Paul Krugman: Fuels on the Hill

Blaming speculators for high oil prices is a way to avoid facing the reality that things will have to change:

Fuels on the Hill, by Paul Krugman, Commentary, NY Times: Congress has always had a soft spot for “experts” who tell members what they want to hear, whether it’s supply-side economists declaring that tax cuts increase revenue or climate-change skeptics insisting that global warming is a myth.

Right now, the welcome mat is out for analysts who claim that out-of-control speculators are responsible for $4-a-gallon gas.

Back in May, Michael Masters, a hedge fund manager, made a big splash when he told a Senate committee that speculation is the main cause of rising prices for oil and other raw materials. ...

Many economists scoffed: Mr. Masters was making the bizarre claim that betting on a higher price of oil ... is equivalent to actually burning the stuff.

But members of Congress liked what they heard, and ... much of Capitol Hill has jumped on the blame-the-speculators bandwagon.

Somewhat surprisingly, Republicans have been at least as willing as Democrats to denounce evil speculators. But it turns out that conservative faith in free markets somehow evaporates when it comes to oil. For example, National Review has been publishing articles blaming speculators for high oil prices for years...

And it was John McCain, not Barack Obama, who recently said this: “While a few reckless speculators are counting their paper profits, most Americans are coming up on the short end...”

Why are politicians so eager to pin the blame for oil prices on speculators? Because it lets them believe that we don’t have to adapt to a world of expensive gas.

Indeed, this past Monday Mr. Masters assured a House subcommittee that ..[i]f Congress passed legislation restricting speculation,... gasoline prices would fall almost 50 percent in a matter of weeks.

O.K., let’s talk about the reality.

Is speculation playing a role in high oil prices? It’s not out of the question... Whether that’s happening now is a subject of highly technical dispute. (Readers who want to wonk themselves out can go to my blog and follow the links.) Suffice it to say that some economists, myself included, make much of the fact that the usual telltale signs of a speculative price boom are missing. But other economists argue, in effect, that absence of evidence isn’t solid evidence of absence.

What about those who argue that speculative excess is the only way to explain the speed with which oil prices have risen? Well, I have two words for them: iron ore.

You see,... its price is set in direct deals between producers and consumers. So there’s no easy way to speculate on ore prices. Yet the price of iron ore, like that of oil, has surged over the past year. In particular, the price Chinese steel makers pay to Australian mines has just jumped 96 percent. This suggests that growing demand from emerging economies, not speculation, is the real story...

In any case, one thing is clear: the hyperventilation over oil-market speculation is distracting us from the real issues.

Regulating futures markets more tightly isn’t a bad idea, but it won’t bring back the days of cheap oil. Nothing will. Oil prices will fluctuate in the coming years ... but the long-term trend is surely up.

Most of the adjustment to higher oil prices will take place through private initiative, but the government can help the private sector in a variety of ways, such as helping develop alternative-energy technologies and new methods of conservation and expanding the availability of public transit.

But we won’t have even the beginnings of a rational energy policy if we listen to people who assure us that we can just wish high oil prices away.

Comments

says...

Oil prices will fluctuate in the coming years ... but the long-term trend is surely up.

That is really sticking your neck out. I recall the Economist arguing that Simon's predictions of falling commodity prices (vs Erhlich's rising price bet) was also correct for oil as oil was falling steadily after 1986. So much for that prediction...

Did economists really not believe rising global demand could
ever run up against supply limits, or rather did they believe that supply and demand should be mostly in balance with technology and innovation pushing the supply curve to the right?

But we won’t have even the beginnings of a rational energy policy if we listen to people who assure us that we can just wish high oil prices away.

We didn't have much of a rational debate back in the late 1970's either when gas station lines were serious, so it might be a bit optimistic to expect one now, especially as there does not seem to be an oil or gasoline shortage.

[Ryan]

Speculation plays a part here, but it is a rational dynamic speculation that is going on. It doesn't take an Economist to see that global demand is ever increasing, and global production is stagnant, which equates to future scarcity.

[Michael McKinlay]

Two Words : Peak Oil ...

For a complete analysis by experts in their fields go Here :

The Oil Drum :http://www.theoildrum.com/

They explain it all, have the data to back up their claims and explain it so that even a novice ( like me ) can understand.

For a good intro to Peak Oil Export today go here:

http://europe.theoildrum.com/node/4179#more

Peak Oil does NOT mean we have run out. It means we have reached the halfway point and having picked the low hanging fruit there are fewer and fewer smaller fields to develop that will cost more and more to bring to production.

[General Specific]

Came across this little snippet:

Causality tests suggest that speculative activity, as proxied by net non-commercial long positions, does not have a significant impact on spot prices, but it does moderately influence longer-dated futures prices. The results—which should be treated with caution owing to the definitional problems noted above—also suggest that speculative activity follows rather than leads spot prices, as do longer-dated future prices, which supports the argument that changes in the fundamentals affect, via spot prices, perceptions regarding future physical market conditions.

from this IMF doc. I'd like to read more about the possibility that spot prices drive future prices (not vice versa).

[Richard H. Serlin]

Krugman writes:

"Why are politicians so eager to pin the blame for oil prices on speculators? Because it lets them believe that we don’t have to adapt to a world of expensive gas."

A perhaps even bigger reason why Republicans want to blame speculators for sky high gas costs is because they don't want the public to put the blame where it's really due – on them.

For decades Republicans have constantly blocked Democratic attempts to increase fuel mileage and many other efficiency and conservation measures. They've also constantly blocked or cut spending on alternative energy, all the while mindlessly chanting "free market". The economics community had proven long ago that there are many situations and ways where a government role can add greatly to efficiency, wealth, and welfare, but this is a party that long ago refused to think beyond slogans. They acted as not being simple-minded was a vice, liberal and un-American, when in fact, thinking, and believing in science, evidence, and logic is one of the things that made this country great, and the richest and strongest in the world.

Now, we're paying a big price for Republican ideology, in energy and so many other things. Had the Democrats not been outvoted, filibustered, and vetoed from enacting their "big government" mileage, conservation, research, and other energy measures, gasoline might be less than half its price today, and mileage more than twice as high, making the gas cost per mile less than a quarter of what it is now.

[Lafayette]

Who-knows-when

Article: But we won’t have even the beginnings of a rational energy policy if we listen to people who assure us that we can just wish high oil prices away.

Spot on is Mr. Krugman.

For all the palaver, the root issue is alternative energy supplies. And, there, any competent analysis of alternative flies against the best interests of the two/three major current producers (oil, gas and coal). The Economist, in a timely and comprehensive review of the subject this past week, published this graphic from the Electric Power Research Institute), here.

In this graphic, it is obvious that the presumption is not to replace carbon sourced fuels but to sequester CO2. The process of sequestering is far from proven, except in lab prototypes. And, its cost of development and implementation is non-negligible. Ditto "Advanced Coal Technologies".

More over, the use of residential geothermic technology is insufficiently represented in the totals. The use of some renewable energy sources (geothermal, aero-thermal and solar) all give individual consumers the alternative of grid-provided electrical power or "self-sustenance". The balance of usage between self-sustenance renewable energy and grid-electricity will depend upon climatic conditions.

But, it could drastically change the outcome forecasts in the graphic mentioned.

Their usage would require government subsidy, however. In the EU, tax breaks are granted to provoke their usage in geothermal and solar technologies -- and IT WORKS. Consumers respond to the tax break incentives.

It seems that the US is fixated on the fact that it sits on a chunk of coal that must be exploited at all costs. By "leveling the playing field" and giving consumers other alternatives, then renewable self-sustaining energy sources are possible.

But, if government funding is to go to finding CO2-sequestration alternatives, then that just saves those industries dependent upon non-renewable carbon-sourced energies.

There's an important choice to be made. So, some attention should be given to the alternatives being proposed; McCain's this week and BO's who-knows-when.

[athreya]

The thing about iron ore pricing is that most of the trade happens through long-term contracts. But some trade happens in the spot market also. And spot prices fluctuate quite a bit. These term contracts, which are reviewed every year have to (obviously) incorporate one year's worth of movement in spot prices. Hence the mind boggling jump in contract prices. It is right to say that iron ore is not a widely traded commodity in futures exchanges. But it is traded in spot markets in many parts of the world. So the contract pricing between buyer and seller is more a "mark to market" negotiation.

[paine]

"we won’t have even the beginnings of a rational energy policy if we listen to people who assure us that we can just wish high oil prices away"

krug despite his claims other wise does have a dog in the fight eh??

a green dog not pink
or red white and blue
or poison ivy yellow

he once again started from his conclusion

we need to get off oil

and worked back to a fantasy
logistic function like discovery trajectory
and we're well past the slow way down point
hence secular ...peak pricing from here on out
so we best get used to it and get cracking on alternatives

but what if there really is a few more cycles in the oil price machine

what if these windfalls only portend...way more drilling
till tye nextcollapse and the next alternative tech
bubble bursts from the stab of sudden
low cost crude...
just when we thought it was safe to go
back in the water...

answer
asocial policy that sets a price for oil that will effectuate the optimal rate of change over
to alternatives

slap on a federal wellhead to gas pump
point of entry sliding tax on carbon
that will counter flux with crude prices
plus
a complimentary 100 % wind fall profits tax
and oh ya...
a transfer in check form
of the total yield of these taxes
per capita to the electorate

[a]

"Congress has always had a soft spot for “experts” who tell members what they want to hear."

Right on. Of course, the "experts" include Krugman and other economists who tell members that the solution to a country living beyond its means are tax cuts, lower interest rates, and more consumer spending.

[anne]

"Of course, the 'experts' include Krugman and other economists who tell [Congress] members that the solution to a country living beyond its means are tax cuts, lower interest rates, and more consumer spending."

Lie on, lie on; the lying is improving.

[Barry]

"Of course, the "experts" include Krugman and other economists who tell members that the solution to a country living beyond its means are tax cuts,..."

BWAHAHAHAHAHAHAHAHAHAH!!!!!!!!!!!!!!!!

[bakho]

Whether it is speculation OR demand, if we cut demand for oil by 10 % by driving more efficient cars, then the price of oil will drop. The prescription is the same either way. Jimmy Carter was right.

[anne]

http://www.washingtonpost.com/wp-dyn/content/article/2008/04/21/AR2008042102555_pf.html

April 22, 2008

Ethanol's Failed Promise
By Lester Brown and Jonathan Lewis - Washington Post

The willingness to try, fail and try again is the essence of scientific progress. The same sometimes holds true for public policy. It is in this spirit that today, Earth Day, we call upon Congress to revisit recently enacted federal mandates requiring the diversion of foodstuffs for production of biofuels. These "food-to-fuel" mandates were meant to move America toward energy independence and mitigate global climate change. But the evidence irrefutably demonstrates that this policy is not delivering on either goal. In fact, it is causing environmental harm and contributing to a growing global food crisis.

Food-to-fuel mandates were created for the right reasons. The hope of using American-grown crops to fuel our cars seemed like a win-win-win scenario: Our farmers would enjoy the benefit of crop-price stability. Our national security would be enhanced by having a new domestic energy source. Our environment would be protected by a cleaner fuel. But the likelihood of these outcomes was never seriously tested, and new evidence has shown that the justifications for these mandates were inaccurate.

It is now abundantly clear that food-to-fuel mandates are leading to increased environmental damage. First, producing ethanol requires huge amounts of energy -- most of which comes from coal. Second, the production process creates a number of hazardous byproducts, and some production facilities are reportedly dumping these in local water sources.

Third, food-to-fuel mandates are helping drive up the price of agricultural staples, leading to significant changes in land use with major environmental harm. Here in the United States, farmers are pulling land out of the federal conservation program, threatening fragile habitats. Increased agricultural production also means increased fertilizer use. The National Academy of Sciences reported last month that meeting the congressional food-to-fuel mandate by 2022 would lead to a 10 to 19 percent increase in the size of the Gulf of Mexico's "dead zone" -- an area so polluted by fertilizer runoff that no aquatic life can survive there.

Most troubling, though, is that the higher food prices caused in large part by food-to-fuel mandates create incentives for global deforestation, including in the Amazon basin. As Time magazine reported this month, huge swaths of forest are being cleared for agricultural development. The result is devastating: We lose an ecological treasure and critical habitat for endangered species, as well as the world's largest "carbon sink." And when the forests are cleared and the land plowed for farming, the carbon that had been sequestered in the plants and soil is released. Princeton scholar Tim Searchinger has modeled this impact and reports in Science magazine that the net impact of the food-to-fuel push will be an increase in global carbon emissions -- and thus a catalyst for climate change.

Meanwhile, the mandates are not reducing our dependence on foreign oil. Last year, the United States burned about a quarter of its national corn supply as fuel -- and this led to only a 1 percent reduction in the country's oil consumption.

Turning one-fourth of our corn into fuel is affecting global food prices. U.S. food prices are rising at twice the rate of inflation, hitting the pocketbooks of lower-income Americans and people living on fixed incomes. Globally, the United Nations and other relief organizations are facing gaping shortfalls as the cost of food outpaces their ability to provide aid for the 800 million people who lack food security....

[a]

Krugman's "expert" complaint reminds me of an incident which happened a while back. Two of my sons (call them A and B), when they were 2 and 6, were running a race with my brother. My brother held back, and A won the race. Then he noticed that my brother was running very slow and allowing the younger one to beat him. A started complaining of my brother, "But he can run faster than than, he's letting B win!", never for once suspecting that my brother let *him* win too.

Krugman is like A. He's incensed that Congress listens to "experts" but doesn't realize, just because he may be a little more expert, that he's also an "expert."

[a]

Should be: "But he can run faster than that..."

[anne]

"Krugman is like A. He's incensed that Congress listens to 'experts' but doesn't realize, just because he may be a little more expert, that he's also an 'expert.' "

Fair criticism.

[lonesome moderate]

They've also constantly blocked or cut spending on alternative energy, all the while mindlessly chanting "free market". The economics community had proven long ago that there are many situations and ways where a government role can add greatly to efficiency, wealth, and welfare, but this is a party that long ago refused to think beyond slogans. They acted as not being simple-minded was a vice, liberal and un-American, when in fact, thinking, and believing in science, evidence, and logic is one of the things that made this country great, and the richest and strongest in the world.

Last I heard, we were spending something like $11 billion a year in ethanol subsidies. Given that, I don't think it's fair to assume the until-recently-Republican congress of being stingy with money for alternative fuels. Shouldn't there be some point where gas goes high enough so that we don't need to subsidize ethanol at all anymore?

[hari]

Paul is *stupid* and dumb* to disregard Masters testimony on non-traditional speculators who are definitely leveraging the futures market with credit (similar to housing mortgage fraud) and rolling their positions with the calender - inorder to corner the oil futures market (cf.SIVs).

CFTC was responsible for giving investment banks/hedge funds carte blanche (ie. unlimited volume) entry into futures market (maybe ordered by SEC) to invest in eneregy sector. They were allowed to speculate using CFTC Commodity Index.

What we've here is a monstrous tale of academic/armchair economists with no(n)sense idea(s) on how commodity trade is conducted by traditional traders - ie. using futures market to allocate spot price(s).

Once you *disrupt* the mechanism of the commodity markets with introduction of non-traditional players (investment banks and their *speculative* voltures -Yes!) you're asking for trouble; the latter can corner the market (for their own ledger books). Like they tried with housing sector....SIVs.

SWFs (Gulf - based in particular) may have also jumped into futures speculation either to protect their principal producers and/or for future profits.

(Brad Setzer may be able to provide more analyses on SWF and Commodity Futures and global inflation.)

What we've now is a melange of mercantile trading powers of US Invesment Banks (and their cohorts) manipulating energy and other commodity markets for ransom dollar....

Hopefully next month ECB will raise its rate thereby forcing Fed to rethink its monetary policy - or watch the dollar sink....

PS. Why not publish the whole testimony of Master and Panel of Experts at Congressional Hearing? It'd be educational for those who don't understand the mechanics of commodity trade.

[ken melvin]

And just look what an $11 billion/yr subsidy get you.

[hari]

Paine is right to recognize Paul is starting with a *conclusion* and then trying to fit his analysis to preconceived ideas - rather than investigating role of Fed monetary policy on this speculative *voltures* in the commodity futures market.

No one can tell me, here, the dollar rate is not impacting the futures oil market speculation?

The Chief Economist/ECB has told Spiegel interview that rolling bubbles are moving from asset values to commodity markets and energy. Mark is disrespecting the impact of his interview which I referred to yesterday>because it doesn't fit into his/Pauls conclusion on market speculation or what?

[anne]

http://krugman.blogs.nytimes.com/2008/06/27/matters-of-convenience-very-wonkish/

June 27, 2008

Matters of Convenience (Very Wonkish)
By Paul Krugman

Steve Waldman * is right. But we should add that the convenience yield isn't a fixed number. Actually — I should have realized this earlier — the demand for inventories is like the demand for money. People hold some money for convenience even though money normally yields less than bonds. The amount of money they hold, however, depends on the yield differential. Similarly, the demand for oil inventories should depend negatively on the interest rate minus the contango. **

I'll reformulate my little model *** to reflect this when I get a chance. Meanwhile, I thought I'd add another interesting chart. Like Waldman, this is the contango at an annual rate, measured as the difference between 1st future and 4th future. In this case, though, I'm showing contango for both crude and reformulated gasoline, from the EIA. ****

The gasoline contango shows you a clear case of the futures market providing an incentive to hoard fuel, on a seasonal basis: huge positive contango in the winter, because prices rise during the summer driving season, and strong backwardation ***** as summer draws to a close.

Crude doesn't show anything like this. There's some hint in the data of speculative forces driving prices a couple of years ago; last summer the futures market was, if anything, holding prices down; right now it's doing nothing much.

It takes two to contango [Chart]

* http://interfluidity.powerblogs.com/posts/1214354098.shtml

** When the futures price is above the spot price.

*** http://krugman.blogs.nytimes.com/2008/06/24/speculation-and-signatures/

**** http://tonto.eia.doe.gov/dnav/pet/pet_pri_fut_s1_d.htm

***** When the futures price is below the spot price.

[hari]

There are valuable commodity tables in Masters testimony which illustrates how US banking sector is trying to leverage the commodity nmarkets. What I found foolish was their largest volume of investment included sugar - I suppose *Sugar #11* on NY market. However they've no way to corner it because International Sugar Agreement (ISA) publishes its producers sugar production, inventory/stocks at hand, and supply constraints, if any. F.O.Lichts (Germany) is the most respected publication on global sugar industry including beet sugar supply.

OPEC being a (limited) cartel doesn't do what we do under ISA for sugar as a basic global commodity.

[hari]

@ Anne - I read all Paul's (and other) stuff before calling his *bluff*.

Which also means Mark has to seek *other sources* of valid info to accomodate commentary on the subject in his blog - otherwise he could be charged for *heresay* also.

I understand the subject of inventory is difficult to ascertain with regard to crude supply including its quantitative relation (if any) with what goes on into *futures market*. Because (CFTC) does not require investment banks to hold stocks for delivery...they are allowed to roll their positions with the calender.

[bakho]

The ethanol subsidy is only necessary at low oil prices. Congress needs to have a sliding scale subsidy for ethanol that takes oil price into account. We need to switch ethanol production from corn to other biofuels. Corn ethanol made more sense when there was surplus. The corn surplus is gone.

[ddt]

Well, I'm glad that Krugman recognizes Waldman's point.

Waldman really let him off gently there - since all of the charts that Krugman has put up so far are lacking a main variable, his arguments about contango and backwardation actually prove nothing whatsoever. The convenience yield can tip it either way, all else being held equal.

Eventually Krugman will realize that the pricing of commodity spot and futures markets is a lot more complex than he thought. He should show a little restraint and respect for other experts in the field who might have actually been working with proper models from the beginning.

[ScentOfViolets]

To continue from a previous thread (on the same subject, I apologize for any hijacking), someone, Cynthia I believe, suggested that if oil drops to $100/barrel, Krugman is right, and if it drops to $70/barrel, the run-up really was due to speculation. Does this seem to be in the ballpark? Does the speed with which prices (hypothetically) drop differ in the two hypotheses? Anything else?

I'm asking because it's better to get the predictions in before hand ;-) I can all too easily see a spot price of $98/barrel and both sides claiming this as evidence that they were 'right'. Now, this sort of family argument never seems to get resolved in the social sciences, but in this particular case, there is a move afoot in what appears to be an important election year to put significant curbs on 'speculation' - however it may be defined - on the Hill. Without being too knowledgeable on the subject, this strikes me as one of those pieces of legislation that could have Very Bad Consequences.

Sure, just right now, there is little love for 'speculators', they are the designated sin eaters of the day. But does anyone seriously doubt they fulfill an important function in the ecology of finance?

[hari]

There is a (serious) traditional place for *speculators* on the commodity markets - both *buyers* and *sellers*. But when you have *hoarders* who use the futures market like an *option* to strike gold, and disregarding their nefarious impact on the global energy consumption market, serious considerations are in place to (1) put a blanket check/control on CFTC regulatory capacity to provide transpareny (2) if non-traditional speculators are by definition *option traders* (eg. NYSE) levy an entry free or license them and control their performance (so it doesn't disrupt the market).

[JeffF]

...and just yesterday republican again blocked more federal spending for transit in the form of transit grants.

[kthomas]

Just a note. The Model T got better gas milage than a new Hummer.

Also, is it just me, or is anyone else incredibly amused at listening to Republicans rant about speculation in the oil markets? Puts the sugar right in my tea!

[hari]

"The best test of truth is the power of thought to get itself accepted in the competition of the market."

Justice Oliver Windell Holmes/Supreme Court (1919).

"...Our brains do not naturally obey this admirable dictum,
but by better understanding the mechanisams of memory perhaps
we can move closer to Holme's ideal."

From *Your Brain Lies To You* - Op-Ed (NYT) 27 June 2008.

[jeffery]

I saw This Week on ABC News this last Sunday. The panel talked about energy policy. Everyone there was an American and all they wanted to talk about American domestic energy policy. The energy issue is not a domestic policy issue, we can't settle it internally. We don't have enough domestic supply.

[jeffery]

I saw This Week on ABC News this last Sunday. The panel talked about energy policy. Everyone there was an American and all they wanted to talk about American domestic energy policy. The energy issue is not a domestic policy issue, we can't settle it internally. We don't have enough domestic supply.

[ddt]

"hari says...

No one can tell me, here, the dollar rate is not impacting the futures oil market speculation? "

Actually, this does fit right into the model that Mark had up ( s+i-c ) . High rates of return create a disincentive to hoard. Lower dollar rates create incentive to hoard. A negative expected return on dollars creates a very strong incentive to hoard. It effectively changes the equation to: s + (-i) -c.

I guess that this is the mechanism through which the Fed's cuts feed into high commodity prices.

[pgl]

When I posted Krugman's oped as a commentary on "expert opinion", we got one AB reader who suggested Krugman thinks he's an expert on everything. I see there are those here who are sort of attacking Krugman's credentials. I guess these cynics have failed to read the latest paper Paul wrote on this very topic. It is being widely cited by economist bloggers and for good reason. It's a pretty decent contribution to this debate. I would say Paul qualifies as an expert. And to his critics - we await your academic paper on this topic!

[Cynthia]

ScentOfViolets,

The only reason I posted post-oil-bubble prices (which aren't set in stone, BTW) is to point out that there's not a single cause for runaway oil prices. But I still think the primary cause for this is rooted in well-grounded fundamentals and is not based on flights of speculation.

[ddt]

pgl, don't be silly

we all read that paper. we have been talking about it for days in case you haven't noticed.

Waldman has already pointed out that the model Krugman uses is a simplistic cartoon that proves nothing. He's just too polite to come out and say it like that.

convenience yield is very important. Krugman bumbled and forgot to include it. Now he has to go back to the drawing board, as he admits. That's fine, I'm learning as I go here too.

Also, Krugman is the one who started dismissing people's credibility not vice-versa. It's only fair that he is expected to defend his own. Forgetting about convenience yield is a serious blow to his credibility here.

[hari]

Listen! No one is denying Paul's expertise in international trade policy (I said that just yesterday!). What we require here is bit more honesty (without ideological proclivity)...
This is not a challenge to his *Progressive* inclination on political issues of the day, we're debating reason for the escalating oil prices. Not Paul's integrity as an expert.
I'm sure he'll appreciate the core problem of speculation by non-traditional traders (without any limit on their volumes)
irrespective of their nationality. When he calls other experts *stupid* and *dumb*, he knows what's coming his way -surely!

[Cynthia]

First let me thank PK for going against the MSM for pointing out that Obama isn't as progressive as progressives envisioned him to be. Now let me thank him for going against the MSM for reporting that the primary culprit behind skyrocketing oil prices isn't speculation, but it's peak oil!

PK sometimes falls short on getting the details right, but his big picture on things is usually right. But only time will tell whether he's right not only with regards to Obama, but with oil, too!

[Cynthia]

First let me thank PK for going against the MSM for pointing out that Obama isn't as progressive as progressives envisioned him to be. Now let me thank him for going against the MSM for reporting that the primary culprit behind skyrocketing oil prices isn't speculation, but it's peak oil!

PK sometimes falls short on getting the details right, but his big picture on things is usually right. But only time will tell whether he's right not only with regards to Obama, but with oil, too!

[robertdfeinman]

If you rather discuss the facts instead of Krugman's expertise you might find this article useful:

$140 oil and speculation

Never mind that speculators have been caught shortselling oil (ie betting on a fall in prices) more than a few times in recent months. Never mind that spot oil prices, which require actual physical deliveries of oil at the end of each month, have behaved the same way as paper futures. Never mind that oil storage seems to not be increasing.

Nope, it is just too convenient, too irresistible and, let's say it, too comfortable an excuse that speculators are to blame. It's not our fault, we have our scapegoat. Our price increases are temporary, we'll soon be back to "normal" lows, as soon as (take your pick) speculators have been punished/oil companies are taxed for their profiteering/"fundamentals" are left toset prices.

This is just denial

There are A LOT of reasons why oil prices are going up. Let me show you just a few.

Take a look at the charts provided, you may learn something.

By the way, one of the (unstated) reasons for high oil prices is us. Is it only Republicans who have been buying SUV's for the past two decades? Pols can't blame the public for self-destructive behavior, nor can they tell them to shape up. No one ever one an election on the "eat your spinach" platform.

We dug ourselves into a deep hole and now want to blame the shovel makers.

[donna]

We made a very conscious decision in the late 70s to build our economy on cheap imported oil. We've paid less than the rest of the world for 30 years.

You want to complain now that we've built the entire sprawlconomy on cheap oil instead of turning to alternative energy sources like the rest of the world, conserving energy and building mass transit infrastructure like the rest of the world began to do? You want to complain after voting in two oil men to the White House?

Americans are idiots.

[Cynthia]

Bakho writes,

Whether it is speculation or demand, if we cut demand for oil by 10% by driving more efficient, then the price of oil will drop. The prescription is the same either way. Jimmy Carter was right."

Good point, Bakho! But as long as conservation is a dirty word in our consumer-driven economy, conservation will remain a taboo topic in American politics. And too bad our economy boomed when fossils fuels were at rock bottom prices, otherwise we wouldn't be stuck with so many McMansions sitting out in the middle of nowhere and McVehicles guzzling gas like there's no tomorrow!

[Alex Tolley]

I'm beginning to wonder whether this issue of "speculation" or not is becoming a bit of a red herring. Various people want to apply a very narrow definition to who speculators are, but as a consequence we may be missing a bigger picture of price manipulation.

PK argues that there is no speculation as there is no apparent increase in inventories to keep oil off the market. Others have argued that the oil is just in the ground (under the sand).

As I've argued before, if the producers use the tight supply conditions to play the futures market, they can manipulate oil prices by making it very hard for sellers of futures contracts to fulfill their delivery obligations. This can be done through any number of front organizations, including investment banks and hedge funds.

PK has most certainly shown he was not a naive in the CA energy market as it was being manipulated by Enron, a position that was against much of the published thinking at the time. But in this case, he appears very fixated on a specific idea of inventories and players and may possibly be missing the real picture, especially as he defends his position or even reworks it in response to valid criticism.

[Bruce Wilder]

I love donna and I sort of agree with Alex Tolley -- Krugman is holding too tightly to his idee fixe. It must be a beautiful day.

Note to PK: the "speculation" is happening in dollars, of which there are inventories aplenty. We're just watching the floodtide of inflation lapping o'er the levee walls of the commodity markets.

[MG]

Alex: "...if the producers use the tight supply conditions to play the futures market, they can manipulate oil prices by making it very hard for sellers of futures contracts to fulfill their delivery obligations"

You are correct. I don't think there's any question that producers, individually in some cases, or collectively, can manipulate prices. It has always been the case. And it may also be true that they can amplify their profits by taking long positions in futures before cutting production. But my understanding is that the type of speculation that is at issue is the index long-only funds that Masters testified about and the academic question of whether that by itself affects the price. Maybe it is a red herring.

[anne]

http://krugman.blogs.nytimes.com/2008/06/27/oil-experts-theyre-as-bad-as-economists/

June 27, 2008

Oil Experts: They’re As Bad As Economists
By Paul Krugman

Fascinating WSJ story: *

"Sadad al-Husseini and Nansen Saleri raced up the ranks at Saudi Aramco, the world’s most powerful oil company, working together for years to squeeze more crude from Saudi Arabia’s massive fields. Today, the two men have staked out opposite sides of a momentous industry debate.

"Mr. Husseini, Aramco’s second-in-command until 2004, says the world faces a brute reality of depleting resources and ever rising prices. Mr. Saleri, until recently the company’s oil-reservoir manager, insists that with enough ingenuity and investment, plenty more oil can be found."

You really can find a bona fide expert — these guys should have the inside scoop, if anyone does — who will tell you anything you want to hear.

* http://online.wsj.com/article/SB121451556299908501.html

[anne]

http://angryarab.blogspot.com/2008/06/so-saudi-arabia-receives-criticisms-in.html

June 25, 2008

So Saudi Arabia receives criticisms in the U.S. congress and media over oil prices, and Saudi Arabia immediately and conveniently responds by announcing the arrests of hundreds of Al-Qa`idah members in Saudi Arabia. One of them was found in the private quarters of the king.

-- Asad AbuKhalil

[Paul Krugman missed this related story, however.]

[anne]

As to whether, "with enough ingenuity and investment, plenty more oil can be found," I have no idea, but I do know that I was struck immediately in the recovery from recession and with steadily rising oil prices that investment by American oil companies was relatively limited, so much limited that large-scale investment subsidies were introduced by Congress.

Company executives argued that the problem was not being able to count on prices staying at a level that made investment profitable without subsidies, but what oil has subsidized investment brought evidence of?

[anne]

I am reminded that there has been little discussion of Canadian oil sands or of American oil shale, and wonder what sort of oil price makes either resource profitable to mine. Obviously there has been no technology gain suitable to bring either source to market in significant amounts, but I have no idea why for all the optimism in past years.

[Lafayette]

donna: You want to complain after voting in two oil men to the White House? Americans are idiots.

In fact, you place the blame where it should be in this thread -- not with Paul Krugman. (This debate about what Krugman said or did not say, omitted or did not omit, explains limpidly why economists have so little effective policy making power.)

Cheney and Lead-head should be charged with dereliction of duty, given that the former was charged with formulating an Energy Policy. And, all we got out of that effort was a court case where Cheney argued Executive Privilege.

Now we know why -- it was a circle-jerk amongst the "old boys" (Oil, Coal and Gas executives) the only consequence of which was to pay the chits for having elected the dunderheads. Their Energy Policy was a do-nothing dud, dead-on-arrival.

But, you're right, we elected dullards and we are paying the consequences. Problem is, no one is sure that we have kicked the habit, it's become so ingrained in American politics.

[anne]

Looking through the data, I find that the movement in power generation since 2000 has been overwhelmingly movement in natural gas. Natural gas use for power generation climbed an average of 10.1% a year from 2000 to 2006, and counts for portion of power generation of 389.8/988.1. Gas has surpassed coal for power generation at 314.1/988.1.

[anne]

Power generation overall increased at 3.3% a year from 2000 to 2007, with coal generation slightly declining and oil generation declining by -1.0% a year. Solar and even wind generation amounts were minimal, though wind generation was at least growing faster than overall generation.

Then our demand for natural gas since 2000 has been pronounced, and should not be overlooked in thinking to resource price pressures.

[anne]

http://www.earthpolicy.org/Updates/2008/Update70_data.htm#table4

Solar power was 0.4 gigawatts of a total 988.1 gigawatts of power generation by 2007, growing at 1% a year from 2000 as opposed to 3.3% for total power generation.

Contrasting, wind power generation was at 11.1 gigawatts of total generation by 2007 and had grown by 29.3% a year from 2000. Natural gas power generation was at 389.8 gigawatts and had grown at 10% through these years.

[anne]

Solar power then accounted for a portion of power generation of merely 0.4/988.1 or .0004 by 2007 and has been growing far more slowly relatively than total generation. Wind power accounted for a 11.1/988.1 of total generation by 2007 but has been growing far faster relatively than total generation.

[anne]

Regardless of whether there has been a speculative run on oil prices since 2000, I am struck by how little prepared we were all these years for the possibility of a significant near- to long-term price increase in oil. The idea that an American company could produce a Prius, just in case, was of no account. The idea that a limit in coal use would leave natural gas as the only viable alternative for power generation was so poorly considered that we had never properly prepared for storing and transporting gas.

While we were spending $7.7 billion on public energy research in 1979, by 2006 we were spending only $3 billion in real terms. So, we were surely setting ourselves up for speculation at the least.

[anne]

Of course, I am reminded, Al Gore was talking of these sorts of possible issues all through the 1990s to no avail and considerable laughter. I do not find the problem speculation, either in energy or food though looking to food production I am more convinced than looking to what is so cloudy about oil production especially adding in violence in the Middle East and less so but evidently in Nigeria. These problems have been long in the making.

[anne]

ttp://www.nytimes.com/2008/06/27/us/27solar.html?ref=us&pagewanted=print

June 27, 2008

Citing Need for Assessments, U.S. Freezes Solar Energy Projects
By DAN FROSCH

DENVER — Faced with a surge in the number of proposed solar power plants, the federal government has placed a moratorium on new solar projects on public land until it studies their environmental impact, which is expected to take about two years.

The Bureau of Land Management says an extensive environmental study is needed to determine how large solar plants might affect millions of acres it oversees in six Western states — Arizona, California, Colorado, Nevada, New Mexico and Utah....

[Earlier I was struck by this article, but solar energy generation is still so small a factor and growing so slowly for our generation that I am not sure what the significance is.]

[John V]

Anne,

See here for basic info on oil shale.

[anne]

http://krugman.blogs.nytimes.com/2008/06/27/strange-bedfellows/

June 27, 2008

Strange Bedfellows
By Paul Krugman

Larry Kudlow has spent years blaming speculation for high oil prices. Now I read that he’s been joined by Randi Rhodes.

This really is one of those issues that’s orthogonal to the usual political divide …

[anne]

John V, thank you; but we need to look at a full discussion of the matter of oil shale mining to understand what has been happening to what was once considered so promising. I have no sense of the matter, but will ask in coming days.

[anne]

http://krugman.blogs.nytimes.com/2008/06/27/maybe-john-mccain-will-offer-me-a-job/

June 27, 2008

Maybe John McCain Will Offer Me a Job
By Paul Krugman

He complains about my profession: *

" 'You know the economists?'' McCain said June 12 at Federal Hall, near the New York Stock Exchange. 'They’re the same ones that didn’t predict this housing crisis we’re in. They’re the same ones that didn’t predict the dot-com meltdown. They’re the same ones that didn’t predict the inflation that’s staring us in the face today.' "

Actually, I did predict the housing crisis ** and the dot-com *** meltdown. Is two out of three good enough?

* http://gregmankiw.blogspot.com/2008/06/dont-trust-anyone-who-cant-see-into.html

** http://www.nytimes.com/2005/08/08/opinion/08krugman.html

*** http://query.nytimes.com/gst/fullpage.html

[anne]

http://www.nytimes.com/2006/12/21/business/21shale.html?ex=1324357200&en=216b920f1ed07ad5&ei=5090&partner=rssuserland&emc=rss

December 21, 2006

The Cautious U.S. Boom in Oil Shale
By CLIFFORD KRAUSS

GRAND JUNCTION, Colo. — Oil shale has never made an American company more than a nickel or two; quite a few, in fact, have lost countless millions over the last century trying to cook oil out of the rock. R. Glenn Vawter, who has worked as an executive for many of the losers, knows all that only too well.

Oil shale's many starts and stops have driven Mr. Vawter's career but have also unsettled his family life, forcing 37 moves during one 25-year spell early in his career.

But Mr. Vawter is still a true believer. His rock garden is adorned with huge shale boulders weighing over a hundred pounds, which he has lugged from job to job. His house is filled with shale bookends and shale paperweights engraved with names of companies he has worked for, including one that he had to shut down, laying himself off, during the last shale bust, in the 1980s.

Some may think Mr. Vawter a glutton for punishment. But suddenly at age 68, Mr. Vawter and his holy grail are back. Last month, the Bush administration opened up five large parcels of land in the Piceance Creek Basin in Colorado for oil shale research and development projects, and Mr. Vawter has bounded out of retirement to manage the efforts of EGL Resources, which will begin pilot tests early in 2007.

Government estimates of recoverable shale oil in Colorado, Utah and Wyoming put the reserves at 800 billion barrels — more than triple the proven oil reserves of Saudi Arabia. So aside from Mr. Vawter, now many in Washington have their eyes on a big prize, not in small part for the promise it might hold to ease national security concerns. "It could literally shake the world," Senator Pete V. Domenici, a Republican from New Mexico, told a recent Senate hearing.

But there are plenty of good reasons no one has ever come up with a profitable, environmentally acceptable method for extracting oil from shale. Not only were the previous efforts too expensive and too energy- intensive to compete with conventional oil resources, they also laid waste to the land, produced lots of air pollution and threatened scarce groundwater in one of the driest regions of the country.

So it is no surprise that Shell, Chevron and Mr. Vawter's EGL Resources, the three companies that won the 160-acre leases, say they are going to go slow with their experiments before they begin considering commercial production of synthetic fuel. The initial outlays are small, in the millions or tens of millions.

They are all looking over each others shoulders, wondering if any of their new techniques, aimed at overcoming the previous obstacles, can hit the jackpot. Each is refining its own method, but they say they are cautiously optimistic that they can succeed where so many others have failed.

"The resource scale is enormous," said Donald L. Paul, vice president and chief technical officer at Chevron. "We believe there are opportunities for it to become commercial. Otherwise, we wouldn't do the R&D."

Despite the fresh starts, skeptics abound.

"The jury is still out whether oil shale can make it," said James T. Bartis, an energy policy expert at the RAND Corporation, an independent research firm. "Right now we have no idea what one of these plants will look like. There are no designs on the books, no one has given detailed estimates on the pollution, the footprint, the ecological impact or even for that matter, the economic value to any company that is to build one of these plants. So there is a lot of uncertainty." ...

[anne]

http://www.nytimes.com/2007/01/25/business/25lab.html?ex=1327381200&en=10efc04c67ea9a27&ei=5090&partner=rssuserland&emc=rss

January 25, 2007

Energy Research on a Shoestring
By CLIFFORD KRAUSS

GOLDEN, Colo. — Thirty years after it was founded by President Jimmy Carter, the National Renewable Energy Laboratory at the edge of the Rockies here still does not have a cafeteria.

Evaporation chambers for new solar energy systems look like they belong in an H. G. Wells movie. Technicians had to knock out a giant door from a testing facility to fit modern wind turbine blades, which now stick out like a bare toe from an old sock.

The hopes for this neglected lab brightened a bit just over a year ago when President Bush made the first presidential call on the lab since Mr. Carter and spelled out a vision for the not-too-distant future in which solar and wind power would help run every American home and cars would operate on biofuels made from residues of plants.

But one year after the president's visit, the money flowing into the nation's primary laboratory for developing renewable fuels is actually less than it was at the beginning of the Bush administration. The lab's fitful history reflects a basic truth: Americans may have a growing love affair with renewables and the idea of cutting oil imports and conserving energy, but it is a fickle one....

[John V]

Anne,

From what I understand, oil shale mining, based on current know-how is only profitable so long as oil prices remain above certain numbers. The cost per barrel will drop over time...say about 10 years and be competitive at even lower numbers. According to Wiki, that cut off number is currently about $90 (give or take) per barrel and will go down from there. At $140, it can be profitable.

Apparently, they tried back in early 80s and then oil prices plummeted and operations ceased. Apparently, the people who want to do this feel confident it's worth the trouble now based on current prices and feel safe from the bottom falling out of oil prices.

I say let them have at it if they want. It's their problem if things change against their favor.

[anne]

However comical a bunching of conservatives and liberals on the matter of energy or food may seem, what bothers me about the speculation argument is that it undermines a sense that there is need for sustained long term policy adjustment. If the matter is speculation, fine. Find the evidence and undo the speculation. No matter; there is a need for substantive policy on energy use and food production, and I would prefer there be significant public research and development rather than only allowing for increased price to drive private investment.

I would like to know of an Obama and McCain set of initiatives.

[anne]

John, without knowing specifics I am entirely sure that systematic exploitation of oil shale will not occur without public subsidy. There is not a magic oil supply in the mountains just waiting for the drinking.

Remember though I know nothing of specifics, and only raised the matter because magic technologies is such cases are likely not to be found so magical. Energy policy is public policy.

[anne]

American oil companies were built apart from public policy, from the beginning.

[John V]

Anne,

Well, I naturally don't like the subsidy for it...hence my last sentence in my previous post.

That said, I see no reason to stop them from doing it provided they foot the bill and take any reasonable enviromental stipulations into account.

Energy policy is public policy

Sure. I suppose(?). But that doesn't really much.

To me, that just means that the government has a position and stance, of some kind, to adopt vis a vis the energy producing business.

My idea of good "energy policy" for the government is to not interfere with the innovation and progress of energy solutions while assuring, on the legal side, that environmental considerations and contracts are properly honored and, on the financial side, that no favoratism is exercised on any particular industry's behalf...be it oil or ethanol or solar or oil shale or whatever.

The variables, contingencies and available information are too many, too intricate and too complex to clumsily play market god with all the possibilities. Look at the enthanol debacle we have. Shor-sighted and wasteful...and worse yet...now we have a new concentrated interest to deal with.

[bakho]

The bottom line is that Jimmy Carter's energy policies were excellent for consumers. The increases in efficiency meant that consumers were getting much greater value for the energy they consumed AND the energy consumption dropped putting money in the pockets of consumers for other things. Unfortunately for Carter, the full effects of his energy policies did not hit until 1983, so Carter and his energy policies get very little credit for the long term good they did.

OTOH, Carter energy policies were very bad for Big Oil. The 20% drop in US demand for oil meant that oil refineries that were operating near capacity in 1978 were no longer needed, losing money and had to be closed. Many of the investments in new drilling did not pay back because demand dropped and the extraction costs were too high. Since Carter, Big Oil has made a considerable effort to discredit his policies in hope of staving off another conservation binge that would hurt Big Oil profits. Big Oil spends $$$$$$ on advertising (your stock portfolio may include Big Oil profits) and other idiocy. Rationale energy policy means fighting the Big Oil special interests and most especially Exxon Mobile. Their special interest lobby money pollutes the politics of the US in a way that harms the majority of Americans. There will be no rational oil policy until we have the political will to tackle the BigOil special interests.

Is it beyond the money and interest of Big Oil to actually be behind the "blame speculators" (not Big Oil) meme?

[anne]

John V:

"Well, I naturally don't like the subsidy for it...hence my last sentence in my previous post.

"That said, I see no reason to stop them from doing it provided they foot the bill and take any reasonable enviromental stipulations into account...."

I know, I'm with you here.

Bakho:

"The bottom line is that Jimmy Carter's energy policies were excellent for consumers."

I think so.

[Interesting.]

[John V]

Anne,

Problem is that, from what I read, Congress DID stop this oil shale business in a recent bill.

Can't recall why.

[anne]

"Problem is that, from what I read, Congress DID stop this oil shale business in a recent bill.

"Can't recall why."

Only stopping on public land, but I hope to find out why. Enviroment?

[John V]

Anne,

I don't know why...environmental details may be the reason. I'm sure.

But besides, from what I gather, most of the shale is under public land, so by blocking the public land, they are blocking nealry all of it.

[anne]

http://www.commondreams.org/news2008/0626-05.htm

June 26, 2008

Oil Shale As Fool’s Gold: Gas Price Reduction Act Of 2008
By Chase Huntley

WASHINGTON

“Today, the proponents of oil shale development perpetrated a cruel fiction on the American people, promising a false solution to high gasoline prices that instead would hand over potentially tens of thousands of acres of federal lands to oil shale speculators. This bill falsely promises that oil shale will lower gasoline prices, when in fact the industry is years if not decades away from proving the economic viability, technical feasibility, and environmental safety of the technologies needed to squeeze oil from rock.

“In light of these knowledge gaps, Congress voted last year to include a limitation on the Bureau of Land Management’s (BLM) implementation of a commercial oil shale leasing program. This policy supports a robust oil shale research and development program on federal lands managed by the BLM. Furthermore, millions of acres of oil shale deposits are already owned by private companies such as Royal Dutch Shell, ExxonMobil, the Oil Shale Exploration Company, Red Leaf Resources and Anadarko—yet none of these companies has ever developed a viable oil shale program....

[anne]

http://www.commondreams.org/news2008/0626-05.htm

Furthermore, millions of acres of oil shale deposits are already owned by private companies such as Royal Dutch Shell, ExxonMobil, the Oil Shale Exploration Company, Red Leaf Resources and Anadarko—yet none of these companies has ever developed a viable oil shale program....

[I thought so.]

[John V]

Anne,

the common dreams article seems to be trying to give the impression that claims were being made that oil prices would drop instantly. I don't think that's the case. As the wiki link stated in my posting above, it will take years...everybody knows that. But that can't be an excuse to not do it. Things take time.

[anne]

http://www.earthpolicy.org/Updates/2008/Update70_data.htm#table4

June 27, 2007

U.S. Installed Electricity Generating Capacity by Source, 1990-2006

2006

Coal 314.1
Oil 58.3
Gas 389.8
Nuclear 100.1
Hydro 99.0
Bio 10.0
Wind 11.1
Solar 0.4
Geo 2.3

Total 988.1

Annual Growth Rate, 2000-2006

Coal -0.1
Oil -1.0
Gas 10.0
Nuclear 0.4
Hydro 0.0
Bio -0.1
Wind 29.3
Solar 1.0
Geo -3.1

Total 3.3

[anne]

John V:

The Common Dreams article is not objetive, but....

[anne]

"objective"

[John V]

Anne,

Common Dreams not objective? Really??

;)

[zinc]

Who cares what the price of oil is ? Let the little people pay for it !!

Remeber when you were a kid and I was holding your face over a mud puddle ? The same lament.

[Lafayette]

Vox Populi

When taken in perspective, this thread is about the collective failure of an administration to confront a problem, that was amply foreseen at its beginning, and to not tackle it head on. (And, I won't bore anyone with the reason why. We know why.)

What to do? Keep bitching about the sad situation in a blog? That will get us nowhere.

It seems that our system of government is in sad disrepair. This happens when a nation's leaders lose sight of key national objectives. It loses its way. Whose to blame?

We the people. We elect a political class in the belief that they go to Washington in our best interests. But, if that were the case, would this nation be in the mess it is today? Is lead-head the only one to blame. Or, is the problem much further ingrained within pour political system of democracy?

Somethin' has gotta change. And we should be debating what and how -- not just "fixes" to problems that are complex and where our much vaunted "Quick Fix" will no longer apply. The days of the Quick Fix are long since gone.

Any objective observer would have genuine qualms regarding the evident machinations that have provoked today's confluence of problems, which have come to appear insurmountable. Did this country have a collective leave of its senses? America? Gone crazy? It doesn't seem possible ...

And yet, here were are, at a crossroads in history that will prove, I've no doubt, far more important to our nation than any it has seen in its history.

As I have voiced repeatedly in this forum, my answer is Vox Populi (the voice of the people). When a political class has lost its hearing as regards the best interests of a nation, then its time to turn up the volume. In my experience, the only way to do that is by instituting referendums, initiated by citizens, for matters that are of singular importance to the destiny of the nation.

There must be a "fourth power", one that is grassroots, that enters into play along with those of the Executive, the Legislative and the Judicial. Voting to elect leaders every two years is just not enough -- events have proven.

Our fixation upon growth at all costs, mostly to generate go-go wealth inequitably shared, cannot assure this country or its citizens the well-being that they justly deserve through their hard labor. If we do not participate more in the process of policy decision-making, which referendums would afford us, we will remain forever dependent upon a political class that goes to Washington with ITS interests in mind and not ours.

[Betsy L. Angert]

Dearest Mark . . .

I must admit, I truly am joyous about the price of oil. I hope it rises higher and higher.

Americans consume food and fuel in the same manner.

Citizens in this country eat cheap food, fast and feverishly. The nutritious value of the fodder is void. Sugars, salts, starches, high fructose corn syrup, trans fatty acids fill our stomachs. Plaque coats our arteries. Diabetes is epidemic, as is obesity. Americans are killing themselves without a care. Then we complain. We are sick, tired, and health care costs are high. Perhaps because the demand cannot keep up with the ample supply of illness.

The same people who stuff their stomachs, Americans pour petroleum into gas tanks. The energy grid gobbles up natural resources. Our toys and tangibles belch out pollutants. The rivers rot. Oceans warm. The ozone layer is torn. Icebergs melt and millions of species have disappeared from the face of the Earth.
Ice Shelf Shifts. Bee Colonies Collapse. Bats Perish. Mother Earth Tortured

Yet, lawmakers and oil moneyed moguls say Let Them Eat Oil.

Sadly, Americans are not satiated. The people, cognizant of what the contaminants have done to the environment grumble, "Gas prices are too high." The President assures the American people, costs can be curbed. George W. Bush, and all the energy companies who place advertisements on our airwaves may say, we must end our addiction to oil. Yet, they continue to feed us fossil fuels. They promise us more.

Again, Americans are happy to consume what kills them and the planet!

I concur with Paul Krugman . . .
we won’t have even the beginnings of a rational energy policy if we listen to people who assure us that we can just wish high oil prices away.
I submit . . .
Petroleum and My Prayer

Betsy L. Angert
BeThink.org

[halbhh]

There's too much ideology in the broad national discussion about oil price.

The way many know there is speculation is by direct observation.

One of the most surprising pieces of the whole discussion though is all the discussion about whether the futures market can affect prices! Good grief.

How could the futures market not affect prices?!

It does appear ideological to looks for ways to rationalize the futures market does not affect prices.

Of course the futures market affects prices simply because the sellers of oil are aware of the futures market in a tight market.

It's been interesting to see theory vs reality in this instance.

It's a good reminder to us all of the severe and pronounced limits of theory.

[halbhh]

e.g. -- simply imagine if you wanted to purchase a large amount of crude oil to be delivered in 2 months....where and how would you buy it, and at what price?

[General Specific]

"e.g. -- simply imagine if you wanted to purchase a large amount of crude oil to be delivered in 2 months....where and how would you buy it, and at what price?"

I'd probably use the spot price as my guide.

[halbhh]

GS -- but if you need a guaranteed contract to be certain you'll get oil at a known price to be delivered in 2 months for your refinery....

[General Specific]

"GS -- but if you need a guaranteed contract to be certain you'll get oil at a known price to be delivered in 2 months for your refinery...."

I'll start with the spot price. Then determine whether I need to purchase now and store.

I still think the spot price drives the futures price. Because the future is uncertain. The spot price is here and now. And from what I've gathered from cursory reading, there's no evidence that the future price of oil drives the spot price at all. People keep arguing that the futures price drives the spot price but that's a theoretical argument. They've not show me the empirical evidence of it.

[Patricia Shannon]

anne says...

I am reminded that there has been little discussion of Canadian oil sands or of American oil shale, and wonder what sort of oil price makes either resource profitable to mine. Obviously there has been no technology gain suitable to bring either source to market in significant amounts, but I have no idea why for all the optimism in past years.

Well, it takes more energy to extract the oil from these sources than it's worth. As the price of oil rises, so would the cost of extracting it.
On the other hand, Wikipedia says about "oil shale"
"Oil shale can also be burned directly as a low-grade fuel for power generation and heating purposes", so I guess they could burn it to get energy to extract oil from what is not burned.
However, "oil shale mining and processing involve a number of environmental issues, such as land use, waste disposal, water use and waste water management, and air pollution."

"Estonia, China and Brazil have well-established oil shale industries; and Germany, Israel and Russia also have some industrial production."

http://en.wikipedia.org/wiki/Oil_shale

Of course, that's just what the world needs - More burning of carbon.