60 Minutes On Oil Prices

Sunday's 60 Minutes lead story delved into how speculation caused oil prices to soar. Well, duh.

Not so fast, Sunshine. The news is the very Wall Street investment houses that jacked up the prices of that sweet, sweet crude are in the oil business too:

Morgan Stanley isn't an oil company in the traditional sense of the word - it doesn't own or control oil wells or refineries, or gas stations. But according to documents filed with the Securities and Exchange Commission, Morgan Stanley is a significant player in the wholesale market through various entities controlled by the corporation.

It not only buys and sells the physical product through subsidiaries and companies that it controls, Morgan Stanley has the capacity to store and hold 20 million barrels. For example, some storage tanks in New Haven, Conn. hold Morgan Stanley heating oil bound for homes in New England, where it controls nearly 15 percent of the market.

The Wall Street bank Goldman Sachs also has huge stakes in companies that own a refinery in Coffeyville, Kan., and control 43,000 miles of pipeline and more than 150 storage terminals.

And analysts at both investment banks contributed to the oil frenzy that drove prices to record highs: Goldman's top oil analyst predicted last March that the price of a barrel was going to $200; Morgan Stanley predicted $150 a barrel.

Both companies declined 60 Minutes' requests for an interview, but maintain that their oil businesses are completely separate from their trading activities, and that neither influence the independent opinions of their analysts. There is no evidence that either company has done anything illegal.
(Emphasis mine)

Oil prices are one more way Wall Street's bigger players fucked us coming and going and coming again. When oil futures and everything else all went boom, they backed up the truck to the US Treasury and had Paulson load 'em up.

Where Goldman Sachs Keeps Their Oil.

When called on the carpet by Congress, big surprise, they lied their asses off:

Yet when Congress began holding hearings last summer and asked Wall Street banker Lawrence Eagles of J.P. Morgan what role excessive speculation played in rising oil prices, the answer was little to none. "We believe that high energy prices are fundamentally a result of supply and demand," he said in his testimony.

As it turns out, not even J.P. Morgan's chief global investment officer agreed with him. The same that day Eagles testified, an e-mail went out to clients saying "an enormous amount of speculation" ran up the price" and "140 dollars in July was ridiculous.

Yep, these fuckers sold us the "China, Russia, India and the Tooth Fairy caused an unbelievable increase in demand" bill of goods. I mean how many times were we fed that lie by the media? We just nodded our heads and sucked it up.

A new MIT study and US Government stats for that time period worldwide supply increased at the same time demand actually decreased:

A recent report out of MIT, analyzing world oil production and consumption, also concluded that the basic fundamentals of supply and demand could not have been responsible for last year's run-up in oil prices. And Michael Masters says the U.S. Department of Energy's own statistics show that if the markets had been working properly, the price of oil should have been going down, not up.

Ladies and gentlemen, we've been had.

I did have a major problem CBS' story. It seemingly let the oil companies off the hook. I'm sorry but if wordwide supply is up and demand is down, how do the Big Oil companies make record, almost exponentially greater, profits?

There's Nothing To See Here Folks. Please Move Along.

Oil prices actually drop 5%+. The stated cause for the biggest one-day decrease in 4 years: "dealers turned their focus to rising supply levels and weakening global demand."

Who makes this shit up anyway? Might as well say gas is cheaper this month 'cuz everybody in China (and the rest of the fucking world) stayed at home to watch the Olympics.

Yeah. Right. There's absolutely no connection to newly lowered oil prices and the upcoming US Presidential election. None at all. In spite of OPEC's increasing shrieks about slashing production, the tagger per barrel will continue to dribble south only to shoot back up sometime after 11/04. Fuckers.

And that will be the new Dem. Prez's fault.

Here's my ASIAF exclusive preview of Big Oil's post-election response to renewed allegations that they play politics with oil prices:

"Look! Over there! Behind you! Is that Halley's Comet?"

Mark my words.

-AF

The CTFC & Oil Prices: A Barrel Full O' Monkeys, Pt. 2

Picking up on this story where we left off, two US Commodity Futures Trading Commission Commissioners(!) played a major role in the development, drafting and passage of the Commodity Futures Modernization Act (H.R. 5660)." This legislation, drafted by Enron lobbyists and John McCain's current top economic advisor Phil Gramm, created the "Enron loophole." It also ended an 18-year prohibition on trading single-stock futures. In doing so this act set up the oil futures mess many economist-types believe is in a large part responsible for our rapidly rising gas prices.

As the value of the dollar has plummeted, investors large and small have been steadily pouring cash into crude oil futures. Reminiscent of the investment surge in gold back in the early-to-mid '80s, oil futures now fill a similar role as a hedge against both inflation and a weak dollar.

This year alone oil futures prices have already risen 40 fucking percent. Senator Carl Levin (D-MI) estimates that oil futures speculation has added about $35 to a barrel of oil. Thankfully, Senate Democrats have been working aggressively to end this speculation.

The Commodity Futures Trading Commission is the government agency charged with monitoring the futures market in order to anticipate and thus prevent exactly this kind of mess. But thus far it has been completely ineffective. Under Bush, the CFTC is a typically dysfunctional agency.

George W. Bush's CFTC has had an unusually high turnover rate. It's designed to have 5 commissioners with no more than 3 Commissioners from one political at any given time. Currently, for whatever reason (hey, I tried really hard to figure out why), this CFTC seats only 4 Commissioners. When votes are cast purely on party lines, there is no tie-breaking vote. The last two Commissioners were only sworn in last August. While this turmoil certainly hasn't helped the CFTC's effectiveness, the résumé of the Republican Commission members holds perhaps a bigger clue.

Before joining the CTFC, acting Chairman Walter Lukken (R) was counsel to the Dick Lugar (R-IN)-run U.S. Senate Agriculture Committee. From Lukken's CFTC bio:

In this capacity, he was prominently involved in the development, drafting and passage of the CFMA (H.R. 5660).

Not something I'd be particularly proud of Commissioner. Lukken is also Chairman of the CFTC's Energy Markets Advisory Committee:

...created by the Commission in February 2008 to address the timely and critical regulatory issues connected to the role of the futures markets for discovering prices and managing energy price risks.

Fat lot of good that's going to do. There are no records that this committee has ever met.

Acting Chairman Walter Lukken isn't the only CFTC member with an oil futures skeleton in their closet. Straight outta Commissioner Jill Sommers' (R) CFTC bio:

Ms. Sommers worked for the Chicago Mercantile Exchange, including overseeing regulatory and legislative affairs for the exchange. During her tenure with the exchange, she had the opportunity to work closely with congressional staff drafting the Commodity Futures Modernization Act of 2000.

Commisioners Lukken and Sommers were both personally and intimately involved in drafting the very law, The Commodity Futures Modernization Act, that allowed oil futures to drive up gas prices. Yet President Bush finds it completely appropriate to place these people at the Commission charged with protecting "market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets." WTF?!? It's par for the course. In Bush's Federal government, foxes are always assigned to guard the hen house.

All eyes are on the CFTC next week as it throws an International Energy Market Manipulation Conference.

Stay tuned...

-AF

The CTFC & Oil Prices: A Barrel Full O' Monkeys, Pt. 1

Reuter's reports "U.S. oil probes focusing on price manipulation":

A U.S. regulatory probe into potential oil-market trading abuses is focusing on possible short-term manipulation of benchmark crude prices and the use of information related to important oil storage tanks to influence prices, the Wall Street Journal reported on Friday.

The report comes a day after the Commodity Futures Trading Commission, under pressure from U.S. lawmakers to crack down on speculators they blame for pushing energy prices to record highs, said it would step up market surveillance.

There's no doubt in my mind that speculators play a large role increased gas prices here in the US. I think the average American can grasp this concept. But I also think the average American wants to know why when the price of that sweet, sweet light crude goes up in the morning, the price of all oil already refined, already in the massive underground tanks at their local gas station, also goes up.

All production and transportation costs for that gas have already been paid. There is no increase in cost of that gas to the oil companies. But there is an increase in it's value. Thus the price you pay to fill up your tank goes up often twice each day.

How can the oil cos. get away with this? Easily. Until we rid our current government of the oil men riddled throughout and our duly elected representatives grow some cajones, we're powerless to oppose them. Our Congressional oil hearings have been a joke.

It's crystal clear Exxon-Mobil and friends are beholden to no one other than their stockholders. Their stockholders are ecstatic. Their stockholders can afford to fill up their tanks too. They probably all drive Hummers, Escalades and RVs. And why not? But I digress...

Fortunately for us, the Commodity Futures Trading Commission AKA the CTFC is on the case:

The CFTC announced a nationwide investigation into energy trading last December, but is in fact pursuing several oil investigations, many of which relate to one another, the Wall Street Journal reported, citing people familiar with enforcement priorities of the agency.

Wow! "Several oil investigations"! That's good, right? Not so fast. According to the CFTC's own 2006 Performance Accountability Report:

In FY 2006, Commission staff conducted daily surveillance of 1,135 active futures and option contracts. In particular, close monitoring was conducted on the energy futures markets...

Still, even with all of that CTFC vigilance, the price of oil has increased 40-fucking-percent in the first five months of this year! So what else can the CFTC do? More Reuters:

It has expanded its probe into alleged short-term manipulation of crude-oil prices via a widely used price-reporting system run by Platts, a unit of McGraw-Hill Cos, the newspaper reported.

They're just now expanding their probe to include Platts? Fer chrissakes, Platts has only been around for 90 fucking years!?! What's this unbelievably long overdue probe about?:

The probes appear to focus on gambits well known by traders in the opaque physical oil market, where trading a small volume of cash crude or gasoline during a short period when benchmark prices are set can yield big profits on derivatives positions.

Oil traders say that these kind of leveraged trading plays -- which are generally not illegal -- were more common prior to the Enron melt-down and the California power trading scandal that triggered increased scrutiny of world energy markets earlier this decade, but rarely had a lasting effect on prices.

Ah, Enron. It's funny how that name pops up. Two CTFC Commissioners(!) played a major role in the development, drafting and passage of the CFMA (H.R. 5660)." That's the legislation that created the "Enron loophole." It's this very legislation that created the oil futures mess in the first place!

That and more in Part Deux when we meet the Republican monkeys on the CTFC.

-AF