The people don’t seem to realize that the direct cause of this oil crisis is the United States Congress.

Why do you think that the Congress is pointing the finger at everyone else? To distract from their own responsibility.

Congress is going to find its villain before November...right in the mirror!!!

This article is very simple and instructive. Conservatives need to understand and defend free markets and their role in a successfull economy.
Speculation doesn’t drive up the price of a commodity when they don’t accumulate inventory. The Hunt brothers were speculators that horded silver in a vain attempt to corner the market and drive up prices. It worked for a while..but they ran out of bucks and the price crashed.
This isn’t likely in oil. In fact, it looks like US inventory has splipped a little. Speculative hording in not taking place.

The Hunts had limited funds and could not support their attempted corner.

Those speculating in oil prices have as a group essentially unlimited funds.

There is not much doubt that we can produce a LOT more oil than we are now doing ad do it within the strict environmental standards that exist. The public is not stupid and those within the NO DRILL DEMS are playing with electoral fire.

It is true that our economy is not doing very well and the outflow of capital is staggering. The topic that is almost never mentioned when discussing oil exploration on land and in waters that we own is ALL the money that is now going to foreign regimes would be staying home and helping build a still greater United States of America.

Keeping ALL that money at home may be the most compelling reason to vote out the liberal dems and get on with the building of a better America.

I believe more and more people are realizing it. In fact it's becoming more and more obvious everyday. The question is weather enough people are PO’d to make a difference in the election. Some people (Democrats mostly) are OK with what they are doing. It actually extends way past oil and they are obstructing all forms energy production.

“...Severin Borenstein, a Berkeley economist and the director of the University of California Energy Institute, contends that in order to push oil prices 30% above fair market value, speculators would have to hoard the equivalent of 2.5 million barrels a day....”

This is exactly what Iran is doing by parking 14 fully loaded super tankers (and more as they get their hands on them) in thePersian Gulf.

Shell to exon and bp you know what if we buy oil stocks we could.........

A good article, well worth reading.

“Severin Borenstein, a Berkeley economist and the director of the University of California Energy Institute, contends that in order to push oil prices 30% above fair market value, speculators would have to hoard the equivalent of 2.5 million barrels a day.

“At that rate,” Borenstein writes in a new paper, “in less than a year this secret market manipulator would have built an inventory larger than the entire U.S. Strategic Petroleum Reserve.”

That secret (not really) market manipulator does exist in the form of OPEC. By withholding production at the wellhead they ensure supply will not be enough to bring down the price. Evidence of their power to manipulate the market is the recent news that Brazil will soon be joining their ranks. The only real answer is to break the cartel by securing other supplies not controlled by them (domestic drilling) or opting out of the oil based economy altogether. The second option is best but we’re nowhere near ready to replace oil so for the next 20-50 years we’re going to have to produce our own oil.

Congress is only part of the problem. Force the speculators to take delivery of the oil and watch what happens.

No, the Hunts did not run out of money — and they had lots of Arab backing; rather, the COMEX (thanks to the efforts of William Simon) limited the transactions on silver, margin sales, and the amount of silver that could actually be delivered to speculators. The Silver Bulls not only wanted to corner the silver market, they wanted actual possession of the metal itself.

Absolutely correct.

Anytime there is an imbalance in any market, no matter what it is, if there is more demand than supply prices rise. More supply than demand prices fall.Pretty simple.

Right now the world is short about a million and a half barrels of crude per day.

As long as that lasts prices will rise.

...Keeping all that money at home may be the most compelling reason to vote out the liberal dems and get on with the building a better America.

Brilliant post!

Let's hope that happens.

Just in: http://www.hellenicshippingnews.com/index.php?option=com_content&task=view&id=11579&Itemid=79

“..Iran, Opec’s second-largest oil producer, cut the number of tankers it has idling in the Arabain Gulf to 11, from 15 a week ago, ship-tracking data show. The 11 very large crude carriers, or VLCCs, have a storage capacity of about 22 million barrels. They are floating near the Kharg Island crude-oil loading facility or the nearby Soroush Terminal, according to AISLive data on Bloomberg.
Of the four tankers that set sail since June 23, two are bound for Egypt's Ain Sukhna terminal in the Red Sea, where they can empty their cargoes into a pipeline for refiners to collect. Another is going to China and one to Jebel Dhanna in the UAE.
Hojatollah Ghanimifard, executive director of international affairs at the National Iranian Oil Co, said June 2 that Iran, which had to use tankers for storage while its refinery customers carried out annual repair works, would start using the carriers for deliveries again by mid-summer.
Following is a table of Iranian-owned VLCCs stationed near Kharg Island. It normally takes 24 to 48 hours to load a cargo and set sail.
Meanwhile, Iran, the world's No 2 holder of natural-gas reserves, faces delays in rolling out projects as global lenders cut commercial ties with the country and bureaucracy crimps progress on the fuel's export, a report said.
Shipments of liquefied natural gas from Iran may be postponed by as much as five years to 2014-15 as Royal Dutch Shell Plc and Total SA defer sanctioning projects in South Pars, the largest single natural-gas deposit in the world, FACTS Inc said in a report yesterday.
Output from five blocks in the field is being delayed, the US consultant said.
Investment in new gas projects is needed to expedite export plans, meet domestic demand for the cleaner-burning fuel, and keep power and chemical plants running...”

I smell something! I still think that Iran was attempting to corner the world wide tanker market and thus control the price of oil. It looks economic squeeze on Iran is starting to hurt and they didn't have the money to buy up enough ships. After all, the only income they have, except for some pistachio nuts is from oil exports.

I’m not an economist and don’t play one on TV.

But it seems to me the author’s argument is likely to be accurate in the long run but not in the short. Speculation can indeed cause prices to rise in the short term, regardless of whether delivery is taken or not.

In the tulip craze, the Florida land boom of the 20s, the recent real estate crash in many parts of the country, and in every stock market bubble since they were invented, physical property for the most part has not been stockpiled. People bid up the price for pieces of paper that in theory represent value, on the assumption that a greater fool will buy them tomorrow for an even higher price. How does this differ from speculating in oil futures and derivatives?

I would also suspect that the length of time the speculative price can levitate above the “real” supply vs. demand price is related to the amount of money invested in the speculations.

If someone can explain (in simple language) why this theory is wrong, I will humbly accept correction.

The Hunt’s had basically unlimited funds in a very small, cheap market. Nobody has the $Trillions needed to move the oil market, its far too big. This is a Supply driven market that has been ignored for 30 years.

If you like $5/gal, Thank Congress in Nov.

Pray for W and Our Troops

The government is not your friend. What say Democrats to the mess they created. Bush is lame duck and Congress belongs to the democrats so who’s mess is this?

I think the "demand" for oil and oil products is much stronger that it is for more speculative markets which can be bought on a take it or leave it basis.

Next week I will "have" to spend $500 on gas for my van as I do business in the Southeast.

My buddy who bought 4 spec homes in Key West and is now stuck with them really didn't "have" to buy them. The demand for them was much "softer" than it is for oil. Just a guess.

Speculation doesn’t drive up the price of a commodity when they don’t accumulate inventory.

Ah, but they do in a funny way. A producer has a choice. He can sell his barrel on the spot market for immediate delivery, or he can sell his barrel on the futures market with a promise of future delivery. For the future delivery he merely needs to leave the oil in the ground until he needs to deliver it. However, with growing long side only speculators, the amount of oil that is promised for future delivery has grown exponentially. So long as long side positions continue to grow, that is oil that stays off the market. Furthermore, as demand is growing, it is safe to accumulate supply.

If one looks at futures price action in oil there is nothing that would indicate that anyone needs to start liquidating his position anytime soon. In fact, the price signals are, if anything, "buy."

My own view is that speculators can't materially impact prices if all they're doing is making bets on the direction of oil prices by trading futures and not taking delivery of actual oil - hoarding stuff that would otherwise go to consumers.

And where would they store this oil anyway? It's rather dangerous to store, and it's pretty difficult to hide the facilities. Back in the 1970's when there were price controls and long lines, many consumers would hoard fuel, increasing its scarcity. High prices are a disincentive to hoard.

I’m sure you’re at least partially right. Nobody “needs” a vacation home.

Interestingly, one of the reasons people are pissing and moaning so much about the price is that supply hasn’t been interrupted.

I worked three months in Gulfport after Katrina and was forced to stay in Mobile, commuting each day.

For the first month, gas was hard to get. At that point I couldn’t have cared less about the price. Only availability was important, since I really needed the gas.

Of course it helped that somebody else was reimbursing me for the gas.

I think the "demand" for oil and oil products is much stronger that it is for more speculative markets which can be bought on a take it or leave it basis. Next week I will "have" to spend $500 on gas for my van as I do business in the Southeast.

You have illustrated the fact that supply and demand curves are highly inelastic, with guaranteed demand growth. This is a speculator's heaven.

And where would they store this oil anyway?

In the ground back at the well, in oil tankers floating around the world (they are cheap in comparison to the value of the oil carried), and in oil storage farms around the world that are not well reported or regulated at all.

There is not much doubt that we can produce a LOT more oil than we are now doing

Wrong. There is a great deal of doubt about it. You're speaking as if the peak oil theory didn't exist or had no validity. It's much more likely that you are simply ignorant than that it is wrong.

Great point,it may well take a supply interruption to drive home what is going on in energy.

For the longest time I thought home prices here in the Keys,(which had never dropped in over 30 years) would never go down. We went up 41% in one year! Wow, was I ever wrong!!

People complaining about drops in real estate prices has always struck me as somewhat analogous to the guy who goes to Vegas with a $10,000 bankroll.

He gets it up to $100,000 and then loses all but $8000.

Did he lose $92,000 or $2,000?

My experience has been that when people make money on real estate investments it’s because of their own enormous acumen. When they lose money it’s because of the banks, or the Arabs (or Jews), or the Republicans.

I have also always been fascinated that the same people who think it’s immoral to sell a barrel of oil at a profit are always enormously proud of themselves when they sell their house at a big profit.

This is exactly what Iran is doing by parking 14 fully loaded super tankers (and more as they get their hands on them) in thePersian Gulf

Even if these are fully loaded ULCC's rather than VLCC's that only represents half a days oil supply for the world.

In the ground back at the well, in oil tankers floating around the world (they are cheap in comparison to the value of the oil carried), and in oil storage farms around the world that are not well reported or regulated at all.

Sorry. No. People who keep track of these things are very, very sophisticated. They keep track of oil tankers and how low they sit in the water. They know the locations of the storage farms and watch them too (You can't hide them the way you hid pot farms, unless you put them underground). It would be very difficult to massively slow production (hide oil in the ground back at the well) without attracting notice.

Further, the production evidence is consistant with the discovery evidence. New discoveries have been falling for 40 years. Do you really believe that someone has conspired to hide evidence of new discoveries for all that time? If you do, then I'd say you're a textbook case of clinical paranoia.

The supply of conventional crude oil has not grown since 2005 in spite of rapidly increasing prices. Is this because of a coordinated effort by suppliers to constrain supplies?

Maybe, but consider Texas in the 1970s. Peaked circa 1971. Price quadrupled during the decade. Every man woman and child in the state [okay I am exaggerating] went on a drilling campaign and by the end of the decade [with no serious impact from environmentalists] production was still down thirty percent. Pretty much a description of the peak oil concept on a easily understood scale when viewed gazing backward in time.

Now look to demand growth in India and China and the relatively small decreases in quantity demanded in response to much higher prices in the developed world.

Then go back and look at world production that is essentially flat.

Then consider the Texas example [could have used the U.S., the North Sea or a number of other places past peak for illustration, but Texas is illustrative.]

Then ask yourself why you need speculators or conspiracies or even idiotic environmentalist positions to explain increasing prices.

Apply Occam's Razor.

Pretty good analysis.
We were still really surprised down here since no one could ever recall a drop in real estate, leveling out maybe, but never a drop. First time for us.

New discoveries have been falling for 40 years. Do you really believe that someone has conspired to hide evidence of new discoveries for all that time? If you do, then I'd say you're a textbook case of clinical paranoia.

The facts are that supply and demand conspired to make the ground ripe for speculators and speculators (helped along by every low interest rates) are taking advantage of it. We are in a both and not an either or situation. Pointing this out does not make one a Marxist.

In fact, I would argue that we probably have, for many producers, backwards sloping supply curves. The producer of a finite reservoir wanting to maximized total revenue over time, while covering current financial needs, has every incentive to cut back production when price increases. If you can make the same revenue with half the rate of production why not go for it [pay me $500 million and I won't work another day of my life]. So net overall there is probably little increasing supply for increasing price and with steep supply curves and steep demand curves it does not take much supply hoarding to make enormous differences in price.

All of which is why normal free market conditions do not apply and which is why speculative excesses should be held in check. After all, there are enormous externalities. You will continue to buy gas at almost whatever price. You will compensate by cutting back how much you eat at restaurants (funny restaurant revenues are falling) and a bunch of other things.

Then ask yourself why you need speculators or conspiracies or even idiotic environmentalist positions to explain increasing prices.

Then explain why long side only index speculators have taken incredibly large positions in oils futures?

Hint - they expect to make a lot of money. How will they make lots of money. The price will go up. Why will the price go up. Because they are accumulating supplies, which is why they expect to make money. It's Occam's Razor.

You are missing the big point. By tying up a large number of tankers as storage platforms, Iran has greatly reduced the capacity of the tanker fleet to fill spot market demand and drives up crude prices. If an exporting country wished to deliver more oil to the market, they can’t get the crude off their dock.

The people don’t seem to realize that the direct cause of this oil crisis is the United States Congress.

Congress didn't resolve the problem everybody could see coming 30 years ago when the problem could have been averted cheaply. Now it is here and it is too late. It is possible we cannot afford anymore to get alternatives such as coal to liquid going.

It is possible we cannot afford anymore to get alternatives such as coal to liquid going.

This a very real concern. The $3T that the Bush administration added to the national debt since 2000 would have paid for 1,000 nuclear plants, had we had the will to build them. Now we might start to have the will, but not the money.

I believe the stats actually show that the specs are short. The commercials are net long.

This is a little distorted by the fact that the EFTs are listed as commercials and most of the action there is on the long side.

Momentum plays a role in markets. Some of the speculative longs are riding momentum. Some see a wiggle in a chart that has paid off for them in the past. Some fundamentally oriented speculative longs see a term supply crisis that they did not create but that can profit from if they are correct. Does this make them villains?

... but you did not answer the supply / demand questions leading up to the question you quoted. It is possible that the entire rise in the price of crude oil is caused by aliens from the planet Garfon. I just wouldn’t recommend that anyone start with this as their working hypothesis.

you are absolutely right. Congress is doing everything they can to divert attention from all their liberal policies coming home to do some real damage to the average American.

There will be a problem this winter with heating houses. A lot of houses won’t be heated, no two ways about it. Watch out for your neighbors, especially shut-ins and elderly.

The people don’t seem to realize that the direct cause of this oil crisis is the United States Congress.

True.

In fact, by not drilling we are in effect 'hoarding'.

Here is a congresscritter pointing his finger at evil big oil.
Would love to hear what those-more-knowledgeable-than-me have to say about his claims...

http://www.house.gov/list/press/ny22_hinchey/morenews/062608UseItOrLoseItFloorVote.html

So long as long side positions continue to grow, that is oil that stays off the market.

You can't grow long positions without growing short positions equally . It's a zero sum game.

You can grow what is termed "open interest" however. i.e. total contracts outstanding.

exactly... there should be a law we have to use ONLY domestic oil till it runs out and that will be the time table for getting new energy sources on line.

He can sell his barrel on the spot market for immediate delivery, or he can sell his barrel on the futures market with a promise of future delivery.

Exactly. He can sell his 1,000,000 barrels of expected August 1st production on August 1st or he can sell 1000 July futures contract on Monday and deliver his 1,000,000 barrels on August 1st.

For the future delivery he merely needs to leave the oil in the ground until he needs to deliver it.

For the spot delivery he merely needs to leave the oil in the ground until he needs to deliver it.

So long as long side positions continue to grow, that is oil that stays off the market.

No, the oil is not staying off the market.

Further, the production evidence is consistant with the discovery evidence. New discoveries have been falling for 40 years. Do you really believe that someone has conspired to hide evidence of new discoveries for all that time? If you do, then I'd say you're a textbook case of clinical paranoia.

You're presupposing that we do in-fact extract all that is discovered and proven. And that we do in-fact conduct robust exploration.

I fear however, that we prefer not to extract or explore robustly. Those days are past.

Price quadrupled during the decade. Every man woman and child in the state [okay I am exaggerating] went on a drilling campaign and by the end of the decade [with no serious impact from environmentalists] production was still down thirty percent. Pretty much a description of the peak oil concept on a easily understood scale when viewed gazing backward in time.

We've probably reached the "peak" for abundant easy (i.e. cheap) oil. However there is much oil both cheap and expensive that can still be extracted.

A good analogy is the Californis Gold Rush in the 19th century. After they scoured the creek beds for all the easy gold with their pans and sluice boxes what was left had to be extracted by expensive hard rock mining.

The primary obstacles are political.

You can't grow long positions without growing short positions equally . It's a zero sum game.

Yes, and the short position is just as likely a supplier who is quite happy to deliver you the barrel at the contracted price, or to sell you a new contract when the old one expires.

Exactly! Plus, silver is easily stored — oil is hard to store (unless you count just leaving it in the ground). If you can’t hoard it, you can’t drive up the price. The U.S. Congress is hoarding far more oil than any speculators (by keeping it locked up in the ground).