Oil speculation

Hey don't lump oil companies in there! Haha, we had nothing to do with that, or high gas prices. It's the oil companies that are trying to meet the increasing global demand. I think this article has more do to with EPA corruption than big oil. The EPA Chief is such a tool, but you know after Bush's term is over, this guy is going to be a major player at some energy/auto consulting company.

I never understood this story, it seems like everyone knew this was stupid and he still went with denying the waiver. The funny thing is, everyone also knew he was going to deny it. Its the worst kept secret, that its not a secret.

From a stock perspective, (which I might add C is doing quite well lately) i think oil companies are becoming more like big pharma. Since our retail sales are actually hurting (we buy oil from ourselves and other companies to refine into gasoline and suffer since the margins are actually low). We are looking to slowly divest ourselves from worldwide gasolines sales to purely discovery. Its like big pharma in that they do all the research and testing to produce a blockbuster drug which produces a majority of their revenue - is that accurate?

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http://www.wtrg.com/prices.htm

Thx for writing H, and sorry in advance for this oil rant. Well, you are right that there's little $$ to be made in the downstream oil industry. Gas stations make like 5 cents profit for every gallon of fuel sold to us (less than 2%), and mostly rely on food/drink sales to survive. Refining companies like Valero (who don't drill or own fields) are hard-pressed to make a buck, especially with all the environmental and bureaucratic headaches involved with running/maintaining refineries safely and legally. But on the upstream side, it's basically more free money with no extra value added. Why else would backwards Russia, Venezuela, and Iran be global power players now? Due to global instability, rising demands, weak dollar, etc. oil used to cost $10/barrel in the '90s, but now is $130. Though the price jump defies traditional supply/demand economics. Global demand has not risen 10x since the '90s, and the dollar's value hasn't fallen to 1/10, so something else is at play. Energy trading has often been a corrupt enterprise (Enron, Standard Oil, etc.), but maybe we're reaching new heights now.

http://www.globalresearch.ca/index.php?context=va&aid=8878

The oil futures trading market is probably chock full of manipulators, if the stock market is any indication. This website has an interesting take on the current high oil prices (disclaimer: they're an anti-globalization group, so not sure how fair/valid their info is, but it seems plausible). A Senate investigation suggested that 60% of the current oil price is purely due to speculation, since every hedge fund, bank, and their mothers are rushing to buy up as much oil as possible now, since there are fears that we've reached peak oil (the maximum possible drilling capacity, so it's all downhill from here!). Oil prices on paper have very little to do with tangible supply/demand/scarcity/security issues. Remind you of the housing bubble?

And oil trading is poorly regulated by government, as you would expect. The Commodities Exchange Act (CEA) passed by Congress is supposed to enable the Commodities Futures Trading Commission (CFTC) to prevent speculation/manipulation from endangering fair trade and the US economy. Too late. Just as the NYSE has electronic and human safeguards to prevent or mitigate huge sell-offs (which backfired on Black Monday), the CFTC is supposed to limit oil trading if it becomes problematic. Probably hasn't happened. Plus companies have found ways to circumvent regulation and disclosure. In 2000, Enron and others lobbied Congress to exempt electronic "over-the-counter" futures trading from federal oversight, and US companies/investors can always trade overseas in London or Dubai to skirt domestic monitoring. So basically, high-level oil trading and the setting of prices are total black boxes to consumers and the government. If you thought subprime lending and mortgage-backed-securities trading were shady, I think oil futures could be worse.

And now that oil prices are so high and demand continues to grow, a vicious cycle is emerging. To hedge against future price hikes/shortages - or to simply make a buck - investors, companies, and governments are stockpiling oil like never before. Sure this is a prudent thing to do for risk mitigation, but it also serves to inflate demand/prices, thereby exacerbating the very problem they're trying to guard against. Of course this is great news for speculators - it's like buying up all the Purell and flu vaccines before winter hits.

Optional digression:

So in response (mostly to kiss voter ass before November), Congress overwhelmingly voted to temporarily halt shipments to America's Strategic Petroleum Reserve (SPR). Bush didn't veto the bill, though he opposes it and doubts it will help lower prices since maintaining the SPR accounts for less than 0.01% of global oil demand (near 85M barrels/day, of which the US uses 20, the EU 14, and China/Japan 7 each). The government adds about 70k barrels to the 97% full SPR each day, and has 0.7B barrels total in storage in TX and LA in case of WWIII (more likely because of Bush!). He has a good point that cutting off SPR shipments will have a miniscule effect on global prices, but for an oilman and Harvard/Yale grad, his flawed contradictory reasoning on ANWR is humorous. He often says we need to increase domestic drilling/capacity to stave off rising oil prices and dependence on unstable foreign oil producers. Fair enough. So he wants to drill in ANWR, REALLY wanted to for a long time (frankly at this point, I'm fed up with it and couldn't give a crap about the Sierra Club fighting to save some remote tundra and caribou herds anyway).

In a recent press conference, he stated that the DOE thinks there is enough oil in ANWR to make 27M gallons of gasoline/diesel. I laughed so I wouldn't cry. If that is true, what's the point in hauling millions of dollars worth of equipment and manpower to one of the most inhospitable places on Earth just to extract less than a day's worth of US gasoline consumption that won't be available for years? Oh yeah, to award lucrative contracts! And how are we going to get the oil down here – expensive pipeline, fuel-consuming trucks/train, or Santa Claus? For the record, it's funny that oilman Bush was WAY OFF on his ANWR estimate. The USGS thinks there are 10B "theoretically recoverable" barrels of oil under ANWR, give or take, and max production would be 0.9M barrels/day by 2025. But the DOE says it would only lower global oil prices by 50 cents and barely reduce foreign imports to the US. Though these calculations were made in 2004 when oil was $35/barrel, so ANWR might look like a more attractive option now. Either way, it's not a panacea.

http://www.photius.com/rankings/economy/oil_consumption_2007_0.html

http://news.yahoo.com/s/nm/20080519/pl_nm/usa_oil_bush_dc_1

http://priceofoil.org/2008/04/30/bush-open-anwr-to-ease-gas-crisis/

http://auto.howstuffworks.com/question417.htm

http://www.msnbc.msn.com/id/4542853/

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So I don't think that oil companies have colluded with corrupt politicians to inflate prices as of late, but they have in the past. I don't blame them for the current situation, though I resent them for taking advantage of it (record profits in back-to-back-to-back years for multiple companies while enjoying plenty of subsidies/tax breaks). Maybe their stocks don't totally reflect their earnings, because they're pumping a lot of that money back into R&D and new oil exploration as you said, which is getting more and more expensive to perform. We will probably never run out of oil in our lifetimes, because there's always a little drop here and there left in the rock. It just depends how much money and effort we want to spend to extract and refine it, and how much we can sell it for. I guess that's why many former USSR and Gulf nations are living large, because they sit on easy decent-quality oil that costs $5-10/barrel to extract (after drilling costs are paid back) and deliver to customers, who are paying much more for it. Of course some poorer oil nations lack the skilled workforce, sociopolitical stability, and industrial infrastructure to drill properly, so they hire foreign oil companies to do it for them. And usually the foreigners make out better financially, unless Venezuela or Bolivia decides to nullify contracts and nationalize everything.

http://www.washingtonpost.com/wp-dyn/content/article/2006/04/29/AR2006042900526.html

And sometimes the companies are seen as colonialists and exploiters, since they may destroy the local environment, prop up undemocratic regimes, abuse the locals, and even finance wars (no BS). I won't get into it now since it's a separate topic, but if you're curious, do a Google search for Mobil (now ExxonMobil) in Aceh Indonesia, Texaco (now ChevronTexaco) and Total (now TotalFinalElf) in Myanmar, the same 3 companies in Angola, or RoyalDutchShell in Nigeria to hear some true horror stories. And of course Chevron is in the news for Texaco's alleged pollution of the Ecuadoran Amazon. Didn't they take out a full-page ad to protest the two Ecuadorans winning the prestigious Goldman Environmental Prize for fighting against ChevronTexaco? To be fair, Chevron claim that Ecuador's state oil company did the bulk of the polluting, and they already settled with the Ecuadoran government for $40M in clean-up costs. Though this time there is a civil suit for billions on behalf of the villagers impacted.

http://www.reuters.com/article /environmentNews/idUSN1444697220080414

http://www.reuters.com/article/latestCrisis/idUSN02415548