GOP presidential candidates: paid shills for Wall Street
There has been an endless litany of GOP wharrgarbl lately about how rising gas prices are the fault of President Obama and his environmental policies. According to these professional wharrgarblists, all we need to do is drill more and open the Keystone XL pipeline and prices will magically fall below $2 per gallon.
Sounds nice, I know. Problem is: it’s utter tripe.
U.S. demand for oil and refined products — including gasoline — is down sharply from last year, so much that United States has actually become a net exporter of gasoline, unable to consume all that it makes.
Yet oil and gasoline prices are surging. […]
The ostensible reason for the climb of crude prices on the New York Mercantile Exchange, where contracts for future delivery of oil are traded, is growing fear of a military confrontation with Iran in the Persian Gulf’s Strait of Hormuz, through which 20 percent of the world’s oil passes.
“Speculation is now part of the DNA of oil prices. You cannot separate the two anymore. There is no demarcation,” said Fadel Gheit, a 30-year veteran of energy markets and an analyst at Oppenheimer & Co. “I still remain convinced oil prices are inflated.”
That confrontation that they are worried about, by the way, is probably dramatically toned down from what President Romney, President Santorum or President Gingrich would be in the middle of if they were in charge. So you can reasonably argue that oil prices in their administration would be astronomical by comparison.
JM Ashby at Bob Cesca’s Awesome Blog! Go! has some very interesting graphs in his post “Chart(s) of the Day”. They show that the price of oil is going up all across the world. Yet the GOP is trying to tell us that this is because President Obama delayed a decision on the Keystone XL pipeline or because he’s not drilling enough? Please.
Here’s the problem with this argument: Under President Obama, domestic oil production is up 11%. And, according to the U.S. Energy Information Association, the number of oil rigs pumping oil in the U.S. in December of 2011 was 1,173. In January 2009 when President Obama took office, it was 328. In other words, the number of domestic oil wells has increased by an astonishing 358% under President Obama. Under President George W. Bush, that number increased only 64%.
Here’s another problem with that argument: Oil is a global commodity. Increased production anywhere, unless it is an extremely large increase, has almost no impact on the global trading costs of oil. Incremental changes don’t affect the price. Period. Since the U.S. production, even if it were maxed out, is a drop in the bucket compared with Arabian Peninsula production or Canadian production, it would be an incremental increase so you simply won’t impact the price in any sort of tangible way by increasing domestic output. Equally important, increasing domestic production does not mean that oil is used only in the U.S. which is another reason why our costs won’t be substantially impacted by it. As I said, it’s a global commodity whose cost is determined by what it can be sold for on the world market.
Which, of course, brings us back to Wall Street and the cause of the current high cost of gasoline. Even though the U.S. is, at the moment, a net exporter of gasoline for a variety of reasons, costs are still going up because of Wall Street speculators.
It always comes back to these jerks, doesn’t it?
UPDATE: Speaking of jerks (I’ve toned down my language so “jerks” will have to suffice), rich guys like our friends the Koch Brothers play a role in these high prices, too.
Not only hedge funds, banks and other speculators manipulate the price of oil. So do big energy companies, such as Koch Industries. The chemicals and petroleum company does it by purchasing large stocks of oil and storing it in offshore supertankers and giant containers. Then it sits on those supplies until oil prices rise.
That strategy is called “contango,” which is when the future price of a commodity is expected to top the current price. This isn’t unusual in these markets. It just means that demand at some point down the road is forecast to exceed supply. Unlike pure speculators dealing in futures contracts, however, companies like Koch actually buy and hold oil. And because that reduces supply, as demand increases gas prices rise. Fortune’s Jon Birger estimated in 2008 that a 200,000-barrel-a-day decrease in oil supplies could boost gas prices by upwards of 40 cents a gallon.
Entrepreneurship! Job creators! Capitalism! Patriots! Criminals!
[Creative Commons image credit: Frikipix]