oil/food/oil/food - Tilted Forum Project Discussion Community

roachboy · 06-03-2008, 03:33 AM

moving is a pain in the ass. if you move to a place that is not crosscut with wireless networks, one has to wait around for the cable fucking guy.

i've been interested in the analyses of the relations between oil and food price spikes. it seems to me that finding much coherent in the american press about it is curiously difficult, given the fantasy-consensus that markets are like weather. and besides, this is a bummer, so it's better to focus on lint. anyway, the first piece is an interesting short overview by daniel yergin, which sets the stage:

Quote:

Oil has reached a turning point

By Daniel Yergin

Published: May 27 2008 18:50 | Last updated: May 27 2008 18:50

Oil prices at this level take us into a new world – “Break Point” – where the question is not only “how high can the price go?”, but also “what will be the response?” Is this the point at which oil begins to lose its almost total domination in transport?

Yes, the current high oil price may be a demand shock triggered by what had been several years of excellent global economic growth, and thus more benign than supply shocks caused by 1970s-style disruptions. It is amplified by a dollar shock caused by the fall in the dollar and by the embrace by financial investors of oil (and other commodities) as an asset class.

What is now unfolding is an oil shock. The fact that the world could take $80 in its stride in the context of strong economic growth does not mean that a price that is 60 per cent higher at a time of a credit crunch will be so easily assimilated. The economic toll is mounting. Airlines are certainly in shock as they start charging for checked luggage to find a way to pass on their biggest cost. Carmakers are reeling. Retailers are tracking the shrinking wallets of their customers. The rising prices for food reflect, in part, the impact of higher energy costs.

Oil supply, one might think, should be responding. Yet there are three obstacles. The first is time. These high prices have not been around all that long and development of new supplies takes many years. The second is access to new resources. And the third factor is what is happening to costs. The public focuses on the price at the pump, but the oil industry is preoccupied, and indeed somewhat stymied, by how rapidly their own costs are rising – far exceeding the rate of general inflation. The latest IHS/Cambridge Energy Research Associates (Cera) Upstream Capital Cost Index – the consumer price index for the oilfield – shows that costs for developing a new oil or natural gas field have more than doubled in four years. Some costs have risen even more: a deep-water drill ship might have cost $125,000 per day to rent four years ago. Today it goes for more than $600,000 per day – if you can find one.

Everything is in short supply – people, equipment, engineering skills. Beomgcause of the contractions that came with the price collapses of 1986 and 1998, there is a missing generation in the oil industry. More than half the petro-professionals are less than 10 years away from retirement. A petroleum engineer graduating this year is likely to receive a higher starting salary than an Ivy League graduate going to Wall Street. This competition for people and equipment has driven up costs dramatically. These costs and shortages are now causing delays to new projects.

Demand is already responding to the new prices except in those parts of the world where retail fuel prices are controlled or subsidised. What can be done to improve the supply picture? The International Energy Agency’s work on future supply is getting attention. But the IEA’s message is not that the resources are not there. Rather it is the likely risk that the required investment will be “deferred” – will not take place in a timely way – because of these rising costs and because governments restrict access or postpone decisions.

This underscores the basic need during an oil shock – to encourage the timely investment that will relieve the pressures. That means encouraging efficient decision-making by resource-holding countries and facilitating complex projects that bring on new supplies. An example of the difference engagement can make is the support the US administration gave to the Baku-Tbilisi-Ceyhan pipeline. Without that new 1m barrels a day capacity pipeline we would not have that additional oil flowing to the Mediterranean.

The impact of rising oilfield costs and the importance of encouraging investment need to be taken into account when considering a “windfall profits” tax or other new taxes. However attractive politically, the effect would be to constrain investment and to lead to lower production levels than would otherwise be the case.

Two years ago, Cera created its Break Point scenario, to explore how supply disruptions and delayed development would lead to $120-$150 oil. What was not fully anticipated was the impact of rapidly rising costs. Not anticipated at all was a falling dollar and how it has stimulated a rush by investors into oil. The real question in the scenario was what would be the response to such high prices. Could oil lose its traction?

That answer is already unfolding – in terms of public policy, technology, consumer response and corporate strategies. At the end of 2007, as oil was heading towards $100 for the first time, the US Congress passed the first bill requiring an increase in automobile fuel efficiency in 32 years. Consumers now want to buy fuel efficiency not sport utility vehicles. Hybrids are going from fringe to mainstream and a concerted assault has been launched on the problems of battery technology.

While the backlash against biofuels has gained in intensity with rising food prices, biology is now engaged with the energy business as never before; and biofuels will be a growing part of the motor fuel pool. If “Ethanol” was a country, it would have been ranked number five last year among countries in terms of production growth.

The break point is already here. Oil is in the process of losing its almost total domination in ground transport. It is not going to fade away soon – such is the scale of its use and convenience, it will retain a dominant position for many years. But it will share the transport market with other sources as never before, reinforced by a new drive for fuel efficiency.

The writer is author of ‘The Prize: the Epic Quest for Oil, Money and Power’, and is chairman of Cambridge Energy Research Associates

http://www.ft.com/cms/s/0/57b6ff18-2...0779fd2ac.html

so what do you think is driving this and what might be done?
yergin makes two different types of argument:

conjuncture-->
3 or 4 basic points:

a) rising production costs
b) weak dollar
c) commodity speculation
d) biofuels.

structure--->
a) the role and status of transportation/logistics in the current "globalizing capitalist" model.

the last point is probably the real connector between oil and food price spikes---and is a problem with the entire model (one of them)--but that maybe we can get to either here or in another thread.

focusing on the conjunctural factors, then, because after all this is amurica and we are only thinking in these terms...

the causes are probably all of these--with the first being the point which for me at least requires some research still (if any of you have been thinking about this matter and have investigated it, please post what you've found....)

this morning, though, i found two articles which emphasize basically different interpretations.

from a cluster of articles in the guardian about the ongoing food price spike/crisis whcih has been affecting the southern hemisphere quite radically already--and which i'll make another thread about once the comcast asshat shows up---this piece about the connections of american biofuel production and its underlying subsidy pattern (go neoliberalism, its ideology and its reality) and fuel costs:

Quote:

US downplays impact of biofuel subsidies on world food prices

American subsidies for biofuels have emerged as the focus of controversy at this week's UN food summit even before the meeting formally started this morning.

The US agriculture secretary, Ed Schafer, stirred controversy on the eve of the Rome summit with his defence of corn ethanol, arguing that biofuel production only contributed "2 to 3%" to the recent dramatic rise in global food prices.

The claim clashed with research carried out by several international organisations. The International Monetary Fund (IMF) has estimated that 20 to 30% of the food price increases in the past two years are accounted for by biofuels, and that last year they accounted for about half the increase in demand for principle food crops.

The OECD has published an estimate that, between 2005 and 2007, biofuels explained nearly 60% of the increase in useage of cereals (principally in the US) and vegetable oils (mainly in Europe).

Rob Bailey, a biofuels expert at Oxfam, questioned the accuracy of Schafer's claims and said it was critical to focus on eliminating biofuel subsidies in the US as it was one of the few policy levers in the hands of western governments.

"We can't control the weather, we can't control the growth of demand in China, we can't control the oil price but we can control biofuels policy, because it's politically created in the first place."

Schafer said he was prepared to examine conflicting evidence about biofuels and if the US numbers were wrong, "then the United States is going to have to develop a public policy that is appropriate in the global marketplace." But he added: "We can't say what that is right now because we believe our numbers are correct."

He also repeated US claims that corn ethanol was "an efficient producer of energy" despite studies suggesting that it offered little or no environmental benefits over fossil fuels.

The Brazilian president, Luiz Inácio Lula da Silva, also came to Rome to defend his country's cultivation of sugarcane ethanol. Brazilian officials were this morning distributing glossy brochures extolling the fuel's environmental and social benefits.

Bailey said that Brazil's biofuel programme would be less controversial than America's, as the price of sugarcane is not strongly correlated to the world prices of staple foods and Brazil had extensive arable land not being used to full capacity.

In his opening speech, the UN secretary general, Ban Ki-Moon had been expected to criticise US subsidies for biofuels, which amount to about $11bn (£5.6bn) a year. But in the final text he said only: "We should reach a greater degree of international consensus on biofuels."

and from this morning's financial times, an article concerning commodity speculation and oil prices which centers on george soros:

Quote:

Soros sounds alarm on oil ‘bubble’

By Joanna Chung in Washington

Published: June 3 2008 05:06 | Last updated: June 3 2008 05:06

Billionaire investor George Soros is to tell US lawmakers on Tuesday that “a bubble in the making” is under way in oil and other commodities and that commodity indices are not a legitimate asset class for institutional investors.

He is expected to tell a congressional committee that rising oil prices are the result of a number of fundamental changes and factors in the market, but that the relatively recent ability of investment institutions to invest in the futures market through index funds is exaggerating price rises and creating an oil market bubble.

“I find commodity index buying eerily reminiscent of a similar craze for portfolio insurance which led to the stock market crash of 1987,” Mr Soros will tell the Senate commerce committee, according to a draft text seen by the Financial Times.

“In both cases, the institutions are piling in on one side of the market and they have sufficient weight to unbalance it. If the trend were reversed and the institutions as a group headed for the exit as they did in 1987 there would be a crash.”

The comments by Mr Soros, chairman of Soros Fund Management, a $17bn hedge fund, are likely to fuel a debate about the role of speculators – including hedge funds, pension funds and other institutional investors – in the rising costs of energy and food. The fund declined to comment on its specific market positions.

Regulators and other officials have said surges in oil and commodity prices are mainly due to fundamental supply and demand factors combined with a depreciating dollar, which is used to price and trade commodities.

However, some politicians believe that the new wall of money entering the asset class through commodity indices is a key factor. Tuesday’s Senate hearing into energy market manipulation and federal enforcement regimes is one of a series of held in Washington in recent months examining aspects of the market.

Mr Soros said index-buying was based on a misconception and commodity indices are not a legitimate asset class. “When the idea was first promoted, there was a rationale for it ... But the field got crowded and that profit opportunity disappeared,” his prepared remarks say.

“Nevertheless, the asset class continues to attract additional investment just because it has turned out to be more profitable than other asset classes. It is a classic case of a misconception that is liable to be self-reinforcing in both directions.”

Mr Soros will say a crash in the oil market “is not imminent”. But he says it is desirable to discourage commodity index investing – or the “elephant in the room” in the futures market – though not with more regulation.

http://www.ft.com/cms/s/0/5dbd0ffe-3...nclick_check=1

then there's the story of the collapsing value of the dollar since january...

this is still partial, but enough to maybe set the wheels of thinking into motion:

what do you think is going on here?
what if anything can be done about it?

perhaps this can be a collective thought experiment more than the ususal differend between folk who like the idea of markets in the abstract as over against folk who see economic activity as a type of social activity more broadly and so who reject the separation....

loquitur · 06-03-2008, 06:23 AM

The price of gasoline should go higher. I propose a gas tax to place a floor price of $6/gallon on gasoline. I have to give some thought to what to do with the proceeds - my first instinct is to set up superIRAs for the populace - but to me that's less important than making gasoline more expensive. This is a basic Pigovian tax, and the benefits would flow broadly: environmental improvement, land use rationalization, increased population densities (with corresponding cultural benefits), better mass transit. And best of all it wouldn't force anyone to do anything - if you still want your SUV, you can have it, but you have to be willing to pay for the fillup.

Baraka_Guru · 06-03-2008, 10:36 AM

Reducing subsidies to oil & gas and meat & dairy industries would help as well. This would result in increased (and more realistic) prices of oil and animal-derived food products. People would then use these with more moderation. You know, closer to what the rest of the world uses. (Even if you exclude the Third World.) The money could then be diverted into areas that would help with energy and food challenges.

I don't have much time right now to comment on the big picture of this issue. I will think more on this. It's been on my own mind lately too.

ASU2003 · 06-03-2008, 03:30 PM

Maybe we should put an Iraq War tax on oil in order to pay for it now instead of letting the old guys in the congress/senate pass the buck to the younger generation.

What we need to focus on is renewable power generation and improving the electrical grid. Then we can figure out how to transport people using this power source.

But the first article got it right. I bet most of this was caused by former housing/dot-com speculators dumping money into the safe bet that is oil. More and more people are wanting to use it, and we aren't making any more than before.

Derwood · 06-03-2008, 03:44 PM

Quote:

Originally Posted by loquitur

The price of gasoline should go higher. I propose a gas tax to place a floor price of $6/gallon on gasoline. I have to give some thought to what to do with the proceeds - my first instinct is to set up superIRAs for the populace - but to me that's less important than making gasoline more expensive. This is a basic Pigovian tax, and the benefits would flow broadly: environmental improvement, land use rationalization, increased population densities (with corresponding cultural benefits), better mass transit. And best of all it wouldn't force anyone to do anything - if you still want your SUV, you can have it, but you have to be willing to pay for the fillup.

with all due respect, this idea sucks. $6/gallon gas would not only make it cost prohibitive to drive, but would also make it nearly impossible to afford to fly, would make grocery bills go through the roof, etc., etc., etc. perhaps you're a trust fund baby or self-made millionaire, but some of us can't afford to pay $6/gas PLUS $6/gal for milk, $2.50 for bread, etc. due to the cost of shipping goods

Willravel · 06-03-2008, 03:44 PM

There are too many people on the planet and it's making this issue a lot more difficult. "What can we possibly replace oil with?!" With 7 billion people? We probably can't. I mean we can give it a shot—combining a thousand different alternatives at once—but ultimately it seems pretty clear that there will be a lot more walking and bike riding in the near future. If we reduce consumption of energy to moving and cultivating food, AND we reduce the population by requesting (or providing incentives) for smaller families, we might end up with an equilibrium. Well we might have ended up with an equilibrium had we started already. We haven't, so we probably won't.

Derwood · 06-03-2008, 03:49 PM

i don't buy that this is entirely a supply/demand thing. Venezuelans still pay $0.29/gal for their gas. it's equal parts a political thing (ie the Chavez and/or the Middle East hanging the US out to dry on supply) plus a market thing (commodities are the trendy thing to trade these days, but hopefully the bubble will burst soon)

dksuddeth · 06-03-2008, 03:52 PM

as with all worldwide and nationwide issues, it is the average citizen (you and I) that both pay the price as well as set the policy. For example, in my city (bedford, TX) there is only one form or public transportation. A train that goes from Fort Worth to downtown Dallas. 6 months ago, there were only a handful on that train at 7 am. Now, it's standing room only and there is absolutely no parking spaces available. So full in fact, that the local PD visits every half hour to write parking tickets for all the illegal parking.

One has to wonder, is this the market playing itself out or is it a conspiracy to make us even further slaves to the corporate controlled government? (probably just got this thread moved to paranoia)

Baraka_Guru · 06-03-2008, 07:34 PM

Quote:

Originally Posted by Derwood

i don't buy that this is entirely a supply/demand thing. Venezuelans still pay $0.29/gal for their gas. it's equal parts a political thing (ie the Chavez and/or the Middle East hanging the US out to dry on supply) plus a market thing (commodities are the trendy thing to trade these days, but hopefully the bubble will burst soon)

It's not exactly the case you've tried to make here.

Here are your top five exporters (barrels per day, March '08) of petroleum to the United States:

Canada (2,542)
Saudi Arabia (1,542)
Mexico (1,358)
Nigeria (1,174)
Venezuela (1,033)

The rest of the top 15 each exports less than 1,000 per day, most of them less than 300.

I can't agree with you that it's equal parts politics and market speculation. That is a bit of a stretch. You should not discount supply and demand, as it is a significant factor. The market speculation factor should be a short-term one, and time will tell just how much of an impact it has. Though many analysts doubt oil will drop below $100 anytime soon, if at all. Some are predicting $200 by 2010. The factor that few have raised here on TFP is that elevated oil prices expand the domestic markets where oil is produced. Look at Alberta.... BOOM! What happens next? Alberta's domestic demand for oil increases to fill the void of the expanding economy. Demand has risen, meaning there will be less to export in the long term. Speculation may have fueled demand in this case, but realize the two are connected, and the latter lasts much longer than the former. Oil prices will remain high, especially if they're right about peak oil.

So...if oil prices continue to rise, the alternatives begin to look better. Biofuels: Are they the answer? I don't know. I'd like to think they are one solution amongst many, but we're going about it the wrong way with corn. We feed much of that low-grade stuff to raise dairy and meat animals. Your rich foods will soon be more expensive. The price spikes will likely outstrip the spikes seen in grains, mainly due to the extended use of oil and grain products to raise and transport the animals. But I don't mind; we should be eating less of that stuff anyway--maybe start following the food pyramid more closely.

Quote:

Originally Posted by dksuddeth

One has to wonder, is this the market playing itself out or is it a conspiracy to make us even further slaves to the corporate controlled government?

Market. I think the corporations would rather you all drive your own cars than take the train. False sense of independence and all that.

jorgelito · 06-03-2008, 08:17 PM

Much ado over nothing. Start taking accountability and personal responsibility for yourselves. EX:

1. Be a smart consumer. Budget carefully and LIVE WITHIN YOUR MEANS.
2. Drive less, consume less oil/gas
3. Grow your own vegetables. I started a vegetable garden earlier this year. It's so much better for you, really.

As a Conservative, I feel it is my duty to conserve resources. That is the core of being conservative.

There is no population crisis. There is a population distribution problem however, including things such as refugees, migration.

No more taxes, please. It only hurts the poor and middle class. If anything, time to reduce taxes and reduce spending.

Personally, I would like to see alternative energy (not corn or ethanol or hydrogen thank you!) more readily researched and studied. I don't understand why we don't go this route and become truly energy independent. Our current policy is extremely short-sighted and stupid (pardon my language). Solar, nuclear, tidal, wind: so many options we could explore. My Republican buddies were one of the first families to have a solar powered house when I was a child growing up in New England. It has more than paid for itself by now.

Willravel · 06-03-2008, 08:26 PM

Quote:

Originally Posted by jorgelito

As a Conservative, I feel it is my duty to conserve resources. That is the core of being conservative.

As a liberal I feel it's my responsibility to liberate alternatives.

jorgelito · 06-03-2008, 08:29 PM

What's wrong with conserving resources and alternative energy resources??

Willravel · 06-03-2008, 08:40 PM

Quote:

Originally Posted by jorgelito

What's wrong with conserving resources and alternative energy resources??

Why would you think there was anything wrong with them??

jorgelito · 06-03-2008, 09:12 PM

Wait, I don't think there's anything wrong with them (see post). I guess your post made it seem like it was contradicting my post or something like that, because you were quoting my post. *dizzy*

Ah, well...reset

Willravel · 06-03-2008, 09:39 PM

I'm razzing you. Consider it 6-months-away hazing.

host · 06-03-2008, 10:08 PM

roachboy, temporarily, demand has outpaced supply, more supply is predicted to come on line in the next two years, as high prices push down demand, and the price of oil will plummet. I predict $2.00 gasoline in the US, in the next 18 months, and the cycle will play out again, as it did in '86 and in '98......

We in the US use 25 percent of entire world daily output, everyday....21 million bbls of petroleum equivalents, more than 60 percent of it imported. I think US consumption will drop 7 or 8 percent between now and next memorial day, especially if gasoline price stays above $3.50, for much of that time span.

Quote:

http://www.news.com.au/business/stor...00-462,00.html
http://online.wsj.com/article/SB1212...fox_australian

Oil exporters unable to match demand

By Neil King and Spencer Swartz in New York

May 30, 2008 04:21am
Article from: The Australian

Font size: + -

Send this article: Print Email

THE world's top oil producers are proving unable to put more barrels on thirsty world markets despite sky-high prices, a shift that defies traditional market logic and looks set to continue.

Fresh data from the US Department of Energy shows the amount of petroleum products shipped by the world's top oil exporters fell 2.5 per cent last year, despite a 57 per cent increase in prices, a trend that appears to be holding true this year as well.

There are several reasons behind the net export decline. Soaring profits from high-price crude have fuelled a boom in oil demand in Saudi Arabia and across the Middle East, leaving less oil for export. At the same time, ageing fields and sluggish investments have caused exports to drop significantly in Mexico, Norway and Russia.

The Organisation of Petroleum Exporting Countries also cut production early last year and did not move to boost supplies again until last northern autumn.

In all, according to the Energy Department figures, net exports by the world's top 15 suppliers, which account for 45 per cent of all production, fell by nearly a million barrels to 38.7 million barrels a day last year. The drop would have been steeper if not for heightened output in less developed countries such as Angola and Libya, which are not big energy consumers.

For all the attention paid to China's increasing energy thirst, rising energy demand in the Middle East may pose the greater challenge. Last year, the region's six largest petroleum exporters - Saudi Arabia, United Arab Emirates, Iran, Kuwait, Iraq and Qatar - curbed their output by 544,000 barrels a day. At the same time, their domestic demand increased by 318,000 barrels a day, leading to a loss in net exports of 862,000 barrels a day, according to the U.S. Energy Information Administration.

Why do you think these guys are sitting on their hands? They have a disincentive, this late in the cycle, to commit to increasing supply, because it will come online into what they forsee, will be a glut of new supply, during a period of an economic contraction that gained momentum from the previous price spikes.....

Quote:

http://www.cattlenetwork.com/Content...ntentID=220014
5/8/2008 1:17:00 PM

TALES OF THE TAPE: Oil Companies Focus On Buybacks, Not Renewables

HOUSTON (Dow Jones)--The most recent earnings reports from the oil giants show that despite pressures to spend part of their eye-popping profits in alternative-energy projects, oil companies are sticking to their guns by bolstering share-buyback programs and putting off major portfolio diversification.

....Chevron Plans Buyback Of Up To $15B

Smaller peers Chevron Crop. (CVX) and ConocoPhillips have made bigger commitments than Exxon toward investing in renewable fuels; however, they are investing much more in buying back their own shares.

While Chevron said last year it will spend up to $15 billion in share buybacks over the next three years, the company will invest $2.5 billion from 2007 to 2009 in renewable-energy projects and energy-efficiency services.

"We are investing aggressively in new energy projects to boost production, and we are looking for researching opportunities," said Chevron spokesman Kurt Glaubitz.

ConocoPhillips Chief Executive Jim Mulva said two weeks ago that if the Houston company finds itself with extra cash at the end of the year, it will likely increase its share-repurchase program rather than bolster its project investment. Mulva said in March, however, that ConocoPhillips, the third-largest U.S. oil company by market value, could spend up to $3 billion acquiring a non-corn-based ethanol business. He said any larger acquisitions were unlikely.....

This was why I did a recent thread proposing US government takeover of the petroleum exploration, drilling, and refining businesses in the US. It is no longer a business to be left to private business to be trusted with the responsibility of providing a prolific, lowest possible priced, domestically sourced supply of energy. This is a business that does not respond to classic demand driven price incentives, because the price rises, just as it does in homebuilding, to the point that the market gets crushed, collides with a growing supply, and kills the suppliers who are more nimble than they are greedy and ambitious. All of the national scale homebuilders will be bankrupted in the next four years, and the major oil companies will do their best now to be lean, mean, and underinvested in exploratory petroleum projects, until just before the next cycle low.....4 or 5 years from now.

guyy · 06-04-2008, 04:24 AM

Couple things to add to the mix:

The economic "downturn"makes commodity production slightly less attractive. Conversely, speculation in raw materials & basic necessities has become that much more appealing. Call it a vote of no-confidence in the capitalist system on the part of the capitalists themselves.

Reducing consumption in the US would be a good thing, but the infrastructure isn't there. For example, US railways are jammed up with freight trains. There is a need for more track. Instead of a debacle in Iraq, we could have had real high speed rail, running on its own track.

loquitur · 06-04-2008, 04:27 AM

Only if you think the only feasible energy source going forward is petroleum. If petroleum gets expensive, other alternatives become more economically feasible. And behavior patterns change to account for the new market realities. (That's why Derwood's post up top is unpersuasive - it ignores economic dynamism and human adjustment to new circumstances. Which doesn't mean there won't be some difficulty in the short term for some people.)

william · 06-12-2008, 04:49 AM

The only real driver of the price of oil is the speculators. It's not demand vs. supply - the demand has dropped. Ask GM or Ford how much of an increase they have for pick-ups/suv's. Oh wait, they're suspending those operations.
The speculators need to be controlled as they were for power following Callifornia's brown outs.

Tully Mars · 06-12-2008, 05:23 AM

Quote:

Originally Posted by loquitur

Only if you think the only feasible energy source going forward is petroleum. If petroleum gets expensive, other alternatives become more economically feasible. And behavior patterns change to account for the new market realities. (That's why Derwood's post up top is unpersuasive - it ignores economic dynamism and human adjustment to new circumstances. Which doesn't mean there won't be some difficulty in the short term for some people.)

I agree we need to get yourselves off the oil. It's the process that concerns me. As the price goes up, without any viable options, the middle class and poor are going to get screwed and screwed hard. If diesel goes up so does everything you need like food. People are already having trouble paying their mortgages. Add 25% to 50% to their needs costs and there's going to be real problems for many.

Simply pricing gas at $10 a gallon and waiting for the market to find another way for people to get to work or find a way to afford the increased price of food sounds like a bad idea to me. I don't think the problems will be as short term as you seem to think. Most peoples largest investment is their house. If this "plan" ends up costing, as I think it will, a large % of people their home the effects will most certainly not be short term.

roachboy · 06-12-2008, 05:54 AM

the idea of a market finding a solution is a strange anthropomorphism.
it imputes agency to a network of networks.
why does that come from? hegel? god?

infrastructure-level change requires planning. capitalism in its particularly american variant has trouble with long-term thinking and trouble with even maintaining infrastructure without state support much less building it (think electricity markets in kali or attempts to sell off water supply management)...so the requisite change in infrastructure that would enable rail transport to become a more central (and rational) part of getting from a to b would require state action, like it or not. state action requires a plan.

gotta go.

Baraka_Guru · 06-12-2008, 07:21 AM

Quote:

Originally Posted by william

The only real driver of the price of oil is the speculators. It's not demand vs. supply - the demand has dropped. Ask GM or Ford how much of an increase they have for pick-ups/suv's. Oh wait, they're suspending those operations.
The speculators need to be controlled as they were for power following Callifornia's brown outs.

You make it sound like speculation is the only problem.

As I hinted at in a previous post, as the price of oil rises, exports begin to falter as oil-producing countries hang onto more of it for local use while their economies expand on oil profits. This invariably causes a further rise of oil prices.

Oil inventories are another concern. It seems we aren't completely sure if some nations (yes, even in the U.S.) can meet demand during certain periods. (This fuels speculation.) Also, some oil-producers (Mexico, for example) are seeing dropping output. (This fuels speculation.)

You cannot isolate this issue to one cause. There are several. It is complex. Our economies are deeply dependent on this resource, and it isn't just for personal transportation. There very well might be a bubble, but if it pops (yes, "if"), don't expect things to return to "normal." Cheap oil as you know it is a thing of the past. I doubt we'll ever see oil drop much below $100/barrel, if ever. And I'd consider us fortunate if we don't see it hit $200 in the near future. An oil bubble isn't like a housing bubble or other bubbles. It's a different story here.

Paq · 06-12-2008, 09:09 AM

just something to watch: corn futures have hit limit up fairly repeatedly recently. IE, thye traded too high too quickly and were locked from trading for periods of time..

corn is now a huge part of our Energy AND our food...

just something else to throw in

guyy · 06-12-2008, 10:11 AM

Quote:

Originally Posted by Paq

just something to watch: corn futures have hit limit up fairly repeatedly recently. IE, thye traded too high too quickly and were locked from trading for periods of time..

corn is now a huge part of our Energy AND our food...

just something else to throw in

When you throw in the energy needed to raise maize in the American style, i doubt the net gain amounts to very much, if anything. So, no, it's not really that big a part of our energy resources.

Ethanol from maize is yet another Bush disaster.

Quote:

Originally Posted by Baraka_Guru

You make it sound like speculation is the only problem.

As I hinted at in a previous post, as the price of oil rises, exports begin to falter as oil-producing countries hang onto more of it for local use while their economies expand on oil profits. This invariably causes a further rise of oil prices.

[...]

An oil bubble isn't like a housing bubble or other bubbles. It's a different story here.

The common factor in all bubbles is a wave of valuation sweeping through a particular sector of the economy, be it tulips, land, or stock. When the wave passes through tulips, that value usually goes on to the next thing. (But not necessarily; the possibility of a net loss in value is always there. See, for example, 1929) Money is not going into stock markets. It is not going into land. It is going into oil and other raw materials.

How quickly does consumption in oil-producing countries increase?
It is very difficult to explain the spike in oil prices with an increase in consumption. You would be more correct to say that current prices reflect what the average mind thinks the average mind thinks the ration of future consumption to production will be.

Value is a phantom. It is not real.

roachboy · 06-12-2008, 01:08 PM

here is an interesting bit of testimony from michael masters (his titles, etc are on the title page of the pdf, so in the interest of getting you to have a look, i'll be coy about them here) from 20 may concerning the price spikes in both petroleum and food

http://hsgac.senate.gov/public/_files/052008Masters.pdf

--his argument reinforces and to some extent explains soros' position outlined in the guardian article from 3 june that i bit for the op---and centers on institutional "index speculators"---

a cliff notes version from a blog i stumbled across, which was linked to the testimony:

Quote:

Commodities prices have increased more in the aggregate over the last five years than at any other time in U.S. history. We have seen commodity price spikes occur in the past as a result of supply crises, such as during the 1973 Arab Oil Embargo. But today, unlike previous episodes, supply is ample: there are no lines as the gas pump and there is plenty of food on the shelves…

What we are experiencing is a demand shock coming from a new category of participant in the commodities futures markets: Institutional Investors. Specifically, these are Corporate and Government Pension Funds, Sovereign Wealth Funds, University Endowments and other Institutional Investors. Collectively, these investors now account on average for a larger share of outstanding commodities futures contracts than any other market participant…

Index Speculator demand is distinctly different from Traditional Speculator demand; it arises purely from portfolio allocation decisions. When an Institutional Investor decides to allocate 2% to commodities futures, for example, they come to the market with a set amount of money. They are not concerned with the price per unit; they will buy as many futures contracts as they need, at whatever price is necessary, until all of their money has been “put to work.” Their insensitivity to price multiplies their impact on commodity markets… [ed: And this provides the perfect recipe for a bubble. Just as during the final stages of the tech boom, for these investors price and supply/demand does not matter].

There is a crucial distinction between Traditional Speculators and Index Speculators: Traditional Speculators provide liquidity by both buying and selling futures. Index Speculators buy futures and then roll their positions by buying calendar spreads. They never sell. Therefore, they consume liquidity and provide zero benefit to the futures markets…

In the early part of this decade, some institutional investors who suffered as a result of the severe equity bear market of 2000-2002, began to look to the commodity futures market as a potential new “asset class” suitable for institutional investment. While the commodities markets have always had some speculators, never before had major investment institutions seriously considered the commodities futures markets as viable for larger scale investment programs. Commodities looked attractive because they have historically been “uncorrelated,” meaning they trade inversely to fixed income and equity portfolios. Mainline financial industry consultants, who advised large institutions on portfolio allocations, suggested for the first time that investors could “buy and hold” commodities futures, just like investors previously had done with stocks and bonds…

According to the CFTC and spot market participants, commodities futures prices are the benchmark for the prices of actual physical commodities, so when Index Speculators drive futures prices higher, the effects are felt immediately in spot prices and the real economy. So there is a direct link between commodities futures prices and the prices your constituents are paying for essential goods…

In the popular press the explanation given most often for rising oil prices is the increased demand for oil from China. According to the DOE, annual Chinese demandfor petroleum has increased over the last ﬁve years from 1.88 billion barrels to 2.8 billion barrels, an increase of 920 million barrels. Over the same ﬁve-year period, Index Speculatorsʼ demand for petroleum futures has increased by 848 million barrels. The increase in demand from Index Speculators is almost equal to the increase in demand from China!

Let’s turn our attention to food prices, which have skyrocketed in the last six months. When asked to explain this dramatic increase, economists’ replies typically focus on the diversion of a significant portion of the U.S. corn crop to ethanol production. What they overlook is the fact that Institutional Investors have purchased over 2 billion bushels of corn futures in the last five years. Right now, Index Speculators have stockpiled enough corn futures to potentially fuel the entire United States ethanol industry at full capacity for a year. That’s equivalent to producing 5.3 billion gallons of ethanol, which would make America the world’s largest ethanol producer…

Furthermore, commodities futures markets are much smaller than the capital markets, so multi-billion-dollar allocations to commodities markets will have a far greater impact on prices. In 2004, the total value of futures contracts outstanding for all 25 index commodities amounted to only about $180 billion. Compare that with worldwide equity markets which totaled $44 trillion, or over 240 times bigger. That year, Index Speculators poured $25 billion into these markets, an amount equivalent to 14% of the total market…

Index Speculators’ trading strategies amount to virtual hoarding via the commodities futures markets. Institutional Investors are buying up essential items that exist in limited quantities for the sole purpose of reaping speculative profits…

Think about it this way: If Wall Street concocted a scheme whereby investors bought large amounts of pharmaceutical drugs and medical devices in order to profit from the resulting increase in prices, making these essential items unaffordable to sick and dying people, society would be justly outraged.

Why is there not outrage over the fact that Americans must pay drastically more to feed their families, fuel their cars, and heat their homes?

Index Speculators provide no beneﬁt to the futures markets and they inﬂict a tremendous cost upon society. Individually, these participants are not acting with malicious intent; collectively, however, their impact reaches into the wallets of every American consumer.

The fact that speculation is a substantial and rising component of the commodity bubble indicates that the trend is likely to continue to accelerate until it goes to extremes. There will be a point at which rising prices substantially impact the rising demand curve both in developed and emerging countries (in other words… they can’t afford food anymore), and that is already occurring to some degree. Hence, we will be monitoring the bubble in commodities for signs that we are nearing a top in emerging and U.S. markets, which probably will occur in early to mid 2009 — but it could occur earlier if this trend continues to escalate without a major break near term.

after reading the entire testimony (with a couple interesting appendices), i'll just say read the whole thing and treat the above as a teaser or trailer. the actual argument is stronger than this.

the conclusion that masters advances is that index speculation be banned in itself, outright. finito.

what do you make of the argument?
how compelling an explanation do you find this to be--personally, i just finished reading it and am thinking things over, and have only reached the conclusion that this has to be a bit too simple.
nonetheless, it does a job on the claim that there is a demand spike originating in china and india, arguing that there is indeed a splike, but it is in the futures market and is driven by index speculation.

which leads to another question: if this is true, then why is the american press not talking about it?

but maybe it's not.

that's all for the moment.

Leto · 06-12-2008, 01:20 PM

Quote:

Originally Posted by loquitur

The price of gasoline should go higher. I propose a gas tax to place a floor price of $6/gallon on gasoline. I have to give some thought to what to do with the proceeds - my first instinct is to set up superIRAs for the populace - but to me that's less important than making gasoline more expensive. This is a basic Pigovian tax, and the benefits would flow broadly: environmental improvement, land use rationalization, increased population densities (with corresponding cultural benefits), better mass transit. And best of all it wouldn't force anyone to do anything - if you still want your SUV, you can have it, but you have to be willing to pay for the fillup.

No way. As a consumer I am fairly pissed now that gas is up around $1.34 for no apparent reason other than the gas companies can do it.
I predicted this during the first Gulf War, when gas jumped about 10 cents per litre to 56 cents. I figured that they would never go back down. Simply because the consumer would be level set to pay the new price.

Now, gas is double last year's price and 40 cents/litre (roughly $1.60/ American gallon) more than it was 2 months ago. WHY? because the gas companies can do it. That's why. There's no Gulf war, no Hurricane Katrina, no supply shortage. Just oil companies fucking with us.

Now entire GM truck plants are shutting down due to low demand. sure not everybody needs a pick up truck, and GM needed a kick in the pants... but sooner or later the oil companies are gong to learn that short term profiteering is just going to drive people away.

Baraka_Guru · 06-12-2008, 05:18 PM

roachboy, does it (or anything else) go into detail in terms of which foodstuffs are increasing and by what rate? If corn is skyrocketing, this means other foodstuffs are too. (The meat and dairy industry is fueled largely in part by low-grade corn.)

I thought about this today because I heard a news bit on CBC Radio today that reported little price increases for food over the past year in Canada. (Under 2%.) But, then again, we don't have a devalued dollar, a housing crash, nor a threat of a recession.

And to answer you question on speculation, I think it is a simplistic answer, though it does explain a lot. The media is reporting on this, but it seems only to be in financial media.

Tully Mars · 06-12-2008, 05:48 PM

Quote:

Originally Posted by Leto

Now entire GM truck plants are shutting down due to low demand. sure not everybody needs a pick up truck, and GM needed a kick in the pants... but sooner or later the oil companies are gong to learn that short term profiteering is just going to drive people away.

Drive them away to what? That's part of the problem there is no viable option to be driven to.

Leto · 06-12-2008, 07:33 PM

Quote:

Originally Posted by Tully Mars

Drive them away to what? That's part of the problem there is no viable option to be driven to.

to cheaper alternative vehicles made in countries where the oil companies have no market (China or Venezuela)

Cynthetiq · 06-12-2008, 08:22 PM

Quote:

Originally Posted by Leto

to cheaper alternative vehicles made in countries where the oil companies have no market (China or Venezuela)

I don't understand.

The customers are driven to buying cheaper alternative vehicles made in countries where the oil companies have no market like China and Venezuela?

How does that help me get goods from ship to shore, or from central distribution hub to store to household?

or are you talking that people will buy bikes made in China or Venezuela?

boink · 06-12-2008, 09:40 PM

we'll have $6.00 gallon and $200 a barrel by christmas. it's $4.41 9/10 here now and tha's $0.20 up since last week when I got gas.

markd4life · 06-12-2008, 11:19 PM

Unfortunately we live during a time of 'short-term' market change. The world market will eventually settle on a stable rate. Meanwhile, a year...5.. or 20 years, the world will be forced to make changes. Market corrections are rough for the people who live through them, but necessary for the future
of a stable market.

Leto · 06-13-2008, 02:59 AM

Quote:

Originally Posted by Cynthetiq

I don't understand.

The customers are driven to buying cheaper alternative vehicles made in countries where the oil companies have no market like China and Venezuela?

How does that help me get goods from ship to shore, or from central distribution hub to store to household?

or are you talking that people will buy bikes made in China or Venezuela?

Or cars. Already China is making really cheap vehicles for export. So is India.

roachboy · 06-13-2008, 04:28 AM

a few months ago, a comrade who works on american agricultural policy and its history told me that there was a Problem coming and that what would drive it were arcane new financial devices created over the past 20 years and put into motion in the context of deregulated markets, trading in basic commodities by way of futures and/or derivitatives--the nature and meaning of these devices are not obvious, the implications of the trade not known.

i remembered this conversation this morning as i was reading the following, which is another bit of information which runs counter to the increased demand for oil line that folk seem to want to believe is responsible for this price spike.

read on...

Quote:

‘Perhaps 60% of today’s oil price is pure speculation’

by F. William Engdahl

Global Research, May 2, 2008

Email this article to a friend
Print this article

The price of crude oil today is not made according to any traditional relation of supply to demand. It’s controlled by an elaborate financial market system as well as by the four major Anglo-American oil companies. As much as 60% of today’s crude oil price is pure speculation driven by large trader banks and hedge funds. It has nothing to do with the convenient myths of Peak Oil. It has to do with control of oil and its price. How?

First, the crucial role of the international oil exchanges in London and New York is crucial to the game. Nymex in New York and the ICE Futures in London today control global benchmark oil prices which in turn set most of the freely traded oil cargo. They do so via oil futures contracts on two grades of crude oil—West Texas Intermediate and North Sea Brent.

A third rather new oil exchange, the Dubai Mercantile Exchange (DME), trading Dubai crude, is more or less a daughter of Nymex, with Nymex President, James Newsome, sitting on the board of DME and most key personnel British or American citizens.

Brent is used in spot and long-term contracts to value as much of crude oil produced in global oil markets each day. The Brent price is published by a private oil industry publication, Platt’s. Major oil producers including Russia and Nigeria use Brent as a benchmark for pricing the crude they produce. Brent is a key crude blend for the European market and, to some extent, for Asia.

WTI has historically been more of a US crude oil basket. Not only is it used as the basis for US-traded oil futures, but it's also a key benchmark for US production.

All this is well and official. But how today’s oil prices are really determined is done by a process so opaque only a handful of major oil trading banks such as Goldman Sachs or Morgan Stanley have any idea who is buying and who selling oil futures or derivative contracts that set physical oil prices in this strange new world of “paper oil.”

With the development of unregulated international derivatives trading in oil futures over the past decade or more, the way has opened for the present speculative bubble in oil prices.

Since the advent of oil futures trading and the two major London and New York oil futures contracts, control of oil prices has left OPEC and gone to Wall Street. It is a classic case of the “tail that wags the dog.”

A June 2006 US Senate Permanent Subcommittee on Investigations report on “The Role of Market Speculation in rising oil and gas prices,” noted, “…there is substantial evidence supporting the conclusion that the large amount of speculation in the current market has significantly increased prices.”

What the Senate committee staff documented in the report was a gaping loophole in US Government regulation of oil derivatives trading so huge a herd of elephants could walk through it. That seems precisely what they have been doing in ramping oil prices through the roof in recent months.

The Senate report was ignored in the media and in the Congress.

The report pointed out that the Commodity Futures Trading Trading Commission, a financial futures regulator, had been mandated by Congress to ensure that prices on the futures market reflect the laws of supply and demand rather than manipulative practices or excessive speculation. The US Commodity Exchange Act (CEA) states, “Excessive speculation in any commodity under contracts of sale of such commodity for future delivery . . . causing sudden or unreasonable fluctuations or unwarranted changes in the price of such commodity, is an undue and unnecessary burden on interstate commerce in such commodity.”

Further, the CEA directs the CFTC to establish such trading limits “as the Commission finds are necessary to diminish, eliminate, or prevent such burden.” Where is the CFTC now that we need such limits?

They seem to have deliberately walked away from their mandated oversight responsibilities in the world’s most important traded commodity, oil.

Enron has the last laugh…

As that US Senate report noted:

“Until recently, US energy futures were traded exclusively on regulated exchanges within the United States, like the NYMEX, which are subject to extensive oversight by the CFTC, including ongoing monitoring to detect and prevent price manipulation or fraud. In recent years, however, there has been a tremendous growth in the trading of contracts that look and are structured just like futures contracts, but which are traded on unregulated OTC electronic markets. Because of their similarity to futures contracts they are often called “futures look-alikes.”

The only practical difference between futures look-alike contracts and futures contracts is that the look-alikes are traded in unregulated markets whereas futures are traded on regulated exchanges. The trading of energy commodities by large firms on OTC electronic exchanges was exempted from CFTC oversight by a provision inserted at the behest of Enron and other large energy traders into the Commodity Futures Modernization Act of 2000 in the waning hours of the 106th Congress.

The impact on market oversight has been substantial. NYMEX traders, for example, are required to keep records of all trades and report large trades to the CFTC. These Large Trader Reports, together with daily trading data providing price and volume information, are the CFTC’s primary tools to gauge the extent of speculation in the markets and to detect, prevent, and prosecute price manipulation. CFTC Chairman Reuben Jeffrey recently stated: “The Commission’s Large Trader information system is one of the cornerstones of our surveillance program and enables detection of concentrated and coordinated positions that might be used by one or more traders to attempt manipulation.”

In contrast to trades conducted on the NYMEX, traders on unregulated OTC electronic exchanges are not required to keep records or file Large Trader Reports with the CFTC, and these trades are exempt from routine CFTC oversight. In contrast to trades conducted on regulated futures exchanges, there is no limit on the number of contracts a speculator may hold on an unregulated OTC electronic exchange, no monitoring of trading by the exchange itself, and no reporting of the amount of outstanding contracts (“open interest”) at the end of each day.” 1

Then, apparently to make sure the way was opened really wide to potential market oil price manipulation, in January 2006, the Bush Administration’s CFTC permitted the Intercontinental Exchange (ICE), the leading operator of electronic energy exchanges, to use its trading terminals in the United States for the trading of US crude oil futures on the ICE futures exchange in London – called “ICE Futures.”

Previously, the ICE Futures exchange in London had traded only in European energy commodities – Brent crude oil and United Kingdom natural gas. As a United Kingdom futures market, the ICE Futures exchange is regulated solely by the UK Financial Services Authority. In 1999, the London exchange obtained the CFTC’s permission to install computer terminals in the United States to permit traders in New York and other US cities to trade European energy commodities through the ICE exchange.

The CFTC opens the door

Then, in January 2006, ICE Futures in London began trading a futures contract for West Texas Intermediate (WTI) crude oil, a type of crude oil that is produced and delivered in the United States. ICE Futures also notified the CFTC that it would be permitting traders in the United States to use ICE terminals in the United States to trade its new WTI contract on the ICE Futures London exchange. ICE Futures as well allowed traders in the United States to trade US gasoline and heating oil futures on the ICE Futures exchange in London.

Despite the use by US traders of trading terminals within the United States to trade US oil, gasoline, and heating oil futures contracts, the CFTC has until today refused to assert any jurisdiction over the trading of these contracts.

Persons within the United States seeking to trade key US energy commodities – US crude oil, gasoline, and heating oil futures – are able to avoid all US market oversight or reporting requirements by routing their trades through the ICE Futures exchange in London instead of the NYMEX in New York.

Is that not elegant? The US Government energy futures regulator, CFTC opened the way to the present unregulated and highly opaque oil futures speculation. It may just be coincidence that the present CEO of NYMEX, James Newsome, who also sits on the Dubai Exchange, is a former chairman of the US CFTC. In Washington doors revolve quite smoothly between private and public posts.

A glance at the price for Brent and WTI futures prices since January 2006 indicates the remarkable correlation between skyrocketing oil prices and the unregulated trade in ICE oil futures in US markets. Keep in mind that ICE Futures in London is owned and controlled by a USA company based in Atlanta Georgia.

In January 2006 when the CFTC allowed the ICE Futures the gaping exception, oil prices were trading in the range of $59-60 a barrel. Today some two years later we see prices tapping $120 and trend upwards. This is not an OPEC problem, it is a US Government regulatory problem of malign neglect.

By not requiring the ICE to file daily reports of large trades of energy commodities, it is not able to detect and deter price manipulation. As the Senate report noted, “The CFTC's ability to detect and deter energy price manipulation is suffering from critical information gaps, because traders on OTC electronic exchanges and the London ICE Futures are currently exempt from CFTC reporting requirements. Large trader reporting is also essential to analyze the effect of speculation on energy prices.”

The report added, “ICE's filings with the Securities and Exchange Commission and other evidence indicate that its over-the-counter electronic exchange performs a price discovery function -- and thereby affects US energy prices -- in the cash market for the energy commodities traded on that exchange.”

Hedge Funds and Banks driving oil prices

In the most recent sustained run-up in energy prices, large financial institutions, hedge funds, pension funds, and other investors have been pouring billions of dollars into the energy commodities markets to try to take advantage of price changes or hedge against them. Most of this additional investment has not come from producers or consumers of these commodities, but from speculators seeking to take advantage of these price changes. The CFTC defines a speculator as a person who “does not produce or use the commodity, but risks his or her own capital trading futures in that commodity in hopes of making a profit on price changes.”

The large purchases of crude oil futures contracts by speculators have, in effect, created an additional demand for oil, driving up the price of oil for future delivery in the same manner that additional demand for contracts for the delivery of a physical barrel today drives up the price for oil on the spot market. As far as the market is concerned, the demand for a barrel of oil that results from the purchase of a futures contract by a speculator is just as real as the demand for a barrel that results from the purchase of a futures contract by a refiner or other user of petroleum.

Perhaps 60% of oil prices today pure speculation

Goldman Sachs and Morgan Stanley today are the two leading energy trading firms in the United States. Citigroup and JP Morgan Chase are major players and fund numerous hedge funds as well who speculate.

In June 2006, oil traded in futures markets at some $60 a barrel and the Senate investigation estimated that some $25 of that was due to pure financial speculation. One analyst estimated in August 2005 that US oil inventory levels suggested WTI crude prices should be around $25 a barrel, and not $60.

That would mean today that at least $50 to $60 or more of today’s $115 a barrel price is due to pure hedge fund and financial institution speculation. However, given the unchanged equilibrium in global oil supply and demand over recent months amid the explosive rise in oil futures prices traded on Nymex and ICE exchanges in New York and London it is more likely that as much as 60% of the today oil price is pure speculation. No one knows officially except the tiny handful of energy trading banks in New York and London and they certainly aren’t talking.

By purchasing large numbers of futures contracts, and thereby pushing up futures prices to even higher levels than current prices, speculators have provided a financial incentive for oil companies to buy even more oil and place it in storage. A refiner will purchase extra oil today, even if it costs $115 per barrel, if the futures price is even higher.

As a result, over the past two years crude oil inventories have been steadily growing, resulting in US crude oil inventories that are now higher than at any time in the previous eight years. The large influx of speculative investment into oil futures has led to a situation where we have both high supplies of crude oil and high crude oil prices.

Compelling evidence also suggests that the oft-cited geopolitical, economic, and natural factors do not explain the recent rise in energy prices can be seen in the actual data on crude oil supply and demand. Although demand has significantly increased over the past few years, so have supplies.

Over the past couple of years global crude oil production has increased along with the increases in demand; in fact, during this period global supplies have exceeded demand, according to the US Department of Energy. The US Department of Energy’s Energy Information Administration (EIA) recently forecast that in the next few years global surplus production capacity will continue to grow to between 3 and 5 million barrels per day by 2010, thereby “substantially thickening the surplus capacity cushion.”

Dollar and oil link

A common speculation strategy amid a declining USA economy and a falling US dollar is for speculators and ordinary investment funds desperate for more profitable investments amid the US securitization disaster, to take futures positions selling the dollar “short” and oil “long.”

For huge US or EU pension funds or banks desperate to get profits following the collapse in earnings since August 2007 and the US real estate crisis, oil is one of the best ways to get huge speculative gains. The backdrop that supports the current oil price bubble is continued unrest in the Middle East, in Sudan, in Venezuela and Pakistan and firm oil demand in China and most of the world outside the US. Speculators trade on rumor, not fact.

In turn, once major oil companies and refiners in North America and EU countries begin to hoard oil, supplies appear even tighter lending background support to present prices.

Because the over-the-counter (OTC) and London ICE Futures energy markets are unregulated, there are no precise or reliable figures as to the total dollar value of recent spending on investments in energy commodities, but the estimates are consistently in the range of tens of billions of dollars.

The increased speculative interest in commodities is also seen in the increasing popularity of commodity index funds, which are funds whose price is tied to the price of a basket of various commodity futures. Goldman Sachs estimates that pension funds and mutual funds have invested a total of approximately $85 billion in commodity index funds, and that investments in its own index, the Goldman Sachs Commodity Index (GSCI), has tripled over the past few years. Notable is the fact that the US Treasury Secretary, Henry Paulson, is former Chairman of Goldman Sachs.

F. William Engdahl is an Associate of the Centre for Research on Globalization (CRG) and author of A Century of War: Anglo-American Oil Politics and the New World Order. He may be contacted at info@engdahl.oilgeopolitics.net

1 United States Senate Premanent Subcommittee on Investigations, 109th Congress 2nd Session, The Role of Market speculation in Rising Oil and Gas Prices: A Need to Put the Cop Back on the Beat; Staff Report, prepared by the Permanent Subcommittee on Investigations of the Committee on Homeland Security and Governmental Affairs, United States Senate, Washington D.C., June 27, 2006. p. 3.

http://www.globalresearch.ca/index.p...xt=va&aid=8878

[global research is a group i know little about the website for which i am looking at between sentences here. a canadian ngo, it has generated a series of analyses that link this bubble to food price difficulties in part by tracking movements with these same financial devices, in part by tracking the consequences of these movements.

see for yourself:

http://www.globalresearch.ca/index.p...heme&themeId=2

and evaulate for yourself...]]

now things become a little clearer (if you read this and the master's paper i linked yesterday)--to the extent that this sort of thing can become clear, given the opacity of these markets, the strange nature of the instruments, the particular character of the major institutional players---which amounts to a list of Problems, every last one of which neoliberalism has wrought.

deregulation of the financial sector has brought us to this place, in short.

the pollyanna assumption behind sch deregulation was and remains essentially imperialist--the americans are too politically powerful and too economically central to find themselves terribly effected by these markets, by deregulation, etc---but i think that you can assemble the elements of political devolution since 2004 in particular that have changed the reality (which was never terribly well described by neoliberal assumptions)

i'm still looking into this.
add more information if you are feeling inclined to look into it as well, comrades.

Tully Mars · 06-13-2008, 04:33 AM

Venezuela? Why is Venezuela on the list? Gas there is around .20 a gal. Oil companies have a market there. Granted it's like Mexico and the only gas available is through the state run company, but there's a market.

As to China and other countries making and exporting small fuel efficient vehicles- most of those car don't and never will meet US safety standards.

How about this crazy idea- we start trying to making fuel efficient and alt. energy vehicles in the US. For freaking years now the US auto industries have focused on large fuel guzzling vehicles and have blown off the concept of anything else. Now they and their employees are paying for that strategy. Seems like after the gas lines of the late 70's they might have at least had a plan for this. No it's always "we have a prototype, it'll be out in 3-5 years." I've been reading this for 15 years now. They had, can't remember who made it, an electric car. People who leased them loved them. After all the leases were up they canceled them and took them out to the desert and crushed them. And they did this why?

roachboy · 06-13-2008, 04:45 AM

baraka guru:

this isn't a direct answer, but here is a page from the ICE website which lists the commodity futures that it trades in. you may find this also something of the list you were asking about...

https://www.theice.com/commodities.jhtml

Cynthetiq · 06-13-2008, 05:15 AM

Quote:

Originally Posted by Leto

Or cars. Already China is making really cheap vehicles for export. So is India.

but those cars still use gas. and if the quality is anything like the quality of chinese manufactured goods that i've been receiving and using already, it's low quality.

the safety requirements are also an issue, standards of other measures as well such as distribution channels for parts, repairs. the infrastructure for selling vehicles in the US isn't as simple as putting out a shingle for a car brand. there's lots of regulation and logistics to figure out.

It is why many cars are not sold here from Fiat, Peugeot, Renault, SEAT, and Skoda.

I still don't understand how or what you mean that the oil companies will drive their customers away... drive them away to what?

Baraka_Guru · 06-13-2008, 04:10 PM

Quote:

Originally Posted by Cynthetiq

I still don't understand how or what you mean that the oil companies will drive their customers away... drive them away to what?

Alternatives:

Charlatan · 06-13-2008, 04:54 PM

The other thing that needs to be explored is intensification of population density. The continued development of urban sprawl in low density suburbs creates a demand for cars. It also works against efficient public transportation systems.

Leto · 06-13-2008, 07:17 PM

Quote:

Originally Posted by Cynthetiq

but those cars still use gas. and if the quality is anything like the quality of chinese manufactured goods that i've been receiving and using already, it's low quality.

the safety requirements are also an issue, standards of other measures as well such as distribution channels for parts, repairs. the infrastructure for selling vehicles in the US isn't as simple as putting out a shingle for a car brand. there's lots of regulation and logistics to figure out.

It is why many cars are not sold here from Fiat, Peugeot, Renault, SEAT, and Skoda.

I still don't understand how or what you mean that the oil companies will drive their customers away... drive them away to what?

I still stand by my answer. Remember when Honda was a joke. And Toyota. And Hyundai. Now they are respectable. But I haved also switched out my car on most days in favour of my bicycle, and a 10 km ride to work. Like Charl said, intensification is a growing trend.

06-03-2008, 10:36 AM	#3 (permalink)
Baraka_Guru warrior bodhisattva Super Moderator Location: East-central Canada	Reducing subsidies to oil & gas and meat & dairy industries would help as well. This would result in increased (and more realistic) prices of oil and animal-derived food products. People would then use these with more moderation. You know, closer to what the rest of the world uses. (Even if you exclude the Third World.) The money could then be diverted into areas that would help with energy and food challenges. I don't have much time right now to comment on the big picture of this issue. I will think more on this. It's been on my own mind lately too. __________________ Knowing that death is certain and that the time of death is uncertain, what's the most important thing? —Bhikkhuni Pema Chödrön Humankind cannot bear very much reality. —From "Burnt Norton," Four Quartets (1936), T. S. Eliot

06-03-2008, 03:52 PM	#8 (permalink)
dksuddeth Junkie Location: bedford, tx	as with all worldwide and nationwide issues, it is the average citizen (you and I) that both pay the price as well as set the policy. For example, in my city (bedford, TX) there is only one form or public transportation. A train that goes from Fort Worth to downtown Dallas. 6 months ago, there were only a handful on that train at 7 am. Now, it's standing room only and there is absolutely no parking spaces available. So full in fact, that the local PD visits every half hour to write parking tickets for all the illegal parking. One has to wonder, is this the market playing itself out or is it a conspiracy to make us even further slaves to the corporate controlled government? (probably just got this thread moved to paranoia) __________________ "no amount of force can control a free man, a man whose mind is free. No, not the rack, not fission bombs, not anything. You cannot conquer a free man; the most you can do is kill him."

06-12-2008, 05:54 AM	#21 (permalink)
roachboy Super Moderator Location: essex ma	the idea of a market finding a solution is a strange anthropomorphism. it imputes agency to a network of networks. why does that come from? hegel? god? infrastructure-level change requires planning. capitalism in its particularly american variant has trouble with long-term thinking and trouble with even maintaining infrastructure without state support much less building it (think electricity markets in kali or attempts to sell off water supply management)...so the requisite change in infrastructure that would enable rail transport to become a more central (and rational) part of getting from a to b would require state action, like it or not. state action requires a plan. gotta go. __________________ a gramophone its corrugated trumpet silver handle spinning dog. such faithfulness it hear it make you sick. -kamau brathwaite

06-12-2008, 09:09 AM	#23 (permalink)
Paq Junkie Location: South Carolina	just something to watch: corn futures have hit limit up fairly repeatedly recently. IE, thye traded too high too quickly and were locked from trading for periods of time.. corn is now a huge part of our Energy AND our food... just something else to throw in __________________ Live. Chris

06-12-2008, 05:18 PM	#27 (permalink)
Baraka_Guru warrior bodhisattva Super Moderator Location: East-central Canada	roachboy, does it (or anything else) go into detail in terms of which foodstuffs are increasing and by what rate? If corn is skyrocketing, this means other foodstuffs are too. (The meat and dairy industry is fueled largely in part by low-grade corn.) I thought about this today because I heard a news bit on CBC Radio today that reported little price increases for food over the past year in Canada. (Under 2%.) But, then again, we don't have a devalued dollar, a housing crash, nor a threat of a recession. And to answer you question on speculation, I think it is a simplistic answer, though it does explain a lot. The media is reporting on this, but it seems only to be in financial media. __________________ Knowing that death is certain and that the time of death is uncertain, what's the most important thing? —Bhikkhuni Pema Chödrön Humankind cannot bear very much reality. —From "Burnt Norton," Four Quartets (1936), T. S. Eliot

06-03-2008, 06:23 AM	#2 (permalink)
loquitur Junkie Location: NYC	The price of gasoline should go higher. I propose a gas tax to place a floor price of $6/gallon on gasoline. I have to give some thought to what to do with the proceeds - my first instinct is to set up superIRAs for the populace - but to me that's less important than making gasoline more expensive. This is a basic Pigovian tax, and the benefits would flow broadly: environmental improvement, land use rationalization, increased population densities (with corresponding cultural benefits), better mass transit. And best of all it wouldn't force anyone to do anything - if you still want your SUV, you can have it, but you have to be willing to pay for the fillup.

06-03-2008, 03:30 PM	#4 (permalink)
ASU2003 immoral minority Location: Back in Ohio	Maybe we should put an Iraq War tax on oil in order to pay for it now instead of letting the old guys in the congress/senate pass the buck to the younger generation. What we need to focus on is renewable power generation and improving the electrical grid. Then we can figure out how to transport people using this power source. But the first article got it right. I bet most of this was caused by former housing/dot-com speculators dumping money into the safe bet that is oil. More and more people are wanting to use it, and we aren't making any more than before.

06-03-2008, 03:44 PM	#6 (permalink)
Willravel ... a sort of licensed troubleshooter.	There are too many people on the planet and it's making this issue a lot more difficult. "What can we possibly replace oil with?!" With 7 billion people? We probably can't. I mean we can give it a shot—combining a thousand different alternatives at once—but ultimately it seems pretty clear that there will be a lot more walking and bike riding in the near future. If we reduce consumption of energy to moving and cultivating food, AND we reduce the population by requesting (or providing incentives) for smaller families, we might end up with an equilibrium. Well we might have ended up with an equilibrium had we started already. We haven't, so we probably won't.

06-03-2008, 03:49 PM	#7 (permalink)
Derwood Who You Crappin? Location: Everywhere and Nowhere	i don't buy that this is entirely a supply/demand thing. Venezuelans still pay $0.29/gal for their gas. it's equal parts a political thing (ie the Chavez and/or the Middle East hanging the US out to dry on supply) plus a market thing (commodities are the trendy thing to trade these days, but hopefully the bubble will burst soon)

06-03-2008, 08:17 PM	#10 (permalink)
jorgelito All important elusive independent swing voter... Location: People's Republic of KKKalifornia	Much ado over nothing. Start taking accountability and personal responsibility for yourselves. EX: 1. Be a smart consumer. Budget carefully and LIVE WITHIN YOUR MEANS. 2. Drive less, consume less oil/gas 3. Grow your own vegetables. I started a vegetable garden earlier this year. It's so much better for you, really. As a Conservative, I feel it is my duty to conserve resources. That is the core of being conservative. There is no population crisis. There is a population distribution problem however, including things such as refugees, migration. No more taxes, please. It only hurts the poor and middle class. If anything, time to reduce taxes and reduce spending. Personally, I would like to see alternative energy (not corn or ethanol or hydrogen thank you!) more readily researched and studied. I don't understand why we don't go this route and become truly energy independent. Our current policy is extremely short-sighted and stupid (pardon my language). Solar, nuclear, tidal, wind: so many options we could explore. My Republican buddies were one of the first families to have a solar powered house when I was a child growing up in New England. It has more than paid for itself by now.

06-03-2008, 08:29 PM	#12 (permalink)
jorgelito All important elusive independent swing voter... Location: People's Republic of KKKalifornia	What's wrong with conserving resources and alternative energy resources??

06-03-2008, 09:12 PM	#14 (permalink)
jorgelito All important elusive independent swing voter... Location: People's Republic of KKKalifornia	Wait, I don't think there's anything wrong with them (see post). I guess your post made it seem like it was contradicting my post or something like that, because you were quoting my post. dizzy Ah, well...reset

06-03-2008, 09:39 PM	#15 (permalink)
Willravel ... a sort of licensed troubleshooter.	I'm razzing you. Consider it 6-months-away hazing.

06-04-2008, 04:24 AM	#17 (permalink)
guyy Addict Location: Cottage Grove, Wisconsin	Couple things to add to the mix: The economic "downturn"makes commodity production slightly less attractive. Conversely, speculation in raw materials & basic necessities has become that much more appealing. Call it a vote of no-confidence in the capitalist system on the part of the capitalists themselves. Reducing consumption in the US would be a good thing, but the infrastructure isn't there. For example, US railways are jammed up with freight trains. There is a need for more track. Instead of a debacle in Iraq, we could have had real high speed rail, running on its own track.

06-04-2008, 04:27 AM	#18 (permalink)
loquitur Junkie Location: NYC	Only if you think the only feasible energy source going forward is petroleum. If petroleum gets expensive, other alternatives become more economically feasible. And behavior patterns change to account for the new market realities. (That's why Derwood's post up top is unpersuasive - it ignores economic dynamism and human adjustment to new circumstances. Which doesn't mean there won't be some difficulty in the short term for some people.)

06-12-2008, 04:49 AM	#19 (permalink)
william Psycho	The only real driver of the price of oil is the speculators. It's not demand vs. supply - the demand has dropped. Ask GM or Ford how much of an increase they have for pick-ups/suv's. Oh wait, they're suspending those operations. The speculators need to be controlled as they were for power following Callifornia's brown outs.

06-12-2008, 09:40 PM	#31 (permalink)
boink Addict Location: Seattle	we'll have $6.00 gallon and $200 a barrel by christmas. it's $4.41 9/10 here now and tha's $0.20 up since last week when I got gas. __________________ when you believe in things that you don't understand, then you suffer. Superstition ain't the way.

06-12-2008, 11:19 PM	#32 (permalink)
markd4life Upright Location: South of the Donna-Dixon Line	Unfortunately we live during a time of 'short-term' market change. The world market will eventually settle on a stable rate. Meanwhile, a year...5.. or 20 years, the world will be forced to make changes. Market corrections are rough for the people who live through them, but necessary for the future of a stable market.

06-13-2008, 04:33 AM	#35 (permalink)
Tully Mars Living in a Warmer Insanity Super Moderator Location: Yucatan, Mexico	Venezuela? Why is Venezuela on the list? Gas there is around .20 a gal. Oil companies have a market there. Granted it's like Mexico and the only gas available is through the state run company, but there's a market. As to China and other countries making and exporting small fuel efficient vehicles- most of those car don't and never will meet US safety standards. How about this crazy idea- we start trying to making fuel efficient and alt. energy vehicles in the US. For freaking years now the US auto industries have focused on large fuel guzzling vehicles and have blown off the concept of anything else. Now they and their employees are paying for that strategy. Seems like after the gas lines of the late 70's they might have at least had a plan for this. No it's always "we have a prototype, it'll be out in 3-5 years." I've been reading this for 15 years now. They had, can't remember who made it, an electric car. People who leased them loved them. After all the leases were up they canceled them and took them out to the desert and crushed them. And they did this why? __________________ I used to drink to drown my sorrows, but the damned things have learned how to swim- Frida Kahlo Vice President Starkizzer Fan Club Last edited by Tully Mars; 06-13-2008 at 04:54 AM..

06-13-2008, 04:45 AM	#36 (permalink)
roachboy Super Moderator Location: essex ma	baraka guru: this isn't a direct answer, but here is a page from the ICE website which lists the commodity futures that it trades in. you may find this also something of the list you were asking about... https://www.theice.com/commodities.jhtml __________________ a gramophone its corrugated trumpet silver handle spinning dog. such faithfulness it hear it make you sick. -kamau brathwaite

06-13-2008, 04:54 PM	#39 (permalink)
Charlatan Getting it. Super Moderator Location: Lion City	The other thing that needs to be explored is intensification of population density. The continued development of urban sprawl in low density suburbs creates a demand for cars. It also works against efficient public transportation systems. __________________ "My hands are on fire. Hands are on fire. Ain't got no more time for all you charlatans and liars." - Old Man Luedecke