Tag Archives: offshore oil drilling

Gas prices up while crude prices are down – Who is gouging us?

We’ve all watched the crude prices shoot through the roof far exceeding $100 per barrel, meanwhile the price of gas exceeded $4.00 per gallon. 

The Republicans were saying that the only solution was for us to increase off-shore drilling.  (Drill baby drill.) Many of us knew it was related to the speculator in the market.  I wrote a 3-part series that looked more at the offshore oil drilling scam and the major culprit of the time – speculation.

 

In late summer, the speculators began pulling out of the market and something strange occurred.  The price of oil began to fall along with the price of crude – drastically.  Most of us eventually paid less than $1.60 per gallon.

We’ve all heard the nonsense from the Middle East – they want to cut production so the price of oil could rise.  I’ve heard the Russian economy could not survive $25 per barrel of crude. 

Oil companies made record profits in 2008 at a time when millions of Americans lost their homes and jobs. 

The price of crude at the time of this writing is $37.29 (NYMEX crude future) and the price of gasoline is creeping higher.  It has now passed the $2 per gallon mark. 

Fact:  If the speculators had returned, the price of crude would increase.

OPEC is getting $37 per barrel from us so someone is making the money.

Big Oil takes their profit per dollar received– not per gallon.  Therefore, they benefit from a higher gasoline price.

But how are they pulling it off?

Are they closing refineries which in turn reduces supply? 

A friend of mine forwarded me this story from Yahoo Finance: (h/t: DLS)

Crude oil is getting cheaper – so why isn’t gas?

Crude oil is getting cheaper — so why isn’t gas?

The price of crude oil falls to yearly low, but gas goes ever higher — what gives?

Chris Kahn and John Porretto, AP Energy Writers

Sunday February 15, 2009, 12:30 pm EST

NEW YORK (AP) — Crude oil prices have fallen to new lows for this year. So you’d think gas prices would sink right along with them.

Not so.

On Thursday, for example, crude oil closed just under $34 a barrel, its lowest point for 2009. But the national average price of a gallon of gas rose to $1.95 on the same day, its peak for the year. On Friday gas went a penny higher.

To drivers once again grimacing as they tank up, it sounds like a conspiracy. But it has more to do with an energy market turned upside-down that has left gas cut off from its usual economic moorings.

The price of gas is indeed tied to oil. It’s just a matter of which oil.

The benchmark for crude oil prices is West Texas Intermediate, drilled exactly where you would imagine. That’s the price, set at the New York Mercantile Exchange, that you see quoted on business channels and in the morning paper.

Right now, in an unusual market trend, West Texas crude is selling for much less than inferior grades of crude from other places around the world. A severe economic downturn has left U.S. storage facilities brimming with it, sending prices for the premium crude to five-year lows.

Which oil?  Storage facilities are brimming with crude?  Why don’t we tap into the storage facilities?  I’m not certain if the U.S. storage facilities to which they refer are the reserves we’ve heard so much about.  Either way, with gasoline prices higher at the pump, our friends at Big Oil are very happy.

 

But it is the overseas crude that goes into most of the gas made in the United States. So prices at the pump will probably keep going up no matter what happens to the benchmark price of crude oil.

“We’re going definitely over $2, and I bet we’ll hit $2.50 before spring,” said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service. “This is going to be an unusual year.”

On the last day of 2008, gas went for $1.62 on average, according to the auto club AAA, the Oil Price Information Service and Wright Express, a company that tracks transportation data.

The recession in America has dramatically cut demand for crude oil, and inventories are piling up. So prices for West Texas crude have fallen well below what oil costs from places like the North Sea, Saudi Arabia and South America.

That foreign oil sells in some cases for $10 more per barrel — and that doesn’t even include shipping.

According to this article, the price of gasoline was $1.62 on 31-DEC-2008.  Real Clear Markets article Oil Ends Worst Year in NYMEX history below $44 is self-explanatory.

That said, with Oil currently at $37+ on NYMEX – we add $10 per barrel and we’ll round up.  So we sit at $50 per barrel.  Does that $6 increase relate to more than 40 cents per gallon increase?

Now that the premium oil is suddenly very inexpensive, refiners elsewhere can’t get their hands on it.

“It’s so cheap,” said Lynn Westphall, the senior VP of external affairs at San Antonio-based Tesoro, which owns a half dozen refineries on the West Coast and Hawaii. “But you can’t just build a pipeline to everywhere. We know we can’t get it.”

Tesoro’s refineries in North Dakota and Utah use locally drilled oil and Canadian oil, which also has been running about $10 more per barrel than West Texas crude.

So why not build more pipelines? Because investing billions of dollars over several years makes no sense when the prices could just flip a year from now to where they were before.

“How long is WTI going to be cheaper than Venezuelan oil? Than Canadian?” asked Charles T. Drevna, president of the National Petrochemical and Refiners Association. “You just don’t build a pipeline like that.”

At the same time, refiners have seen the same headlines as everyone else about job losses and consumer spending. They’ve slashed production just to avoid taking losses on gasoline no one will buy. Result: Higher gas prices.

“Why should a refiner produce more gasoline when the stuff we produce is not being used?” Drevna said.

What really drives the price?  For years, we have heard that it was OPEC and our ‘friends’ at the House of Saud.  Now when the price for their oil is so dirt cheap, other oil is driving our price? 

When speculators were kicking our asses in the market driving the price of oil near $150 – NYMEX was the determining factor.  Now it isn’t?

That is what makes me suspicious.  If it was an average based on the quantity purchased from each company all along, you would figure that this would have been common knowledge all along.  Since that clearly isn’t the case, you have to question who is profiting from this rise in price.  Again, that would be Big Oil. 

Of course, complex explanations of the diverging price paths of West Texas crude and gas are unlikely to placate frustrated drivers. Memories of last summer’s $4-plus gas have not receded.

“Drivers are being ripped off even more now than before,” said Stuart Pollok, who was filling up recently at a Chevron station in downtown Los Angeles. He pointed out Exxon Mobil Corp. reeled in billions in profits last year when oil prices neared $150.

Others see the conspiracy reaching higher.

“It got really low during the elections and now it’s going back up,” said Christel Sayegh, a 23-year-old graphic designer in Los Angeles. “They do that every election, though, right?”

Sayegh said what we were discussing all along.  Prices always come down just prior to a national election cycle and begin to rise following that election.  Maybe that’s all it is.  But then again, isn’t that a scam?

If anyone knows the real story behind this anomaly, please let me know. 

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Sex, Drugs and Oil – ‘Drill baby Drill’ takes on a whole new meaning

This post has it all – A scam, a Democrat who grows a set, a sex scandal and the truth about the price of oil FINALLY comes out.

The Republicans have been screaming that if we want to lower to cost of oil, we must drill more.  They have used this to criticize Democrats and for a while it worked.  Many Democrats changed their position or softened their opposition to expanding the areas for offshore drilling (including Democratic Presidential nominee Barack Obama).  Even prominent Republicans have changed their position, like Republican Presidential nominee John McCain, Florida Governor Charlie Crist and Florida Senator Mel Martinez.

When Congress went on vacation recently, Republicans tried to pull a power play to get the Democrats to return to Congress to vote for removing the moratorium on leases expanding offshore drilling along the U.S. coast beyond what already exists.

When talk of drilling off the coast of Florida became bigger news, I began to research.  That led to 2 posts explaining the scam:

The Offshore Oil Drilling Scam – posted June 25, 2008 and

Offshore Oil Drilling – The Scam Continues – posted August 5, 2008

Bill Nelson Grows a Pair

A number of days ago, I heard rumblings from my other senator – Democrat Bill Nelson.  The only way I’ve been able to identify Nelson as a Democrat is by the ‘D’ after his name.  (though he is more of a Democrat than fellow Nelson, Ben Nelson (D-Nebraska))

Earlier this week, it was reported that Senate Majority Leader Harry Reid will offer a compromise bill that will allow limited offshore oil drilling 50 miles off the coasts of Virginia, South Carolina, North Carolina and Georgia and off the Gulf coast of Florida.

We are offering Republicans multiple opportunities to vote for increased drilling,” said Reid.

Then it happened!  Bill Nelson started showing a spine.  I’m not sure what caused it, but I like it.  He has begun advocating for a bipartisan approach to develop alternative energy sources.

Our national debt and our reliance on foreign oil are very heavy burdens for our economy.  It is my belief that one of our major threats to our national security is our dependence on oil — not just foreign oil, but oil.”

Bill Nelson has hinted at filibuster and said that Florida will not be ‘a sacrificial lamb.’  He also said the ‘drill baby drill’ pleas were misguided rhetoric and hollow chants.”

More leasing, if that’s just the answer, will only delay our freedom from oil,” he said. “Then we also have the potential consequence that we will dirty and destroy our state’s economy. We have a $65 million-a-year tourism industry in this state that depends on pristine beaches.”

“We need to bring the gas prices down by not wasting so much oil and by banning the greed speculation on the part of the oil traders and profiteers,” he said.

“Our future is breaking our addiction to oil. That is what the next president is going to have to do,” Nelson told reporters before his speech. “You can’t drill your way out of the problem.”

A Scandal is a-brewin’ or a-drillin’

As Reported by the AP:  {emphasis is mine}

A scandal involving sex, drugs and — uh, offshore oil drilling. It’s a strange mix, and it couldn’t have come at a worse time for those in Congress pressing to expand oil and gas development off America’s beaches while trying to stave off an election-year rush by Democrats to impose new taxes and royalties on the oil industry.

Between 2002 and 2006, 19 oil marketers — nearly a third of the Denver office staff — received gifts and gratuities from oil and gas companies, including Chevron Corp., Shell, Hess Corp. and Denver-based Gary-Williams Energy Corp., the investigators found.

Employees frequently consumed alcohol at industry functions, had used cocaine and marijuana, and had sexual relationships with oil and natural gas company representativeswho referred to some of the government workers as the “MMS Chicks.”

“This is why we must not allow Big Oil’s agenda to be jammed through Congress,” said Sen. Bill Nelson, D-Fla., who strongly opposes any expansion of offshore drilling, especially closer to Florida. He said the report “shows the oil industry holds shocking sway over the administration and even key federal employees.”

“This IG report has it all — sex, drugs and the Bush administration officials once again in cahoots with Big Oil,” said Sen. Charles Schumer, D-N.Y., whose Joint Economic Committee released a report last year claiming the Minerals Management Service has failed to collect millions of dollars in oil royalties.

Rep. Henry Waxman, D-Calif., chairman of the House Oversight and Government Reform Committee, planned a hearing on the investigation next week.

But House Republican leader John Boehner, R-Ohio, accused the Democrats of “trying to pull a hoax on the American people.” He said the plan would result “in little or no new American energy production” because states would share no royalties and have little financial incentives to allow drilling.

It was oil market speculation after all

The title and first paragraph in the AP story told me all I needed to know.

Report: Oil-price surge was speculation

WASHINGTON — Speculation by large investors — and not supply and demand for oil — were a primary reason for the surge in oil prices during the first half of the year and the more recent price declines, an independent study concluded today.

The report was completed by Masters Capital Management released by the U.S. House and Senate.  Here are some of their findings.

$60 billion was invested into oil futures markets during the first five months of 2008. As a result oil prices increased from $95 a barrel in January to $145 a barrel by July.

Since July, these investors have withdrawn $39 billion from those markets.  Prices subsequently decreased as a result.   Current price (close of September 10, 2008 – $102 per barrel.)

“We have clear evidence the fund flow pushed prices up and the fund flow pushed prices down,” said Michael Masters of Masters Capital Management.  The price decline “began a massive stampede for the exits” by investors on July 15th.

“This analysis illustrates that when oil speculators poured large amounts of speculative money into oil markets, prices skyrocketed just as they were hoping,” said Senator Maria Cantwell (D-Washington).  “And when the speculative money got pulled out, prices tumbled.” 

“These large financial players have become the primary source of the dramatic and damaging volatility seen in oil prices,” concluded the report.

The Commodities Futures Trading Commission is expected to release a report as early as this week on oil speculation.  Last July, the CFTC released a report indicating that “fundamental supply and demand factors” influenced the oil markets and that the data “does not support the proposition that speculative activity has systematically driven changes in oil prices.”

Excuse me?  Their report showed supply and demand were the indicative factors in the high price of oil? 

Who is this commission, you ask? 

From the ww.cftc.gov:

The Commission consists of five Commissioners appointed by the President, with the advice and consent of the Senate, to serve staggered five-year terms. The President designates one of the Commissioners to serve as Chairman. No more than three Commissioners at any one time may be from the same political party.

Currently there are 4 members on this commission.  Acting CFTC Chairman Walter Lukken 

Acting Chairman Walter Lukken (pictured at right) who was first appointed in 2002 becoming acting chairman on June 17, 2007.     

Commissioner Michael Dunn was sworn in December 6, 2004 and reconfirmed in 2006.

Commissioner Jill E. Sommers was sworn in August 8, 2007

Commissioner Bart Chilton was also sworn in on August 8, 2007

And in their infamous wisdom, the Senate will present legislation that will place “limits on the amount of oil certain traders, interested only in speculation, would be allowed to purchase in futures markets.”  They would also expand the authority given to the CFTC to regulate the oil markets. 

And there you have it.  A team of commissioners nominated by President Bush, release a report that incorrectly place the cause of the extremely high cost of oil on supply and demand.  This triggered the demand for increased offshore drilling.  So when evidence is presented that support that the report was incorrect, the US Senate expands the authority of that failed commission.  Brilliant.

 

More Offshore Oil Drilling Needed

We must lift the ban on offshore drilling and drill now.  If Congress would just lift the ban, gas prices will drop.

I have had so many arguments about this with people that my brain hurts, so when I saw this political cartoon in the Sun-Sentinel, I had to laugh.  Not to mention, his cartoon is called the Offshore Drilling Scam, which is what I’ve called a previous post about this lie.

John McCain and the Republicans are for it.  Barack Obama opposed it but now seems to be more accepting of drilling.  And no one is being told the truth about offshore oil drilling. 

Chan Lowe is the Sun-Sentinel’s editorial cartoonist and quite frankly leans farther to the right than I do, but he’s dead on with this one.

Offshore Oil Drilling – The Scam Continues

Congress has gone on a 5-week summer recess.  Does it really matter?  In 3 months all members of the House will be up for re-election and 1/3 of the Senators will be doing the same.  So it will only be political grandstanding for the duration.

Some Republicans stayed behind in the darkened halls of Congress willing to debate offshore oil drilling.

President Bush has chastised Democratic members of Congress for not lifting the ban on offshore drilling.

“The high price of gas is taking a toll on summer travelers,” Bush said. “The sooner Congress lifts the ban, the sooner we can get this oil from beneath the ocean floor to your gas tank.”

What bothers me is the media completely ignores the facts.  I’ve heard the Democrats mention these facts but the media continues to spin this in favor of the Bush administration. 

Let me preface by saying that this issue has been a sore spot for me for a number of months.  I’m not just talking about the exorbitant price of oil, but the lack of direction, proper coverage and outright lies we hear. I wrote about it on June 25th when I presented the spin we were getting along with the facts.  I also discussed the real reason why the price of gas is so high – the Enron loophole and hedge funds. (Read my ‘The Offshore Oil Drilling Scam’ post here)

President Bush and now John McBush want Congress to lift the ban on offshore oil drilling.  The media seems to stand behind this as more newspapers are slanting their stories in favor of the administrations position.  They say the number of Americans supporting offshore oil drilling is increasing as well because they are feeling the pain in their pocket books.

Truth is, the facts haven’t changed here.  What has changed since then is the full-court pressure we have gotten from our politicians and the media.  In their descriptions, they intentionally provide incorrect facts and even use false terminology.

Myth:  There is a ban on offshore drilling that the Congress can overturn if they would just return to vote.

Fact:  There is no ban on offshore drilling.  We know this because we see the rigs off of the coast of Louisiana and Texas.  Every time a hurricane heads in that direction, the oil rigs are covered as concern rises that there may be damage or spills.

Then what is everyone talking about?  There is a moratorium on leasing offshore and onshore locations that currently aren’t under lease.  That means, President Bush wants to lease these areas to the oil companies – Exxon Mobil, BP, Shell, Chevron.  Offshore drilling is legal and occurring in  areas already leased to our greedy friends. 

Myth:  If we give these leases to the oil companies, the price of oil will immediately plummet.

Fact:  Sorry.  It will take a minimum of 10 years to see any benefit at the pump.  Oil rigs just don’t build themselves, drill then pump oil, refine it and put it in my gas station.  No, the price will not drop for a minimum of 10 years and some experts place that around 18 years.

Bush Myth:  “The sooner Congress lifts the ban, the sooner we can get this oil from beneath the ocean floor to your gas tank.”

Fact:  Sorry, Mr. President.  Just because you say it does not make it true.  I guess if you want to get technical:  Let’s say that the process takes exactly 10 years to the day – from the approval by Congress to the first gas stations receiving a shipment.  So if Congress votes today – it will take 10 years.  If Congress were to vote in 2 months, it will take 10 years and 2 months – so technically his words would be true.

Myth:  The Democrats are the reason that Congress can not do anything about lowering the gas prices.

Fact:  Each time the Democrats have proposed some assistance, the Republicans have prevented this from occurring.  Some of these will be discussed in the solutions section.

Solutions:  What can we do today to reduce the price of gas today?  Obviously, drilling for oil will not show any results for at least a decade.  Neither will any type of research of alternative types of energy.  The options are vast but all are time-consuming and we are out for immediate results.

There are a couple of things we can do today that will have a relatively brisk impact on the price of gasoline.

1.  We can tap into the Strategic Petroleum Reserve.  There is a 727 million barrel capacity in reserve.  Of course, this isn’t a long term solution nor will it have a huge impact.  It is always nice to have oil in reserve in case of emergency.  Is four dollars a gallon considered an emergency?

2.  Refine at full capacity.  I’ve read reports that the existing rigs are only pumping at anywhere between 70 and 85% of capacity.  We need to pump more oil to increase the supply.  Even though the main culprit of the high prices isn’t supply and demand, increasing supply should have an impact on lowering the prices some.

3.  Close the Enron loophole.  This loophole has permitted hedge fund speculators to drive up the price of oil.  Experts say that closing this loophole will have an immediate impact on the price of oil – like dropping it 60% in a matter of days.  Personally, I am a little skeptical of that number but even a 30% decrease will make our lives much easier. 

Since researching offshore drilling and the high prices back in June, many more articles have popped up discussing the loophole.  There are even sites out there that specifically are working to address the speculators.

It isn’t like Congress isn’t aware of these solutions.  Democrats have discussed and ‘tried’ to implement all of them but were met by the ‘great Republican wall’.  I put tried in quotes, since the oil lobby is so powerful, I am not certain just how much effort they gave.

It isn’t a surprise that John McCain changed his position to match President Bush.  What is surprising is Barack Obama seemingly softened his stance due to perceived popular opinion.

Some interesting reading on this subject:

Offshore Oil Drilling

How Oil Drilling Works

The political positions – see the media slant?

Obama flip-flops on offshore oil drilling – The Guardian 05-Aug-2008

McCain’s Offshore Drilling Position A Flip From Three Weeks Ago – The Huffington Post 18-Jun-2008

Schwarzenegger criticizes McCain’s offshore drilling proposal – LA Times 27-Jun-2008

Drilling for Victory – National Review Online 05-Aug-2008

Hedge funds, speculation markets & the Enron loophole

CRS Report for Congress – The Enron Loophole – July 7, 2008

Perhaps 60% of Today’s Oil Price is Pure Speculation – F. William Engdahl – May 2, 2008

US Senate – The Role of Market Speculation in Rising Oil and Gas Prices – June 27, 2006

On-line campaigns

Committee Against Oil Exploration – Campaign Against Offshore Oil Drilling

Stop Oil Speculators.  Send Congress and S.O.S.