Here are four stories about energy that appeared in the news recently:
*AP reported: President Barack Obama pushed Congress Tuesday to give oil market regulators more muscle to deter price manipulation by speculators, the latest White House response to determined Republican attacks on administration energy policies amid high gas prices at the pump.
*Reuters reported: Argentine President Cristina Fernandez unveiled plans on Monday to seize control of leading energy company YPF, drawing swift warnings from key trade partners and risking the country's further economic isolation.
Washingtonexaminer.com reported: Department of Interior Secretary Ken Salazar said that "no one knows" if gasoline prices in the United States will reach $9 per gallon, and acknowledged that the possibility is outside his control.
Cnsnews.com reported: Sen. James Inhofe (R-OK) …quoted a little-watched video from 2010 of Environmental Protection Agency (EPA) official, Region VI Administrator Al Armendariz, admitting that EPA’s “general philosophy” is to “crucify” and “make examples” of oil and gas companies.
OK, so what does all this mean?
Well, let’s look at the players. It is A) private-sector oil companies, whose prices and activities are controlled by a global OPEC cartel, powerful environmental groups and world governments; and B) futures traders (called “speculators”) who operate in a free market.
They both are under attack from the C) the socialist left and many world governments.
And remember that $9 a gallon gas in places like Greece and Norway comes from heavy government taxation from the socialists. Because even with the global price of oil being artificially inflated by OPEC, America still has $4 – $5 a gallon gasoline.
That price easily could be $2 a gallon for the next 50 years here in the United States if we had the right pro-energy policies. Common sense Step #1: Convert our 500+ coal-burning electricity-generating power plants to nuclear power. Then convert the 1.2 billion tons of American coal burned every year in those plants into gasoline and heating oil. This would flood America with billions of barrels of domestic fuel and cause world oil prices to crash because the US could replace a large percentage of its crude oil imports with oil derived from American coal.
But rather than propose common-sense solutions Obama again is blaming “speculators” for high gasoline prices. This is the same template that the Democrats used in Spring-Summer 2008 when oil prices spiked.
So who are these so-called “speculators”?
Actually the term “speculators” is just a negative slander by liberals on buyers and sellers operating legally in established futures markets. These “speculators” are actually ‘futures traders’.
Futures markets are trading exchanges that must exist for an orderly capitalist economy to survive. These futures markets are places where, for example, a railroad company that uses a lot of fuel can buy 1 million gallons of fuel today at a fixed per-gallon price for delivery one year from now, i.e., in the future.
Futures markets exist so that companies can plan their yearly economic strategy based on fixed costs. In other words they buy the fuel at a certain price today and know that it will be delivered at that price next year no matter what happens to the actual price of fuel in the meantime.
If they bid and find a seller, the deal is done. If they don’t find a seller they keep bidding until they find a seller.
Meanwhile the price of fuel could rise or fall in that year but it makes no difference. The futures trade locks the price in. Thus the futures traders indeed are “speculating” on the price of fuel (or oil or coal or wheat). And so what? It is normal and legal. They put in a bid. And their bids are a reflection of what they think is going to happen to the future price of fuel. And the buyers will get the fuel at a certain bid price according to how sellers view the market.
So if buyers and sellers ‘bid up’ the price of oil then they are not confident that the price is going to stabilize or fall. And their lack of confidence usually centers on world economic conditions or global oil-production policies. So:
*If oil companies are nationalized, futures traders are going to ‘bid up’ the price of oil because nationalization always harms oil supplies (see below) and drives prices higher.
*If environmentalists and governments restrict oil drilling or interfere in the supply chain – like Obama stopping the Keystone pipeline – traders lose confidence and ‘bid up’ prices over fears of decreased supplies.
*If terrorists interrupt oil supplies by destroying pipelines, or if labor unions disrupt the supply with strikes, the price is going to be ‘bid up’ because of uncertainty and anticipated shortages.
Today in Spring 2012 traders have little reason to be optimistic that oil prices will come down any time in the near future. In other words prices are rising because the traders are reacting naturally to current economic, political and social forces and conditions by ‘bidding up’ the price of oil. This comes on top of relentless artificial price increases by OPEC.
So why is Obama blaming “speculators” again?
In order to shift the spotlight from his own policies which are obstructing our energy supplies. It is the anti-oil policies of leftist nationalizers and Democrats and environmentalists and labor unions and Islamic terrorists that are making futures traders more nervous than ever and causing the prices on futures markets to rise, which in turn pushes up gas prices at the pump.
Then when an EPA official says he is going to “crucify” the oil companies, he is saying that he is going to seek to hurt the very companies that supply our energy. And this is the type of language that rattles futures markets and makes traders ‘bid up’ the price of oil. They say, “I’ll buy fuel at $5 a gallon because next year I think it is going to be $6 a gallon.” And that is why senator Inhofe is utterly correct in taking on this EPA thug. Because this EPA guy is inflaming the oil market with his reckless language.
Unfortunately we know that this is how the bureaucrats at EPA and in the enviro movement think every day. And that is why we have an evolving energy price crisis.
On the other hand if traders think that fuel prices are too artificially high or that they are going to fall because, say, the US announces a huge new drilling program they say, “I will only pay $4 a gallon”, i.e., they ‘bid down’ the price of oil.
And futures traders have just as often ‘bid down’ the price of oil as ‘bid up’ the price. But the Democrats do not want you to know this so that they can blame “speculators” for something that they are not even causing in the first place.
So Obama is full of baloney blaming “speculators”. He does not know the first thing about futures markets anyway. Don’t forget… he went to Harvard.
Meanwhile the left-wing Argentine president is going to harm the global oil supply by nationalizing it in her nation which will cause futures markets to push up the price again.
How will her plan harm supplies?
Here below is just a hint of what happens when nationalization takes place. You can read this type of report all over the web covering myriad nationalizations throughout the decades. This is about Venezuela from foxnews.com on December 10, 2010 (paragraph italicized for emphasis):
CARACAS, Venezuela – U.S. officials detailed declining conditions in Venezuela's oil industry in memos released by WikiLeaks, saying the country's growing economic problems are taking a toll on President Hugo Chavez's popularity.
In one confidential document dated Oct. 15, 2009, the U.S. Embassy said "equipment conditions have deteriorated drastically" since the government expropriated some 80 oil service companies earlier that year. It said safety and maintenance at the now state-owned oil facilities were in a "terrible state."
…The embassy also reviewed the government's seizures of private companies, concluding that "the mostly negative economic consequences of nationalizations … will continue to play out in 2010."
Look at that: Within just one year of nationalization "equipment conditions have deteriorated drastically”. Because nationalization always results in deteriorating equipment and falling production. Because the minute a government takes over an industry the corruption starts and everything begins to be stolen and neglected by the idiot bureaucrats. That is why communist nations always fall into disrepair and decay and the people lack for simple things like bread.
Now Obama wants to pursue investigations into “speculation” and by association he also is seeking to target the private oil companies. Yet the alternative is more government control and more nationalizations.
This is liberal stupidity and demagoguery…
When gasoline prices spiked in 2008, the Democrats blamed Bush, Cheney, the oil companies and “speculators”.
Now here is an excerpt from rff.org (Resources for the Future) about why the 2008 oil price spikes really happened:
'Even seemingly small shocks may have large effects. Can they help explain the spike in oil prices in the first half of 2008? It was definitely a time of significant upheavals, some with the potential for sustained disruption of supplies. In February 2008 Venezuela cut off oil sales to ExxonMobil during a legal battle over nationalization of the company’s properties there. … in late March (in Iraq) saboteurs blew up the two main oil export pipelines in the south—cutting about 300,000 barrels per day from Iraqi exports. On April 25, Nigerian union workers went out on strike, causing ExxonMobil to shut in production of 780,000 barrels per day from three fields. Two days later, on April 27, Scottish oil workers walked off the job, leading to closure of the North Forties pipeline that carries about half of the United Kingdom’s North Sea oil production. As of May 1, about 1.36 million barrels per day of Nigerian production was shut in due to a combination of militant attacks on oil facilities, sabotage, and labor strife…. On June 19, militant attacks in Nigeria caused Shell to shut in an additional 225,000 barrels per day. On June 20, just days before the price of oil reached its historic peak, Nigerian protesters blew up a pipeline that forced Chevron to shut in 125,000 barrels per day. Each of these events clearly registered in the spot market. It is not implausible to believe that, arriving in quick succession, they contributed heavily to the rapid acceleration in the spot price of oil.'
Thus the overall problem in 2008 was not market manipulation, oil company profits or futures speculation as the media charged but rather it was loss of supply either at the hands of terrorists, nationalizers (Venezuela) or labor unions which the same media never bothered to report on so that they could blame Bush and the oil companies and “speculators”.
Now look at what Reuters.com added about Argentina:
Until recently, (energy company) YPF had a harmonious relationship with Fernandez, whose increasingly interventionist and off-beat policies infuriate critics. She praised YPF when it found massive resources of shale oil and natural gas in late 2010.
…She has also renationalized the country's flagship airline, Aerolineas Argentinas.
Such measures are popular with ordinary Argentines, many of whom blame free-market policies such as the privatizations of the 1990s for the devastating economic crisis and subsequent debt default of 2001/02.
Her announcement of the YPF takeover plan, however, drew strongly worded warnings from Spain, Mexico and the European Union, a key market for Argentina's soymeal exports.
In other words the man in the street in Argentina thinks that nationalization is a good idea because all the big newspapers down there are socialistic and say so. The man in the street knows nothing about what really happens under nationalization. Then the man in the street complains when oil prices go up because the oil industry deteriorated under government control.
This is the same pattern that we are seeing here in the US: Blame everyone else for oil price spikes except the Democrats, environmentalists and EPA bureaucrats who are really causing them.