a decade or less, that will inevitably put upward pressure on oil prices.

Per Canadian Liberal MP Dan McTeague, that may open the door to more speculation.

“What that means in normal lingo is that the fundamentals of supply and demand have been thrown out the window,” he said. “If supply and demand fundamentals cannot discipline the price discovery, then price can be whatever it wants to be and any excuse can be used.”

He said tax on fuel in Ontario, Quebec, B.C. and New Brunswick is also helping to push the price up, in addition to refineries in eastern Canada who charge between 17 and 20 cents per litre to convert crude into transportation fuel when the actual conversion cost is more like three to five cents per litre.

“Consumers are now vulnerable to the effects of unbridled speculation and subject to potential shortages as a result of restraint in competition at the refinery level,” McTeague said. “We’re flying blind. We have no idea just how serious this situation has become.”

At the same time, don't forget that hear in the U.S. President Obama refused to tackle the need for more regulation of commodities derivatives as part of financial regulation reform. If Peak Oil is here, Enron of a decade ago will seem like nothing.

That said, if this really starts hitting the fan early enough before the general election, we may see Obama forced to choose between continuing to run a $1 billion presidential campaign and working to pass something that's not completely toothless in terms of commodities regulation.

$100 mil for increasing our gas prices in a recession?

Meet Andrew J. Hall, arguably the king of oil commodities future speculators. It was him and his ilk, in addition to legitimate supply and demand concerns just 12 short months ago, who were probably adding an extra $25/bbl to the price of oil even as we were already officially in a recession and moving deeper into it.

It’s people like him who have caused the recent spike in gas prices, all because Wall Street is less “recessed” than you and I.

Oh, and he wants $100 million from Citigroup for his work, even though Citi got bilions in TARP money from Uncle Sam, aka “you and I.”

That all said, this is now the second time in less than a week that I’ve rhetorically asked why we have no Congressional action on another promise, or quasi-promise, from Obama, to rein in commodities speculators. (That said, that wasn’t just an Obama promise — at the periphery of the bailout table last October, a lot of people were saying we needed this.)

Was $150 a barrel oil speculators or Peak Oil?

As the oil price run-up continued throughout the first half of 2008, I conceded that probably about $20/bbl of oil at its peak price was speculation, but that much of the run-up was in fact a reflection of Peak Oil, with global instability, war premiums, etc. becoming more pricey with tighter supply as well.

Last Sunday, 60 Minutes pushed hard on the opposite angle.

I’m still skeptical that speculators had that much to do with it; nonetheless, my skepticism was lessened by the degree to which commodities traders opposed more regulation late last summer, and by how rapidly prices fell once the credit crunch hit.

On 60 Minutes, Dan Gilligan, president of the Petroleum Marketers of America said Morgan Stanley, not ExxonMobil, was America’s largest oil company.

That said, if commodities traders and hedge funds are partially responsible, it’s yet another mistake for which we can “thank” Obama’s ecoonomic Swengali, Larry Summers, and yet another boo-boo for which he has not apologized.
And, we need actual regulation, not regulation talk, from the new Congress.

The ‘real’ price of oil – about $85 per barrel

I put “real” in scare quotes because, of course, the actual real price of oil is what is being paid for it today.

That said, here’s my take on all the burdens, with price, a barrel of oil carries in the way of overhead.

• Speculation — $15
• Dollar inflation — $10
• Iraq invasion premium — $10
• U.S. military oil use in Iraq — $5
• Iran-related instability — $10
• Instability in Nigeria, etc. — $5

That’s a total of $55/bbl, which would give us a price of $85 a barrel, otherwise.

Of that, we can pin about half that on Bush’s invasion of Iraq. Obviously, we have $15 directly related. I’ll add $5 each from Iran instability and speculation, and another $5 as negative feedback from that to dollar inflation. That makes $25 as a broader-market war premium.

That said, the other $10 of speculation money is legitimate, if you’re a speculator. It’s largely based on Peak Oil fears gaining broader acceptance, despite the efforts of traditional Big Oil and part of OPEC to sweep that under the rug.

And, speaking of that, to look at things from the demand side, speculators are exactly right, also.

Kevin Drum somewhat trumpets a relatively minuscule 2 percent drop in highway miles, albeit while admitting it’s just a drop.

And, that’s the whole point. The American public is comfortable with the denialism of American political leaders and oil companies on Peak Oil. As for the latter part of the equation, it’s easier to blame Big Oil conspiracies (even if ExxonMobil is selling all of its gas stations), or now, the conspiracy of speculators, rather than admitting that worldwide discovery and production of halfway easy oil has definitely peaked.

In other words, the small minority of Americans who have actually heard more than two sentences about Peak Oil and tried to listen for more than 2 minutes have stopped listening soon enough thereafter, for the most part.

The sheeple want Washington leaders, above all a president who, as their “civic religion” leader, will soothe them with anodyne, rather than, like Jesus or an Old Testament prophet, actually challenge their complacency and self-delusion.

Call it a spin-off of American exceptionalism.

US and UK team up to restrict oil speculators – will it make a difference?

First, the biggest regulatory concern has been solved, with both Washington and London involved.

The U.S. Commodity Futures Trading Commission and its British counterpart reached a deal with ICE Futures Europe to impose regulations on West Texas Intermediate oil contracts that trade on the London-based electronic exchange within 120 days.

That said, the head of the exchange warned American lawmakers that he doesn’t think rampant speculation is a major driver in oil prices:

Charles Vice, president and chief operating officer of the Intercontinental Exchange, based in Atlanta, said it was “highly unlikely” that ICE Futures Europe was the “primary driver” behind WTI prices.

The CFTC is hedging its bets, probably to appease Congress:

The CFTC acting chairman, Walter Lukken, whose agency is conducting an inquiry into oil markets, acknowledged that “the environment is ripe for those wanting to illegally manipulate the markets.

However, the top U.S. futures market regulator said there was no “smoking gun” indicating that speculators were to blame for record oil prices.

And T. Boone Pickens says it’s a waste of time:

Other people disagree with Vice and Pickens, including Mark Cooper, director of research for the Consumer Federation of America, and Michael Greenberger, the CFTC’s director of trading under President Bill Clinton.

I agree with Cooper, Greenberger and others that the additional oversight is helpful. However, as for actual effect on oil prices? I’m pretty much in Boone Pickens’ camp.

Ethanol, beef, Cokes and corn flakes just got pricier

Even a week or so ago, corn and soybean futures were pushing higher due to all the Midwestern flooding. Well, now that the details of the Iowa flooding start to come in, rest assured those commodities futures will go higher yet.

owa alone is estimated to have lost between 1 million and 3 million acres of corn production. That's about 7-21 percent of the overall production by the nation's top corn producing state.

Corn futures hit a record intra-day high Monday. And, with flooding on the Mississippi still expected, I’ll bet corn futures go up at least another 5 percent by Friday.

George Soros on why oil prices are soaring

In a word, it’s called reflexivity. To use a relevant, non-Deepak Chopra analogy from quantum physics, by the act of buying commodities futures in certain size blocks at certain prices, etc., traders influence the future of those commodities.

Soros noted that in his talk to Congress last week.

The Oil Drum explains exactly what this means, as Soros shows why the neoclassical economics of the U. of Chicago, etc. is dead and needs to be replaced by behavioral economics in every American college and university.

And, it’s not just oil. As the graphic shows, all sorts of commodities are being inflated beyond reason.

Yes, it is likely that some precious metals are getting near world peaks in production, but “Peak Copper,” for example, has been less studied than Peak Oil.

Of course, since this time, agriculture futures have climbed more and more, too. One has to wonder how much of THIS is a bubble. And, a bubble with a head of steam behind it:

Commodities have not had a boom since the late 1970s, and until recently have played a minor role in general portfolio asset allocation. Combined with media coverage (e.g. Jim Rogers) and rapid growth in demand and tightening of supply, commodity markets have had explosive moves the last 5 years. Pension funds, sovereign wealth funds, university endowments and other index speculators have been allocating money away from stocks and bonds into commodities.

Soros doesn’t deny part of the problem actually is Peak Oil, though, so his words carry extra weight.

On the other hand, this is the man who single-handedly nearly wrecked the economies of several southeast Asian countries in 1998.

On the other hand to that, re his Congressional testimony, “To catch a thief …”