By lambert strether of Corrente.
The great state of Maine is more dependent on home heating oil than any other state in the nation. And nobody up here I’ve talked to — not my friends in the coffee shop, not the convenience store cashiers, not the cabdrivers — thinks that the price of heating oil is anything other than completely manipulated.
Readers, are Mainers right?
And will “position limits” help? And if Mainers are right, is the problem generalized to other commodities?
NOTE $3.65! Yikes! Back in the day, the house had the (single) thermostat right in the front hall, so when you opened the door, the boiler would fire right up, and keep you toasty warm. Well, the days of $0.10 oil are gone, and a good thing, too. And the thermostat’s been moved. Now, I understand that a high price is an incentive to conserve, and conservation is good too. But why not — if Mainers are right — claw back the rents from the skimmers and speculators, give ’em to me, and I’ll put another layer of insulation in. Instead of buying a second yacht cover from Hermes. Too simple? Too populist? Na ga happen?
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Thanks, I totally missed the linked documents release (which of course confirmed everything Yves had been saying about speculation contra Paul Krugman).
You have to remember that heating oil is in competition with diesel. It’s more or less the same thing and the main market is Europe.
It means that heating oil prices are governed not by WTI but by the Brent and OPEC Basket prices. It used to make pretty much no difference with prices on all three grades holding within a few dollars of each other. But WTI has disconnected from the other two grades since the end of last year. Brent is now running at $108 vs. $97 for WTI, a $11 spread. The spread was over $20 during the summer with LOC spiking above $125, and eyeballing the Bloomberg graphs, it has averaged around %115 over the past 8 or 9 months, trending down slowly
So it means you have to take into account a cost basis of about $115/bbl, meaning a raw product cost of $2.75/gal for heating oil (it’s pretty much one to one between crude and the heating oil cut). Pile on refinery margins, transportation, distribution and taxes and $3.50 is not outrageous.
Now, I’m pretty sure there are some very, very happy US refiners right now who produced diesel on a 90$ crude and can sell it in Europe against a $115 basis. Good times! But you don’t need manipulation to explain the price, simply the fact that it’s a world market for refined products, even more than for crude (which is tied to specific groups of refineries).
exactly; WTI is landlocked in cushing; the recent purchase of the seaway pipeline by enbridge which will be reversed to allow cushing oil to get to gulf coast refineries will help, but not this winter…jim hamilton (econbrowser) and stuart staniford (early warning & oil drum) have written about this several times; willison sweet oil from the bakken shale in ND is $65 at the wellhead, because it must move by rail as we have no transport infrastructure in place…
too many links mustve got spammed out;
http://www.econbrowser.com/archives/2011/02/brentwti_spread.html
http://www.econbrowser.com/archives/2011/04/brentwti_spread_1.html
I have to be rough here. Some of the REPUBLICAN MARKET DEVOTEES are uneducated, too lazy to do research and damn bloody stupid. That is it, no less.
The price of oil being close to $115/Brent is taken as a matter of faith. Why? Because the “market” says so. And, who is the “market?” A bunch of lazy, drugggies and whore-mongering crooked slobs trading on the NYMEX. Read “The Asylum.”
Exxon produces oil from many legacy wells at around .75/ barrel; yes, 75 cents a barrel. Other oil admittedly is more expensive, ie, in the neighborhood of $25-29 a barrel, Statoil produces oil from the Nordic Sea at around $29/ barrel, extracting it from 8000+ feet under the sea. DID YOU GET THAT? Don’t believe it? Read their annual reports.
The United States consumes about 16 million barrels a day; it has declined from ~18 milliion barrels a day. More than 50% of it is produced in the U.S. In fact, the refineries are running at around 75-78% of capacity (Fed and DOE data) and exporting about 1 million refined product to South America– Brazil) and Europe–Diesel (Valero specially). The demand has fallen so much that I believe it is Sunoco which is trying to sell its Pennsylvania refineries ASAP. There is too much oil in the Mid-West from the Bakken field in North Dakota and Canada. Marathon (MPC) which supplies the Northeast is making out like a bandit.
50% of U.S. oil is likely produced on the average for between $5 to max $10 a barrel. That is why Exxon and Chevron are making so much money on both the production and refining ends. Chevron no longer wants to sell its refineries to Valero. In fact some time ago, the Chief Executive of Exxon said that oil should be in the range of $30 a barrel if it were not for speculation.
Goldman Sachs, Morgan-Chase, Morgan Stanley, Citibank and Merril Lynch (BAC) are the big speculators and holders of futures in not only oil but also copper and corn.
So, please stop talking about Mr. Market and the price of oil. You don’t know what you are talking about.
Indeed: remember, the costs of production you’re citing are US costs, not, say, Saudi or Kuwaiti or Iraqi or Iranian costs – which are yet lower still (less than 75 cents per barrel….my my).
Oil is and has been over-priced for a long long time.
The “money-for-nothing” boys doing their “jobs”. (What are you gonna do about it? It has ever been thus.) That they do so doesn’t really usually matter, so long as the $$ get spread around – but specifically with oil, a surprise difference has now become apparent, appearing as it were in “mid-game” – and which relates to the toxicity of oil and the cumulative and long-lasting effects its use has on all of us living now or yet to come – global warming.
Thing is, with global warming, oil indeed MUST NOT decline in price: but that price ought to be generating taxes at or in an amount equal or greater than the level of profits today, which could then in turn be used to subsidize and develop the carbon-free (but not cheaper) energy we need for tomorrow. It may be that far-sighted oil execs are in fact so using their profits today, to develop those sources; but any such operations ought to be more public, as to both the costs and the benefits, seeing as we all have a stake – and in time will depend – on their success in developing low-carbon energy.
Oil coal and gas need pricing related to their toxicity as CO2 sources: together with the costs of production, the costs of their very use to our environment must be reflected in their price.
And that portion of the price which does seek to reflect those “re-captured externalities” – which are costs borne otherwise by the general public (all of humanity, all of our biome) – ought in justice to be in the form of taxes, for the use of the public: not private profit, to be used as their heart desires, by those very few who just happen to own the lands under which the oil is found, or through which the oil is extracted.
Thus, imho, oil is “priced wrongly” – but NOT because it is priced far higher than its costs of production. It is because, that portion of the price of oil which is taken today as a profit, ought actually to be taken as a tax (as many producing countries do).
The true toxicity of oil has not been fully recognized – I mean “priced in” – yet. The price of oil ought not to fall, just because, or even though, it is cheap (or becomes cheaper) to produce.
Your claims don’t actually add up to making our case ~ 75% of oil consumed in the international market could have a production cost of $1, and it would only tell us the rent received by the owner of those producing wells at different market prices ~ we’d still have to know the production cost of the marginal barrels of oil, rather than the production cost of the infra-marginal barrels of oil to know at what market price oil production must decline.
And of course, given peak oil, there is a user cost of producing oil that is higher, the closer the market price is to the production cost. Mainstream resource economists assuming an endlessly growing supply to match an endlessly growing demand tend to ignore that particular user cost, but its real ~ taking any action to accelerate production of the marginal well for a dollar’s return per barrel is certainly a net financial loss given that another five to ten year’s exhaustion of cheap oil will place the marginal well inside the margin and allow it to gain infra-marginal rents in turn.
Deep and ultra-deep water oil feeds are in the range of $30~$60/barrel, and enhanced and CO2 enhanced recovery is in the range of $30~$80. Arctic oilfields can range as high as $100.
Prices in the range of $115 Brent seem to be a clear indication of some form of asset price inflation. But unless we get a dramatic demand destruction event such as a second dip worldwide recession and the conversion of the present mild depression conditions to a deeper depression, marginal production costs of $30/barrel are wildly overoptimistic.
My question is why are we allowing speculators and oil companies to suck so much money out of the economy. Can you imagine what gasoline at $2.50 a gallon would do to help the economy? Not to mention the 25% credit card interest. No wonder the “little people” are struggling.
Indeed. Our rentier-directed economy is destroying capitalism, and in the meantime destroying lives. Strike 30,004,020 against neoclassical economics. We live in a world where profit is not enough. Why charge someone once for something you can make them pay monthly for? Why give people healthcare without making huge profits? Why charge high prices for a crap education? Because the profits are so damned huge! Its great collecting profits from and for nothing! Why bother making anything when you can charge people to use the things that already exist? Capitalism has created more decadence for more people than at any time in history! What a success story!
As Taibbi said recently, “Something for nothing is Wall Street’s business model!”
Yeah! And just think what cheap gas could also do to hurry along Global Warming too. I’d be all for bringing the price of gas down to $2/gal so long as it is immediately jacked back up to $3.50 to $4.50/gal by a carbon tax.
Because they have a lot of political and economic influence. This is largely a function of the tax code, with off shoring and tax havens at the dark core of the mess.
Any entity with control over commodities has huge clout.
But that reveals lack of political (and business) leadership in allowing speculators to drive events; leaders with more guts would not permit destabilizing forces to drive events, because that always translates to social and economic instability.
Presently, a lot of US politicians remain in thrall to economic ideology that is terribly outdated. This issue is Exhibit A in the need for new, more clear sighted economic thinking. But the forces benefitting from this skewed system are extremely powerful, and the tax havens and tax code continue to increase their power.
The speculators are likely adding an extra margin on top of the cost of production, but completely eliminating all speculator and hedging price boosting still leaves us in a position with oil costing $80/barrel to produce on the market. The speculation and hedging makes producing that oil more lucrative, but its not like we are going to see $2.50 gasoline without a major drop in demand.
Since we refuse to kick our imported oil addiction ~ witness the insanity of burning oil for heat in the 21st century ~ we can’t get that major drop in demand by cutting our dependence. That means the only way to see a major drop in demand is a big economic downturn.
Throwing the economy back into recession to get oil back to $2.50 would be a cure that is worse than the disease.
Louis Vuitton pourrait peut-être acheter Hermes? Non, non, ce n’est pas possible.
The Republican were right all along. Reality is what the rich declare reality is. Why just heating oil? Two hours of repeated MRIs on a friend in France costs €300. In the US it would cost $30,000. I take a medication that costs $1500 a month; it wasn’t even developed for my problem. We pay low taxes while in Europe they pay about twice as much. What we hear is that our taxes are too high.
The list is endless and growing. All that is the updated version of equal opportunity slavery we are subject to.
But why not — if Mainers are right — claw back the rents from the skimmers and speculators, give ‘em to me, and I’ll put another layer of insulation in. lambert strether
I’m not a speculator but I understand a lot of speculation is done with borrowed money – loans from the government backed counterfeiting cartel, the banking system.
Rather than claw-back why not prevent the theft in the first place?
Agree!
Plus, tax rates are regressive right now. If we returned to progressive tax rates, there would again be less money to buy the paper versions of commodities.
However, aside from the idea that money-printing tends to raise prices, I don’t believe commodity prices are “manipulated” upward.
These days, I trust little else as a “store of wealth”. I don’t have much savings. I want to avoid the scenario that the USG so thoroughly debases the currency that I can scarcely afford food. So, I maintain a small grains position, in case the worst happens.
Ironically, maybe that’s not the worst scenario. Maybe my broker steals my cash a la MF Global. Or, maybe my broker steals my cash *and* the USG debases the currency…
Dear wunsacon;
The Wife and I are exploring the idea of a land intensive ‘grains position’ down here in Dixie. Small farms, even micro farms, aren’t outrageously expensive here. Old hippy style ‘back to the land’ might be a survival strategy for the near to mid term future.
Keep the faith.
I’m doing the same thing, looking for arable land with a water supply. The word I get from those smarter than me is that the wise choice is getting yourself as close to the food supply as possible and being able to farm a fair bit of your own via small orchards and vegetable gardens.
If for some reason the trucks can’t get to the grocery stores, what are you gonna eat?
Ha, ha!
All we are short of is money to pay off onerous debt and every one acts like it is the end of civilization!
Question? Are we willing to let our civilization die because of bookkeeping entries?
The current system which requires exponential growth just to pay usury is destructive but it’s not a problem we cannot solve.
F. Beard,
Its funny how you never mention asking help from the one who knows how to solve all problems!
Mansoor
Its funny how you never mention asking help from the one who knows how to solve all problems! mansoor h. khan
Really? I quote the Bible on economic blogs more than anyone I know except Jesse over at his Cafe.
I freely admit that nearly all my ideas on ethical money creation and a general bailout come from the Bible, from both Old and New Testaments.
F Beard,
I was thinking you might encourage others to ask him for help too since we don’t know whose prayers might get accepted.
Mansoor
Are we willing to let our civilization die because of bookkeeping entries?
The sad thing is that history says yes. Greece, Rome, etc. all drove themselves into collapse by refusing to write down debt owed to the oligarchs.
good luck with that, make sure there are no plans for fracking near your water supply, then start tracking the radiation readings for area where you want to farm. This guy in St. Louis, MO shows very high radiation readings on Nov. 18 from a paper towel he used to wipe down his air filter catching airborne indoor particulates:
http://www.youtube.com/watch?v=9Eybu7vwkxY&feature=mfu_in_order&list=UL
I read an update that the next day the readings were normal, but Fukushima will continue to release and contaminate farmland and water supplies in the US for years to come.
You’re probably better off looking for land in the southern hemisphere…
ambrit, thank you for the suggestion and I would like to read about your pursuit, if you blog about it somewhere (or just post the occasional update here). The thought of subsistence farming has occurred to me. Unfortunately, I’m (currently) a software/sysadmin guy and believe I lack enough time to devote to gaining expertise in yet another subject area, presently.
…
F. Beard, you’re right! Because of accounting entries, many people (myself included) think the world will end. We collectively lack imagination and our bound by the fictions we’ve created. The creators of South Park did a better job expressing this than so many economists (of all kinds, including Austrians) and politicians.
http://www.southparkstudios.com/full-episodes/s13e03-margaritaville
So many people buy into the “sanctity of debt” (above all other promises) and not printing money to give freely to the people (instead of the banks) that they make Tolstoy correct when he said: “Money is a new form of slavery, which differs form the old only in being impersonal, and in freeing people from all the human relations of the slave.”
Yep, that’s a great South Park episode. Some here are like Randy but it was Kyle who solved the problem – with money!
As for the “sanctity of debt”, that’s why I keep pounding on the “government backed counterfeiting cartel” theme. That debt is bogus. The problem is that the savers (much like the elder brother of the Prodigal Son?) are unwilling that the debtors get relief which is why I push a universal bailout which would benefit savers equally.
It’s only money.
That’s the idea behind the Fed keeping interest rates at zero. So Helicopter Ben’s buddies can speculate at zero cost.
A lot of the money buying oil contracts is not speculative, its an attempt to hedge against inflation. Of course, since we have depressed economic conditions, there is not going to be substantial demand-driven inflation, leaving cost-push inflation as the most serious threat ~ and the hedging against inflation by buying oil contracts is one of the factors helping to create cost-push inflation.
So the effort to hedge against inflation helps create the problem that the hedgers are trying to defend themselves against.
So the effort to hedge against inflation helps create the problem that the hedgers are trying to defend themselves against. BruceMcF
Bingo! All the more so since endless amounts of temporary money (so-called “credit”) are available to drive that inflation.
While it’s hard to deny that speculation affects oil prices, is there anything that can be really done without international cooperation? Speculators threaten they’ll merely take their business overseas, as they threaten to do if derivatives are regulated. Or are they bluffing?
If it’s an empty threat, personally I’d advocate eliminating all margins on commodity trading. Make them put their money where their mouth is. Either that or require that all trades end in a physical delivery. Imagine if some Wall St. trader has to take delivery of an oil tanker…… imagine that would eliminate some speculation? I think its time we end all these financial trades that have zero positive economic benefit and are merely nothing more than making money off leveraged/non-asset backed money. Otherwise, as fast as commodities or derivatives or whatever are regulated, the banksters will devise some new-fangled product to blow up the world.
Commodity speculation is socially and economically useful when the speculators provide actual storage capacity and financing. It helps price discovery and smooths supply.
So, requiring physical delivery would be the most effective measure of all. It would weed out all those Wall Street weenies behind their keyboards without affecting real players dealing in the physical commodity.
That’s simply false, fifi. I work on a derivatives program which does not settle physically but which is linked to actual physical consumption of energy.
And so? Which socially useful service does it provide that cannot be supplied by a well-regulated, physically settled transparent market?
Basically, if you are not involved in producing, using, transporting or storing the commodity, you have no business trading it. I know it cannot be watertight and financials will seep in through credit extended to physical traders but we should make that as unpleasant and dangerous as possible for financial actors.
You are exactly the kind of people I want to see out of business.
Nothing personal, just business :->
Want cheap conventional energy? Climate science tells us we have 5 years to cut emissions, and keep on cutting, or bequeath hell on earth to our kids. Your kids, my kids. Real people. Good people. So rather than waiting for the cost of conventional, carbon-laden fuel to fall, how about putting in that insulation and finding alternatives to replace the oil? I don’t mean to sound preachy and sanctimonious. But how about if we (women included) man-up, suck it up, kick out the carbon-intensive parasites, and diffuse cheap, sustainable energy for our kids?
And if we don’t, how on earth can we ever feel good about ourselves as we age and watch our generation’s doings unfold their legacy?
It’s pretty clear that the price of #2 fuel oil and #2 diesel are manipulated and have been for years. In general terms the cost of #2 fuel oil goes up during the heating season which the commodities folks would attribute to demand while the cost of diesel goes down since winter driving demand is less. So this is a simple case of supply and demand if we listen to the commodities folks.
Makes sense eh !
Trouble is that #2 diesel and #2 fuel oil are pretty much the same fraction of the distillation of crude oil. So same fuel source, same refinery process etc but wildly different pricing.
In fact it is common for unscrupulous heavy equipment operators to use #2 fuel oil in order to avoid the motor fuel taxes.
So what should Maine do ?
1) Create stiffer building codes and standards to include better windows and better insulation.
2) Make maximum use of Federal funds for weatherization.
3) Provide state support for a change to high efficiency wood heating (Maine does have excellent biomass resources), solar water heating, and where prudent and economical – development of hydropower at existing dams and water features.
To move off of heating oil to solar that could replace a lot of the need to use oil requires money.
Every solar tax credit is geared to people who have money to lay out.
So the well off get subsidized very nicely to install solar panels and the struggling are left not even able to get weatherization pennies.
Dear john;
Excellent point. Tax incentives are only good for those of us who actually pay taxes. What if tax rebates were commoditized? Let those poor folks winterize their shacks and let the rich buy the tax rebate value from them for cash? Looks like a win win proposition. Regulate it like other commodities trading, (after sanity is restored to those markets,) and watch everyone make out like banksters!
DIY solar for heat is extremely cost effective. You don’t get the credits, but it is lots cheaper anyway. Check out SimplySolar on Yahoo Groups.
Actually for the next few years put in natural gas infrastructure as it costs 25% the price of oil. Another alternative (which increases the cost of the heating system) is to put in an air source heat pump backed by the oil furnace. So on days when its in the 30s and 40s the oil is not burned, but rather the heat pump gains heat from the outside 3 to 4x the electric energy used. (At a minimum fall and spring). A final thing if the furnace is old is of course to replace it with an 85% efficient oil furnace (oil never does as good as gas), but 85% is likley better than older units.
Inexpensive natural gas is a transitory phenomena I fear. If you look at the LNG export plans starting to come online starting in 2012 I fear that our NG pricing will soon align with international prices which are dramatically higher. There is definitely a public policy opportunity here to control domestic prices but not international prices, but I think there is no will to do so.
As for electricity, with the planned coal and nuke shutdowns, excess electricity could turn into insufficient electricity and priced equivalently. The entire “smart meter” innitiative is about controlling demand, which means “turning you off”.
It is time to re-imagine Thomas Jefferson and his view of the family farm for our days. Sunlight falls on your homestead, use it for space heat, domestic hot water etc through DIY or contractors. If you can get PV and make electricity, even better. Use the sunlight to grow veggies and fruits. Figure out how to burn wood (environmental carbon) from your locality, through your own manual labor, money, or swapping.
It is time to disconnect from the monopolistic franchises that control, heat, electricity, transport, food.
Actually the issue is how do you set the refinery to make what fractions. Within some limits a refinery can vary the percentage of different products that are made with a given stream of input crude. Now if you consider that the same part of the barrel makes diesel, light fuel oil, as well as jet fuel, you see that in the spring this area is reduced as a percentage and in the fall its increased relating to demand. In the old days it used to be that diesel was cheap in the summer and rose relative to gasoline in the winter as the stream was diverted to fuel oil.
One of the big problems of running a refinery is to decide what percentages of which products to make to maximize the profit on each barrel of crude. With the stabilization and actual decrease in gasoline demand the settings to do this have changed and will continue to change.
Throw geothermal in the mix too; there are places where it’s more viable than solar.
To be clear: *insulate first*.
Insulating and sealing air leaks is relatively cheap compared to anything else, is usually done better by a self-educated homeowner than by a professional (get _The Super Insulated Retrofit Book_) — and can easily cut your heating bill to a *quarter* of what it was before, if you started with an old leaky house.
If you really, really superinsulate you’ll have to install an HRV for ventilation (which costs extra). Don’t run a stove hood through an HRV though, best practice on that has changed since the book I mentioned was published.
Once you’ve superinsulated, you can heat a house with a miniscule amount of energy, which helps a lot if you intend to go solar.
Kinda been thinkin’ that myself. And even better than insulation is long john/janes. Can’t you just see a fashion show. As the Russians say (and know) ‘There is no bad weather, only bad clothing.’ Or stg to that effect.
How’s the price of propane? Here in WA it’s $2.79 a gal. It’s 71000 btu per gal vs 115000 for #2, but the furnace will be more efficient, so it comes out cheaper. My main heat here is an air source heat pump (would need ground source in Maine) which is 250% efficient with electricity here at $0.10 per kwh including the 100% renewable surcharge.
We’d be paying about $3.90 per gallon for propane except we pre-bought. That brings the price down to $3.19. Two years ago (when we paid the same prices), I heard from someone in north Mass that they were paying about $2.50 because they had a neighborhood association, more leverage. Much of Maine is rural, hard to find enough people to organize.
Our electricity is running 15 cents per kwh, so the numbers come out a little different, but ground source still makes sense, if you can afford the initial cost. There’s always the question of how high rates can go, too.
Yup, looks like geothermal and wood are the cheapest if no nat gas. If you have anything “invested” in the “market”, take some out and invest it in your future energy security instead.
I agree with your approach.
I live in Calgary and I considered several home heating systems and a wood stove turned out to be the most efficient for me, even though there´s pretty much work around it. I think that I won´t have to worry about my energy security heating-wise in both, the short and the long run.
As I mention above, DIY solar heating is your single most cost effective solution. Come visit SimplySolar on Yahoo Groups.
good Sir;
With the added bonus of becoming ‘strong and manly’ like a lumberjack! (All together now, “I’m a lumberjack and I’m OK…)
@Steve, just joined, thanks
@Peter, good plan, especially in such an oil and gas town. Show ’em
Remember, *insulate first*. It’ll reduce the necessary size of a solar or geothermal system and will reduce the amount of wood needed.
You can get much bigger gains from insulation than you might imagine. Insulate and air-seal to the point where your house starts to have air quality problems, then get an HRV and insulate and air-seal even more. (Assuming you’re on the grid — otherwise air-seal just *below* the point of air quality problems). You’ll want any wood stove to have a separate source of combustion air if you do this, but it’s well worth it.
Here’s New Hamster’s heating cost calcuator. http://www.nhclimateaudit.org/calculators.php
A new propane furnace would be at least 95% efficient, but it looks like they gouge the NE on propane price too.
Two possible factors-
Fracking, requires tons of Diesel. (To turn it into gas)
The US is now an exporter of Diesel.
I do not agree that the data published by Senator Sanders show that speculation has driven up oil prices.
First of all, some of these data of futures trades reflect perfectly appropriate hedgiing by airlines and other mass consumers of oil. They are nailing down future prices for oil that they are going to need.
Second, others are making true speculative bets with these futures contracts, but for every purchase of a contract there is also a seller. Such speculation cannot drive the price of a commodity up unless there is real and actual moving of the physical commodity. Please recall that the California electricity spike was manipulated by Enron traders by the use of strategic power generator shutdowns. Hoarding and storing of oil will drive the price up. Marginal speculation in futures contracts is just not likely to do that.
(The following is not a general criticism of Matt Taibi whose other positions I respect greatly.) Matt Taibi has argued that the vast majority of speculators were holding long positions, thus driving the price of the commodity up. This is incorrect and actually impossible. As stated before, for every long futures contract (long means on the “buy” side) there must be a seller. Sellers must have either financial reserves to buy the futures contract back or they must have the backing of actual physical possession of the commodity. If a seller (“writer”) of a futures contract does so and a catastrophic event spikes the prices the seller will need substantial financial reserves. All futures contracts must be rolled over or sold, because they have expiration. Eventually, the position in futures contracts must be resolved one way or another, either by selling the long contract, or by actually accepting physical delivery of the commodity, or by simply allowing the long contract to expire, forcing one of the above resolutions.
Current oil prices are reasonable reflections of world demand. They declined when the economic outlook for Europe and North America dimmed, and they are subject to an overall secular gradual rise as industrialization worldwide influences the demand for the commodity (e.g. China).
So, what is being manipulated? Let me tell you. What is being manipulated is the failure of the United States to properly invest in green energy. Germany (which has a colder climate and more cloudy days than the average US location) has a heavy investment in solar energy and has driven down energy expenses for German citizens. What is being manipulated is Congress. Congress is being manipulated by money from the fossil fuel energy sector, and the public is being manipulated by hundreds of millions of dollars doled out to think tanks, media, lobbyists, and politicians, to continue the fossil fuel energey death grip on this society.
I apolgize for misspelling Matt Taibbi’s name.
That’s my thinking as well…
…
Then again, wasn’t there a study showing that commodities tradeable on futures markets rose in price much more than commodities that weren’t? If so, that contradicts my “thinking” and would require serious consideration. And it would mean maybe I’m guilty of clinging too much to theory instead of looking at the facts and accepting a new theory.
So, Otto, if that study exists, I guess we better read it and look for potential flaws!
Frederick Kaufman wrote in Harper’s 2010 “The Food Bubble: How Wall Street Starved Millions and Got Away With It.” http://harpers.org/archive/2010/07/page/0029
When the first oil shock came, there was an explosion of alternative technologies. Chiefly, solar, in many forms, including passive solar design of buildings and lowering load requirements for energy through conservation improvements. The biggie was the photo-voltaic solar panel. In 1979, competitive solar electric rates were still 10 years away. Over 30 years later, the lie is still, 10 years from now, solar electric will be competitive with coal, nukes, blah blah blah. Of course, now that China has dumped PV panels at a price 42% less than last year, we are still, 10 years away. Or so the Solyndra scandal would have you believe. While there is still no grand jury investigating the banking collapse and the criminal fraud surrounding mortgages, the FBI has gone and raided the real threat to America, the misallocation of capital to Solyndra for solar energy, when will the madness end quips Congressional
Crusader Darrell Issa, Chairman of House Oversight and Govt Reform Committee?
http://rmi.org/rmi/ReinventingFire
Here is a reasonable plan out of fossil fuels.
@Otto: I don’t think Senator Sanders would agree with your last paragraph.
Do you think it’s possible that all the things you mentioned, PLUS speculation, are together driving escalating prices of heating oil and other fossil fuels?
I do not believe that Senator Sanders would much disagree with my last paragraph about the manipulation of Congress and the public.
I would not agree that speculation makes a significant contribution to current oil prices. Speculation can from time to time impact prices for a few days, possibly even weeks, but in the long run the contribution of speculation is near zero simply because of market mechanisms.
We had a horrible speculative bubble in the housing market, but the problem was not the speculation, the problem was that “on speculation” a massive amount of residences were built – thus changing the actual supply and demand relationship involving the physical commodity. (I am deliberately ignoring and not going into the causes of the financial system collapse which is way beyond this discussion. I am only addressing the fact that starting in late 2007 housing prices started to decline, setting off the fall of the entire house of cards of the banking and finance system.)
@Carla, your question has challenged me to give a more detailed response and to qualify what I said.
Looking at oil at time points 2007, 2008, and 2009.
Oil contract were roughtly $ 50, then 147, then 33.
Was there speculation driving prices from 50 to 147? Very likely.
But note that it all washed out and dropped to 33 afterwards.
This rise and fall was also related to US currency. We pay for oil in dollars. When the value of dollars fluctuates, this affects what we have to pay for oil.
In the same three time periods, the dollar index was: 80, 73, 88.
So at 73 a weak dollar correlated with the spike in oil.
Looking at the very long term (secular trend).
Lets draw a straight line for oil from 1999 to 2011.
Oil went from $ 10 to $ 100 (very rougly)
The dollar index went from 100 to 80 (part of a very long weakening from 160 in 1985).
So our dollars in the long run are worth less and we pay more for oil in dollars.
In that time to buy a unit of “purchasing power” what we needed went from $ 76 to 100.
So, the secular trend probably reflects increased world demand, increased costs of production, weakening of dollar, overall inflation, (and the occasional ripple or spike from speculation or other unusual events).
Dear Otto;
So, the trend line on fossil fuels is pointing up, historically. What’s the historical trendline on solar? Split photovoltaic off from ‘passive solar?’ What do we get? I think the ‘technological’ fix could do just right for us all if the politicos would get their heads straight. *sighs*
Lordy, the housing bubble was all about supply and demand? Is that your formulation of the greater fool theory? Unfortunately, supply and demand doesn’t explain the collapse in housing prices. You see you would need buyers for houses and homeowners competing to lower their prices to attract them to get what you describe, but there were no buyers. The oversupply came about because homeowners couldn’t make payments on their houses and lost them. Oversupply was not the cause but the effect. It was a bubble.
And trend lines in oil? Come on, the only one I know of is the one that began back in 2004 when excessive speculation became part of the market. Go back into the 80s and 90s and there are none. Yet much of your change in the value of the dollar occurs precisely in those periods. And even if you accepted dollar devaluation as the major contributor to price increases, how does a 10% or 15% change in the value of the dollar equate to a 400% to 500% change in the price of oil from 2000?
…And we have been underpaying for oil for a long time! We’ve been importing oil — something with real value — and exporting wheat, weapons but mostly financial paper!
I believe most of the rise comes from the realization abroad that those bits of paper just aren’t worth enough. Yes, many other commodities haven’t risen as much. But, that’s because they’re not constrained as much as oil. Want to expand farming? Plant on fallow land here in the US or burn down the Amazon and plant more acreage. Want to increase oil production amidst declining per-well production? You have to build more above-ground water/fuel-separation plants and power them.
You need to distinguish between what could affect price and what does affect price. Rampant speculation is what has caused the spike in oil prices from 2004 onwards. Someday, maybe not too far off, Peak Oil will have its inevitable effects, but that is not what is driving prices now. A long time ago, I wrote that the paradox of oil is that in the short run its price was ridiculously high and that in the long run it was absurdly low.
As for those bits of paper, look at Europe. The bits of paper that are giving them such grief now are ones they created themselves.
>> You need to distinguish between what could affect price and what does affect price. Rampant speculation is what has caused the spike in oil prices from 2004 onwards.
Hugh, how do you know you’re distinguishing correctly and I’m not?
How do you know that the US isn’t producing enough of value in exchange for the 65% of its oil it imports? Do you think the wheat and weapons we export suffice? It hasn’t, because we’ve been producing large quantities of *promises* to provide something of value in the future. You think people around the world haven’t been deciding that those promises aren’t worth as much as they’d been valuing them previously? Despite the bad timing, Giselle Bundchen wanting to be paid in Euros should tell you something.
>> Someday, maybe not too far off, Peak Oil will have its inevitable effects, but that is not what is driving prices now.
Have we not been on a plateau since 2005?
Have 2 billion Indians, Chinese, and Russians not joined the global economy in the past 20 years?
Sorry, but I think you’re overlooking some pretty strong factors here…
Because while the dollar has lost some value, it hasn’t lost that much. Those bits of paper are just another name for the paper economy and the world’s rich are as invested in them as our rich are.
Your argument re Peak Oil might carry more weight if known speculators like GS, MS, and Barclays weren’t such big players in futures markets but they are.
With regard to Peak Oil, there is a confusion between how much oil is out there and how much of it can be brought to market now. It is rather like a chocolate cake. It’s finite. When you finish eating it, it’s gone. But you can decide whether or not you eat it all now or over 3 or 4 days. We’re essentially pigging out on oil now. This necessarily means that there will be less later, that the drop off will be steeper, and that oil will run out sooner. But while this almost certainly will happen, it is only happening at the margins now.
Holy motherf*cking sh*t, watch the video of police pepper spraying sitting students at UC Davis.
This is absolutely, completely insane.
To me the astonishing part is that the Occupiers talked the police back, with the people’s mic, even though the police had raised their weapons. That’s an awesome display of courage in the face of great provocation.
UPDATE Hi, I asterisked those words that, gosh, I never heard before. Hope that’s OK. Readers will correct me.
This video of these students is one of the most inspirational things I’ve seen in awhile. At around 5 minutes in the students peacefully but forcefully began to verbally fight back in spite of the scary guy with the rifle pointing right at them.
Is this the video you watched?
http://www.huffingtonpost.com/2011/11/19/uc-davis-police-pepper-spray-students_n_1102728.html?ref=mostpopular
What I don’t understand is: Why don’t students protest by quitting paying their ridiculous tuition expenses and learn on their own from home via OpenCourseware or reading Wikipedia? Certainly, one way to hurt the Establishment is to stop patronizing their shitty, overpriced service.
Can’t we-the-people develop our own ad hoc networks and read nakedcapitalism (and other text-heavy sites — no HD video!) that way?
Can’t we pedal our way to health, low carbon footprint and low energy bills? (I was eyeing one of these: http://www.windstreampower.com/Human_Power_Generator_Series.php But, given the price, I’ll wait until my existing exercise equipment breaks…)
Can’t we join food coops or something?
I wish we would create our own anti-Establishment, “civ 1.9” producer/consumer network that manifests our values cheaply enough that we can still live comfortably. (I’m no martyr and not “big” into self-sacrifice.) With the internet, maybe we can form a new collective that’s “backward compatible” with existing business and legal frameworks.
http://www.nccb.coop/impact-history.html
Lots of coops in America, do some google and see.
This is an engine of finance, National Coop Bank, funds limited equity housing coops, food coops, energy coops, etc.
Thanks, Paul! I’ll check it out.
Same video but on Raw Story (instead of AOL):
http://www.rawstory.com/rs/2011/11/19/uc-davis-police-pepper-sprays-students-during-occupy-protest/
“Morgan Stanley was awarded the contract to hold the home-heating-oil reserves for the entire Northeast, ..”
Off The Reservation: Oil
http://www.longislandpress.com/2010/12/22/off-the-reservation-oil/
“ICE Futures in London is owned and controlled by a USA company based in Atlanta Georgia.”
“The US Government energy futures regulator, CFTC opened the way to the present unregulated and highly opaque oil futures speculation.”
“.. 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.” ”
http://bluenc.com/the-enron-loophole
“.. the volume makes clear that not only were Goldman Sachs and Morgan Stanley, as well as pension and sovereign wealth funds, among the top participants in the oil speculation bubble, .. ”
“As lobbying firms have spent months fighting these new rules, it is instructive to note that the biggest players [of the] 2008 oil price spike have also flooded campaign coffers of DC politicians, potentially hoping for influence in shaping these rules or weakening the CFTC’s hand (through budget cuts and other limitations). ”
http://thinkprogress.org/green/2011/09/15/317330/leaked-cftc-oil-speculation-data/
Most prices for commodities are manipulated financially. Heating oil is different. It is a submarket and fairly regionalized to the Northeast. This means it can be cornered physically. Morgan Stanley has been a big player, as I recall, in this type of physical manipulation.
Re Fifi and others above who argue that heating oil prices can be rationalized within market terms, you need to consider financialized speculation in the larger crude oil market, you need to explain why Brent decoupled from WTI last year, and you need to explain why the hell the likes of Goldman Sachs, Morgan Stanley, and Barclays are any part of oil markets, let alone major players in them. If they aren’t there to manipulate prices, why are they there? Ostensibly it is about hedging but after all this time does anyone seriously still believe that anymore?
Hypothesis: Brent disconnects from WTI because “globally transportable, tanker-shipped” oil is more valuable than relatively-more-stranded resources. (Disconnect between natural gas in US and globally is even more obvious.) E.g., someone today (on NC?) just mentioned that North Dakota oil sells at $68/barrel at the wellhead, because afterwards it must be transported by tanker truck to refineries.
Other possible explanations: http://en.wikipedia.org/wiki/Brent_Crude#Pricing
The biggest manipulations in the world though are sovereign debts and bank financing. Why would we expect rational pricing in submarkets when the whole of finance seems to be a fraud?
The idea is that because of the nature of the submarket in heating oil, it is even easier to manipulate than the primary market in crude and this control can be effected in ways that cannot be done in the primary market.
Hugh, I was clearly not talking about heating oil but about the Brent-WTI disconnect, because you mentioned it as though to bolster your argument. (You said this: “you need to explain why Brent decoupled from WTI last year,”)
And now you seem to be disagreeing with my comment about Brent by telling me about Maine heating oil!
…
As for the merits of your statement about Maine/NW heating oil, it sounds plausible, both in your original comment and when you repeated it to me.
>> I was clearly not talking about
Well, since my 1-sentence last par was a general statement, maybe it wasn’t clear…
My mother lives in the extreme Northern part of neighboring state of NH and since I handle all her bills I see her heating bill. Like almost everyone up there she uses oil to heat her house. Her last bill was for $3.69/gallon. So, it is continuing to rise. I’m not sure it matters whether or not it is being manipulated. The important thing is that this is a horrible burden on the impoverished areas of Northern New England and someone is making a very big profit on it. I see these private profits as a kind feudal tax that is levied on the “peasants” in our Corporate-Feudal economy. If there is a difference between a tax levied by a government and a tax levied by a corporation it certainly isn’t how it affects your standard of living. At least in a democratic country (if we only were one) the taxes are the result of a democratic choice. It all becomes obvious to me why privatization is such a mantra of the right wing. Privatization allows government services to be outsourced to profit making entities and that allows the “tax” to be privatized into the off-shore account of an oligarch. Welcome to feudal America. Unfortunately delivery of fuel oil was never seen as a utility like gas or oil but I see whole new vistas opening up for re-utilitizing many aspects of economic life in this country. We need to regulate the amount of taxes these private entities can extract from us. The alternative is slow death in a cold place.
Should have said “gas or electricity” but I’m sure you know what I meant. ;-)
Better insulation and better windows are pushed by a lot of posters. But they are expensive fixes, and also there are limits to how much you want to keep breathing the same air, which usually contains plenty of toxins.
two cheap things that help:
the special plastic film that you tack over windows, just during the winter. It doesn’t attach to the glass; it attaches to the frame; so it forms a thick air cushion. it makes a *huge* difference in how warm the room stays.
using lots of wall hangings that are padded, such as opened sleeping bags (icky looking) or thick coverlets (attractive). If you feel your wall, and it is cold, then that is worth trying in smaller rooms. It’s what they did in medieval castles – those tapestries weren’t strictly ornamental.
I realize the insulation upgrades cost money. This leads us to a major problem, and it’s one of the problems Naked Capitalism keeps discussing: far too many people in this country are poor, mired in debt, and unable to find sources of income — too poor to make sensible investments or decisions. This is due to grossly evil macroeconomic mismanagement of the economic on behalf of a few kleptocrats.
But if this were addressed, if people had actual decent jobs and incomes, insulation *would* be the way to go. It is *much* cheaper than most alternatives, paying for itself in a couple of years (windows take longer).
As for air quality, look up “heat recovery ventilator” — another expensive device, but it’s the new standard in Germany, and once you’ve got one installed, you can insulate your house within an inch of its life, and watch your heating bills drop through the floor.
I am going to spend winter in Europe. Almost everybody here has well insulated homes, double thermopanes, and although heating is usually done with overpriced Russian natural gas, the hot water heating systems popular here seem more efficient (and a lot healthier) than the forced air systems used in America. The house I’m in now also has 3 terracotta wood burning stoves, which not only look great, but when fired up make a huge amount of heat lasting all night with relatively little wood consumption. Actually, if I went 100 percent wood-burning this winter, I think I could probably heat the house (and it’s a pretty large one) with less than $100 per month (the Russian gas will likely cost me $300 or so a month, but it’s less hassle than dealing with wood).
Psychoanalystus,
Such stoves are barely tiptoeing onto the edge of the radar screen here in America.
http://en.wikipedia.org/wiki/Masonry_heater
A well-built masonry stove is said to not have creosote buildup, too.
For reference, my natural-gas-hot-water-heated house in upstate NY — 2 bedroom — costs $100 to heat in *JANUARY* — and half of that is the fixed monthly cost of having a natural gas hookup. It’s barely worth having the natural gas hookup, so I’ve been considering alternatives.
This is because I have a super-insulated house, with a good six inches of insulation in every wall and a couple of feet in the ceiling. The value of insulation cannot be overestimated.
The builder did fail to install an HRV, so I’m going to have to do that as a retrofit. But mind you, my current heating costs quote involves *leaving the windows open*.
the answer to whether commodity prices are manipulated is the same answer (for the same reason) as does the fed manipulate the money supply to benefit the banksters?
I speculate (no evidence) that one effect of the Fed’s increasing the money supply and the growth of the financial industry is that speculators now have enough $ to permanently raise the price of any commodity they focus on.
If so, this is a major flow of funds from the 99% into the pockets of the 1%.
How would one gather evidence of such?
I hope I won’t need to do much heating this winter, because I will move to Malta to escape the cold: http://andreasmoser.wordpress.com/2011/11/13/leaving-london-moving-to-malta/
KSA needs $90 to keep promises made during the Arab Spring. ‘Nuff said.
1. “The Asylum” by Leah McGrath Goodman is uhm, several hundred pages of evidence that NYMEX (and other) commodities markets are, now, manipulated more than ever before, because all of the watchdogs are essentially gone or lifeless, and electronic trading adds layers of opaqueness for the manipulators to hide behind.
2. The Maine people have the special history of the potato market, which, ironically, Goodman describes in her book – this is because the NYMEX started out trading Maine potato futures, but switched to oil after the potato market went bust partly because of market interference from an Idaho potato magnate.