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Oil Manipulations Exposed

by: Philip Davis May 27, 2008 | about stocks: BP / CNP / COP / CVX / ECA / MRO / OIL / USO / XOM    
Philip Davis

Philip Davis

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As it was just Memorial Day, let’s try to remember what our troops are fighting and dying for - Oil. But not oil itself; they are fighting and dying for oil profits and that is not the same thing at all!

The first Gulf War was clearly about oil, Saddam invaded Kuwait because he wanted their oil and we went to war and pushed him back. Even though Saddam’s troops lit Kuwait’s oil fields on fire, and even though there was a tremendous disruption in global supply, oil prices only briefly went from $20 to $30 (inflation-adjusted dollars) before falling all the way back to $12 between 1990 and 1998. There has been no major supply disruption during the Bush II War. What is the difference? Manipulation!

This chart (click to enlarge)only runs through August of last year, when a barrel of oil could still be had for $75, not far from HALF of last week’s peak at $135.09. Did demand double since last August? No, it actually declined over 2%. Did global stockpiles decrease? No they are flat. In that case, the real question is - What kind of idiots do the MSM and our very own government (yes, you, Sam Bodman!) take us for when they say there is no speculation in the energy markets???

The consumer group Public Citizen put out reports warning us in 2001, and 2004, and then testified before Congress in May 2004 that the mergers of US oil companies were, in and of themselves, driving up prices by forming a de facto US cartel. These findings were backed up the findings in a 240-page report to a still-Republican Congress. The Q1 profits of the 5 companies that now control close to 70% of all US gasoline - BP, COP, CVX, MRO and XOM - has gone up from $8.7Bn in Q1 2000 to $26.4Bn in Q1 2008, a 203% increase, outpacing the S&P 500 by 140%.

You will hear a lie repeated over and over and over again in the media and parroted by oil apologists all the way up to Energy Secretary Sam Bodman and Vice President Dick Cheney (and I’ll have more to say about him later this week!) that there is no manipulation in the energy markets. It is an absolute lie!

Santana Energy and others out of Texas were fined in 2001. Some utility companies were forced to refund consumers hundreds of million of dollars due to manipulation of pricing and billing – many of those shenanigans stem from the Enron debacle, some precede it and continue on to date.

A class action lawsuit has been filed against EnCana Corp. (ECA), its marketing company, and sixteen other companies and corporations on behalf of Fairhaven Power Co. and all other business entities in the state of California that purchased natural gas between Jan. 1, 2000, and Dec. 31, 2001. The suit alleges a massive scheme to control the flow and prices of natural gas that was sold within California, which is a violation of U.S. antitrust laws. The suit further charges the companies with false reporting of natural gas prices, of conducting "wash trades" designed to boost trading volumes, and conspiring to avoid competing with each other in the pricing and sale of natural gas in California.

A class action lawsuit has been filed against Centerpoint Energy Inc. (CNP) and other natural gas suppliers on behalf of millions of residential customers in Arkansas, Texas, Louisiana, Oklahoma, Mississippi and Minnesota. The suit alleges fraud, unjust enrichment and claims that a conspiracy between the companies has led to the artificially inflated natural gas prices.

In a judge’s ruling, a company that provides gas and energy supplies was found to have aided in raising the price of gas and electricity in California during the previous energy crisis. The El Paso Corporation (EP) allegedly withheld natural gas, and in doing so, raised both gas and electricity prices.

Members of the Federal Energy Regulatory Commission issued a report on the 2000-01 energy crisis in the West. It said it found evidence indicating Reliant Resources and BP Energy, both based in Houston, appeared to have engaged in coordinated efforts to manipulate power prices at a trading hub in Arizona. In 2003, BP and Reliant Energy admitted to price-fixing in California and paid a $3M fine.

New York’s wholesale energy market is currently being investigated for possible antitrust violations, according to a recent news report. A Newsday story indicates that a subject of the investigation may be possible withholding of capacity from the market, to drive prices up.

At the same time as all the flagrant manipulation was going on by members of the US oil cartel, our own President Bush, in November of 2001, directed the DOE to fill the SPR "without regard to crude oil prices" and a report issued to the Permanent Subcommittee on Investigations in March of 2003 found

"In a 1-month period in mid-2002, crude oil price increases caused by SPR deposits spiked the U.S. spot price of home heating oil by 13 percent, jet fuel by 10 percent, and diesel fuel by 8 percent, imposing on U.S. consumers additional crude oil costs of between $500 million and $1 billion. Since then, high crude oil prices have boosted the cost of gasoline, heating oil, jet fuel, and diesel fuel, generating the types of adverse economic impacts on U.S. consumers the SPR program was designed to prevent."

That same study made the following observations (all easy-to-read details in the first 11 pages):

1. IN 2002, DOE BEGAN TO FILL THE SPR WITHOUT REGARD TO THE PRICE OF OIL.
2. FILLING THE SPR IN A TIGHT MARKET INCREASED U.S. OIL PRICES AND HURT U.S. CONSUMERS.
3. FILLING THE SPR REGARDLESS OF OIL PRICES INCREASED TAXPAYER COSTS.
4. DESPITE ITS HIGH COST, FILLING THE SPR DID NOT INCREASE OVERALL U.S. OIL SUPPLIES.

5. 2003 SPR DELIVERIES WILL DRIVE OIL PRICES HIGHER.
6. U.S. CRUDE OIL FUTURES MARKET NEEDS TO BE IMPROVED.
7. THE UNAVAILABILITY OF KEY INFORMATION ON OVER-THE-COUNTER TRADING ACTIVITY MAKES DETECTION AND PREVENTION OF PRICE MANIPULATION DIFFICULT, IF NOT IMPOSSIBLE.

Not to seem paranoild, but if you Google this main report you will find most copies of it erased (you are redirected to THIS page). I checked the above link and it worked as of Monday at 9 a.m. but I’ve never seen so many dead links associated with a government document before, so let me know if this one disappears too, as the report is completely contrary to everything the government is currently telling us. The SPR IS causing high prices and they knew it way back in 2003, and the "Enron loophole" was already causing problems and price manipulation was suspected then, but UNPROVABLE due to the loophole.

Unprovable doesn’t mean there isn’t any proof, folks… And remember, it was Enron and then-Texas Senator Phill Gramm who provided the biggest push to pass the energy trading deregulation bill in the first place –- The Commodity Futures Modernization Act of 2000 (S. 2697, 106th Congress), passed during the lame duck session after the 2000 election. The Democrats tried to have it removed in vote on 4/10/02, which was lost by one vote, but the Republicans rallied to table on Feinstein’s bill on June 11th, 2003, effectively killing the opposition.

Many traders have moved to the unregulated over-the-counter exchanges that do not require companies like ExxonMobil (XOM) or Goldman Sachs & Co. (GS) to disclose information about trades. "The lack of information on prices and large positions in OTC markets makes it difficult in many instances, if not impossible in practice, to determine whether traders have manipulated crude oil price," said Tyson Slocum, research director at Public Citizen.

There is currently an "open interest" on the NYMEX for 378,974 contracts, representing 1,000 barrels each, that is the "demand" for July.

At the peak of June trading there were close to 450,000 open contracts but the NYMEX allows traders to "roll" open contracts to longer months WITHOUT PENALTY and by the close of the June contracts, less than 30,000 contracts (30M barrels) were actually finalized for delivery. The other 420M barrels that were, at some point, contracted to be delivered in June, were "rolled" into July, August, Sept. contracts. You can track this nonsense here on a daily basis.

Notice how there are 378,974 barrels "ordered" for July and 91,509 for Aug and 94,177 for Sept and 49,177 for Oct. I will tell you for a fact, right now, that on June 24th (close of July trading) there will be LESS than 40,000 contracts accepted for delivery. All but 40M of the now 378M barrels that could be delivered to the U.S. PER THE EXISTING CONTRACTS will be cancelled by these evil, manipulative bastards in oder to create an artificial shortage of oil each month while driving up the apparent demand for the next month by rolling the contracts forward. That’s how the scam works.

Also, note that the "front month" contracts, the ones they print on CNBC etc., rose $1.38 today, but longer contracts were negative. The Dec 2015 contracts that they couldn’t stop talking about and pointing to just 2 days ago when they crossed $140, have quickly and quietly dropped to $132.77 just 48 hours later.

It’s very easy for the oil apologists to point to all sorts of abberant statistics to try to confuse you. China demand is a classic example - it’s up 40% in the past 5 years. What they don’t tell you is that that 40% was a rise from 5Mbd to 7Mbd but Chinese production went from 1.6Mbd to 4.1Mbd during the same amount of time causing them to import 500Kbd LESS than they did in 2003. No, it’s much better to scare you by saying 40% even though that 40% is about how much fuel we would save in America if we simply inflated our tires properly (10% x 20Mbd).

Mark Twain said, "There are three types of lies: Lies, damn lies and statistics." Always be wary of people who throw them around without letting you take a look at the sources for yourself. I try very hard to have links to all my stats. When CNBC shows you the Dec 2015 contract one day to "prove a point" and then doesn’t show it again, you need to be suspicious. Just ponder that those 378,974 contracts were traded on the NYMEX today 425,099 times. That’s a churn rate of 115%! The net change in price was 1% and the net change in open interest was less than 1%. What would you think of a stock or option contract where the entire float turned over in one day? This is what goes on EVERY SINGLE DAY at the NYMEX. 425,099,000 barrels of oil were traded yesterday, readily available to any trader who wants them delivered in July, with another 136,725,000 August barrels traded and another 73,297,000 September delivery contracts written, yet in not one of those months will more than 42M barrels ever be delivered because that is the transfer capacity at Cushing, OK.

So the ENTIRE thing is a joke. People are ordering barrels they don’t want with contracts written for a place that will never accept delivery AND, if anything actually happens to disrupt supply, there is a loophole called "Force Majeure" which allows the contracts to be cancelled by the shipper due to "supply disruptions" so they are not even buying insurance. The only thing they are insuring is that they will bleed you dry by forcing you to pay $130 a barrel for something that has a global average production cost of $42 a barrel.

This is nothing less than the single largest con in human history and your "reliable sources" are a government that was elected thanks to hundreds of millions of Petrodollars of campaign contributions and a media that is owned by companies that either are energy companies or accept millions of dollars from energy companies. The 30M barrels of oil that were actually accepted for delivery in July set someone back $4Bn, that sounds like a lot until you realize that that $4Bn locked in a price increase of $25 a barrel during the month of May x 85Mb a day worldwide or $65Bn bonus dollars paid to the same people who are churning oil contracts in the pits.

What if you had 15 shares of IBM at $100 and the price of the last trade on June 24th will set the price you can sell IBM for in July. What if you could buy that last contract for $150 and that would let you sell the ones you are already holding for $150. You would spend $50 extra for a single contract but would collect $50 more on the 15 you have for a net profit of $7,450! Would you do it? Do you know anyone who would? Do you think no one would? That’s how the NYMEX works. Those 30M barrels that are "accepted" at the contract close determine the price of the 85M barrels PER day that are delivered for the 31 days of May. That’s 2,635 barrels over 30 or 1/87th.

This is how you are being ripped off, this is how the manipulation operates, this is the only reason that oil is over $70. There is no shortage, there is no great demand, there is just a greedy cadre of immoral people who manipulate a system that costs the American people $500Bn a year (the premium we’re paying over $70) just so they can skim a few million for themselves.

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This article has 61 comments:

  •  
    May 27 09:39 AM
    Peak oil is real and here today. Your summary of the supply/demand statistics is most incomplete! I would urge you to do a more detailed study of:

    1) where the oil is produced
    2) where the oil is consumed
    3) depletion rates of existing elephant fields
    4) discovery rates of new elephant fields
    5) oil demand growth

    perhaps, if you consider these 5 points and do some due diligence, you will understand the true dynamics of the oil market today.
    Reply
  •  
    May 27 09:54 AM
    A well thought out and reasoned article. Author could have avoided some unparliamentary words. They do not add any thing.

    In fact time has now come for us to start a movement to stop this non sense of trading in futures and options to "discover" prices. The world was perfectly fine before the early 80s when we did not have to discover oil prices through the futures market. The actual trading sent perfect signals and the market knew what the prices were. They did go up an down to reflect supply and demand. But it was the actual supply and demand for wet barrels unlike the manipulative paper barrels. Today's is a con game played by those outside the oil sector.

    I have worked for an oil company and none of the mega companies will indulge in these shenanigans despite whatever one may say. Yes there are companies like Enron. But oil mega companies have higher standards and any of these shenanigans will come out sooner than one think. Enron was manipulated by some very high ups and its downfall also came when one of them came out. Similar thing would have happened in the case of mega oil companies.
    Reply
  •  
    May 27 09:55 AM
    Moron!!! We need to drill for more oil here at home. I was happy to see this head line today. {Exxon Mobil redirects climate change research money} Its about time we cut these groups off, they tie our hands, and create more problems.
    Reply
  •  
    May 27 09:58 AM
    I agree with the Fitzman, and would add a 6th factor, Where (or 'What') are the reserves, i.e., who has the reserves and how much are they.

    American's continue to look at the oil market using only their own factors and considerations, while the energy market is a global market. They just don't see the whole picture.

    Speculation is part of any market that is this hot. It was part of the housing market, it was part of the Nasdaq bubble in 2000, and it is part of this energy market today. Oil has one difference, however, as it has a limited and finite supply that is not renewable. We are not going to solve this problem by building another something, or coming up with a new software program.
    Reply
  •  
    May 27 10:06 AM
    Great article.At the onset lets be clear that oil prices will increase as it is a non renewable commodity .But the pace of increase is what is concerning everybody.
    I mean us the biggest consumer is having flattish to negative growth .China and india are growing but not at the pace of even six months ago.In jan 100 dollar price was raising eyebrows ,now even 150 dollars is seen as no big deal.What has changed in these six months for oil to increase 50 percent !!!

    If oil rises to 150 dollars at the end of two years on the back of solid economic growth and no major supply disruptions then one can understand that as a factor that oil being non renewable source prices are increasing ,but the fact that has such a sudden spike inspite of

    1) Low growth to neagtive growth in us .

    2) Moderation of grwth activity comparitively as compared to even in january in china and india

    3) No cutbacks by opec

    This all indictes that oil is being manipulated massively and is hurting everybody.
    Reply
  •  
    May 27 10:13 AM
    Parliamentary?!?! Watch most any Parliament to discover exactly how those people speak. The author is tame in comparison.

    Why does everyone complain about the price of something... Why not make money off of these 'bubbles'. If the idiots are going to bid up something to astronomical prices, figure out a relatively safe method for making money off the morons.

    Heck, the price of oil can go up or down and I don't care. If it goes up, I make money. If it goes down, I make money elsewhere.

    Quit fighting a rising tide.

    A wise man stands on the side of the road, points in the direction of traffic and yells 'THAT WAY!'.

    Reply
  •  
    May 27 10:15 AM
    Sadam invaded Kuwait becasue of a long simmering fued between two greedy countires on trying to control a Gulf water port, not because he wanted their oil. He had all the oil he needed!
    Reply
  •  
    May 27 10:48 AM
    When unamerican folks like George Soros say they don't care how much money they lose; and the price of crude rose during Al Gore's run for President; and he vows to ruin anything Republican; can anyone really wonder who's really behind the speculation that causes oil to rise? Lets see how long this stays on the web site!!:>o
    Reply
  •  
    May 27 10:55 AM
    Why would our troops have to steal Iraqi oil in 2003 when we already stole their oil in 1990? Why would our troops fight and die over something that is infinite and renewable? And if oil is the goal, shouldn't our troops invade the Democrat aisle in Congress so we can have domestic offshore drilling in the United States?
    Reply
  •  
    May 27 11:09 AM
    Some good and some bad remarks. Making money on the backs of us who are on fix incomes is comitting a crime. Being a novice how do we bring justise to this robery.Theres got to be away.
    Reply
  •  
    May 27 11:11 AM
    Interesting article. But the Nymex trading mechanisms haven't changed dramatically in the last four years that I know of, so why is that the cause of the higher prices?

    Peak oil is hitting, the demand and supply curves are separating, global demand has increased despite the author's statement otherwise, and supply is peaking and will go down. I am not an oil "apologist" to use the author's biased terms, I am a realist. I've read about the petroleum supply for years. I know Mexico's supply has peaked, the North Sea has peaked, Prudhoe Bay has peaked. Saudi Arabia's king has stated they won't increase production after next year, and give reasons for only minor increases now, indicating they are really peaking but not admitting it. We can definitely drill more here in the states, but it is a drop in the bucket, we peaked a long time ago. What we need is a presidential administration that will support real answers like conservation, cellulosic ethanol and electric vehicles. Efficiency = productivity, it's a good thing for business and the home.
    Reply
  •  
    May 27 11:25 AM
    You can whine all you want. You can even prohibit futures speculation. I can guarantee you this, the oil age is ending as we know it. Oil will continue to rise in price no matter what we do to try and mitigate it. And this is just the beginning. Expect all your energy sources to sky rocket in price. As we start to realize that oil is not getting cheaper, we will start putting heavy transportation demands on natural coal and natural gas. Well guess what? Our energy grids run primarily off coal and natural gas! I recommend you watch this short CNN story about what your government is going to do soon to your energy bill.

    money.cnn.com/video/#/...

    All other alternatives are going to take several decades to ramp up to any significance meanwhile Peak Oil is now. You best come to terms with Peak Oil, or you will become road kill on the slope down.
    Reply
  •  
    May 27 11:28 AM
    Brian - Not sure about your post. Oil is not infinite, even if you buy into the fringe abiotic hypothesis (mostly championed by Russia, which is now in production decline). We didn't take Iraq's oil in 1990, Bush Sr. knew there was no exit strategy if we took out their government, we just kicked them out of Kuwait (which would substantially increase their oil reserves and shipping access for oil, so yes, it was about oil, intelalum).
    Timsinoil - price of crude has risen more often than not lately, why single out 2000's election? You could look at the terror alerts in the 2004 election for easier political manipulations.
    Mikey - if this is a bubble (and it could easily be froth on top of a fundamental increase) it will hurt us at the pump, then at the grocery store, then in the unemployment line, and that's bad for everybody. That's why this is important, even if you personally can make short-term profits in trading.

    We can't drill our way out of this. It can help marginally, but it's not a major piece of the solution. It's things we can do - driving the speed limit, with tires at proper pressure, will reduce our gasoline consumption 10%. Efficient , reasonably sized vehicles will save another 25%-50%. Electric vehicles and living close to work will be a part of our future.
    Reply
  •  
    May 27 11:39 AM
    Despite the Democrat Party ban on drilling in the United States, it's still impossible for the Democrats to achieve their goal of peak oil production. The world is currently producing over 86.9 mbpd the highest in world history.
    Reply
  •  
    May 27 11:41 AM
    Nerfer: Oil is infinite and renewable. See here:

    www.offshore-mag.com/d.../

    www.wnd.com/news/artic...

    www.rense.com/general6...

    www.geotimes.org/june0...
    Reply
  •  
    May 27 11:44 AM
    nerfer - it's not bad for me. I'm making money on the rising price of everything. Worst case for me, I break even across the board.

    Let's say computer chips doubled in price... would you cry that Intel is playing unfair or invest in Intel???? Would that affect the price of computer equipment? YES... would that then affect all businesses expenses? YES.... would that then affect EVERYONE? YES.

    What is your point?

    If you want to bet against Oil going higher, then fine. Do it. But don't come to my house bumming change for a meal in 5 years when you are broke.

    Be smart. Bet on higher oil. Short stocks that higher oil will have a negative impact on. etc etc.

    It's called investing in a capital market...

    Reply
  •  
    May 27 11:47 AM
    The author has just enough knowledge to sound erudite. The most truthful statement in the article is the quote from Mark Twain regarding statistics, and the author proves the point as he misleads all over the place. Two examples: First, the statement that there was a doubling in price without a doubling in demand is written to imply that there should be some kind of linear relationship. That is, of course, a falacy. If you made that kind of a statement on an elementary economics exam you would get an "F", if they still give such grades. In a any market with an inelastic supply curve, at least in the short run, a small increase in demand can have a massive increase in price at the margin. When it takes several years to bring newly discovered sources of oil to production in any material size, when existing major sources are in steady decline, and where there is little or no surplus producing capacity within OPEC that could be increased, a few months is certainly within the "short run" envelope, and the supply curve worldwide is certainly inelastic during the short run. Second, his statement regarding open interest in futures markets, contract rollovers, etc, shows either an absolute ignorance of how futures markets work or an intentional attempt to deceive his readers. Actually deliver seldom takes place in most futures markets, whether it be oil, pork bellies, eggs, corn or precious metals. Front month contracts are usually closed in the last day or two of trading (and the open interest therefore declines dramatically) either by the purchase (sale) of offsetting contracts, perhaps with a corresponding sale (purchase) of similar contracts for farther out months. Consider this simple example of a perfectly legitimate hedging transaction, and it is only an example, not my personal situation (wish it was). I am a producer producing a fairly steady level of crude oil volume of 12,000 barrels a month, with such level expected to continue for the next year at a slowly declining rate , but remaining above 10,000 barrels a month even after a year. I wish to insure a steady cash flow over this period, I may even be required to enter into the futures contract I am about to describe as a hedge as a condition of the financing I have received to develope my oil production. To hedge the anticipated cash flow, I sell between 12 and 10 contracts a month for each of the next 12 months, based on the forecasted production for each month. As the front month approaches expiration, I close the contract (and if wanting to maintain a rolling 12 month hedge open a new series of contracts in the new 12th month out, perhaps for a lesser number of contracts if my production is expected to decline or for a greater number if production is expected to rise). Note, I am hedging my production values with no intention of making actual deliver (my production may have no access, for example, to the contract delivery point in Cushing, OK for WTI). The price of the futures contracts (paper barrels in the jargon of the market) will close to the price of the physical (wet barrels) in the spot market in the last hours of trading. If the price of wet barrels has risen over the period in question I gain from the rise in price but the cost of closing my futures contracts will result in a loss there (consider it the price of insuring my cash flow). Conversely, if the price of wet barrels has fallen over the hedge period I receive less for my physical oil but make a gain on the paper contracts which offsets, at least partially, the loss. on the physical barrels, which I may be selling to a refiner three states away from Cushing. That's simplistically how futures markets work, no conspiracy, no illegal activity, and never any intention on my part to make actually physical delivery. A net purchaser of crude oil for his refinery could enter into just the opposite contracts to hedge his raw material cost with no intention of taking delivery of the paper barrels in question. There is, of course, speculation in futures markets--speculators add liquidity to the markets--and many unsophisticated ones lose their shirts to the enrichment of brokers who induce them into playing this game, but there are also many sophisticated speculators who serve a purpose in the markets. Does this sort of speculation, say by hedge funds who are looking to turn a profit from the speculation, raise the price of the underlying commodity? It probably does, but such an increase is almost impossible to quantify. But even if it does, does this constitute market manipulation. Not necessarily, even though there is always the room for that if one is big enough, but that requires being really big in a market as large as the crude oil market.
    Reply
  •  
    May 27 11:51 AM
    RVER - Sorry you are on a fixed income. Trust I see your pain as I'm helping out my own parents who are retired.

    However, let's place the blame where it really needs to be. GREENSPAN. He is the one who robbed you of years of interest rates on your fixed income assets. From savings accounts to CDs, to... well you name it. He demolished your spending power by ensuring you couldn't keep up with inflation.

    Simple question. When was the last prolonged time you saw a 6.5% CD being advertised?

    Well? You could have briefly gotten a 5% about a year ago but before that... I can't even remember. It seems like about mid 90s or so.
    Reply
  •  
    May 27 12:00 PM
    I apologize for several typos in my previous post. I was also engaged in a long phone call during most of the time I was typing. Also, my futures example was meant to be simple to illustrate only the question of open interest and contract delivery or receipt. The futures markets are much more complicated than that with backwardation, contango, and changes from to the other often occurring during the life of the contracts, but none of that makes the myriad of transactions which occur daily part of a conspiracy.
    Reply
  •  
    May 27 12:11 PM
    Good article! I sure wish it was as easy as the author presents. We could just send in the oil Gustapo and fix it! Arrest them all, sue them all. Gas would drop back to $2.50/gallon and everyone would go back to sleep!

    I rather suspect that it is a little more complex than that though. It is hard to hide a fraud of this magnitude from the entire world. Was it Mark Twain that said "you can fool some of the people some of the time, and some of the people all the time, but you cannot fool all of the people all of the time"

    I'm sure there is some churning and manipulation. However the fundamental truth is that if supply exceeded demand, prices could not be manipulated. A supply/demand issue is the root cause. Our dependance on foreign oil will be the ruin of us. I'm not an oil apologist, I'm a realist. We need to reduce our presence in the global energy market competition. We need to pump our own oil, use our own coal, use our own natural gas, put up wind farms, put up nuclear power plants, and transition our mobile fleet over to the most energy efficient possible.
    Reply
  •  
    May 27 12:19 PM
    One last thing to think about. Sure we have moderate sized oil fields that we can still tap and bring online perhaps 10-15 years from now (what? Peak Oil is now?). This is especially true around the US. But, oil consumption is a world wide phenomena and sold on a world wide market! Each and everyday there are thousands of new energy consumers coming online from China, India, and especially the Middle East who have American dollars in their pockets burning a hole to live the good life...like we do in America! All this insatiable demand for oil will continue to outstrip supply by radical proportions. We have not found any significant sized oil fields in several decades meanwhile we are sucking dry the oil bank. And as much as you want to believe we have an endless gooey center in the Earth that produces oil continuously, well I have a bridge to sell to you.

    Folks come back to Earth. You've been doped up on oil for way too long. If you really want to understand what is happening, I highly recommend you research the following term "EXPONENTIAL FUNCTION."

    Meanwhile I think Chris Skrebowski, editor Petroleum Review sums it up our current situation quite well.

    “The first peak that we’ve achieved. … [is] in light, low-sulphur crude. The next peak will be when the producer countries’ exports start falling because their [internal consumption] growth rates are much higher than those in the West….Finally we will get the peak where we simply cannot produce any more of any grade, any quality, anywhere. And that will give the final kick-up [in prices]…probably around 2011.”
    Reply
  •  
    May 27 12:19 PM
    correction -it was Abe Lincoln that said "you can fool......." not Mark Twain
    Reply
  •  
    May 27 12:59 PM
    My father fought in WW II against naked aggression, and for freedom. I don't think he would have fought for oil profits. I drive 30 miles (one way) to work each day. This is killing me, and I make a lot more money than most families with 2 incomes. Philip, if this is all true, these oil companies must pay and Wall Street must pay. But more importantly, bring those guys and girls home from Iraq before another one dies. This country is being stretched to its limits.
    Reply
  •  
    May 27 01:20 PM
    T Stephens, thank you for putting this ignorant propagandist in his place.
    Reply
  •  
    May 27 01:34 PM
    You said... "your "reliable sources" are a government that was elected thanks to hundreds of millions of Petrodollars of campaign contributions and a media that is owned by companies that either are energy companies or accept millions of dollars from energy companies."

    Congress has been controlled by bungling idiotic Democrats since the election of 2006 and gasoline was $2/gallon. I'll let the ignorance of your media-owned conspiracy theory speak for itself.

    Could it really be that the little guy who has a chance to buy ETF's of oil and NG be creating the speculation as price rises more interest is generated which causes more investment which causes more rise in price which causes more interest which...
    Reply
  •  
    May 27 01:52 PM
    Pump and dump, pump and dump.

    The greedy NY crowd is always in one sector or the other with their crony touts from the Big NY Houses on the financial shows pumping and pumping that particular sector.

    This they carry out until the public is fully invested, which is now very close in the energy sector, then they dump.

    Pump and dump, pump and dump. They've been doing it for years.

    Jim Cramer has admitted to being a part of it when he ran a hedge fund.

    The Congress doesn't understand it, so no one is even close to stopping it.

    Thus, after they deplete the public's funds in the energy sector, they'll move to another one and start all over.

    Watch for yourself. It's coming soon.

    Rebeldog
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    May 27 02:48 PM
    Everyone is forgetting another dominant reason for the oil price surge:

    THE WEAKER US DOLLAR

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    May 27 05:04 PM
    Sorry Mr. Davis, I forgot to tell you in my first post that you've written another geat article.

    Thank you very much for your work and for putting up with people who can't debate or argue against your excellent points, but have to call you names.

    Overlook them and keep it up!

    Rebeldog
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    May 27 05:30 PM
    Brian Pursley - The first article trusts the middle east numbers for their oil reserves, even though there is good evidence those are politically manipulated (their country quotas are based on that) and there is no verification of any of those numbers. The last two articles don't argue for abiotic production, but do say there are large, biological sources of oil deeper down. If that is the case, they are feeding the higher sources sporadically or only in certain locations, since most sources of oil have not shown any signs of recovery, in fact many have post-peak production declines sharper than expected (North Sea, Mexico). Certainly not a 'renewable, infinite' resource as you say, and I'm hanging onto my '06 Prius for many more years.

    T Stephens - good post, even with the typos. If the hedge funds/futures market were suddenly the cause for the run-up in prices like the author is saying, why not the other commodity markets, and why not ten years ago also? I'm not going to say there is no manipulation or deceit at all in the market place, but that's not the cause of our current high prices. We're hitting peak oil production, and the sooner we accept that, the sooner we can create real solutions.
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    May 27 06:24 PM
    Nerfer - If you think the Muslims are all lying about their oil reserves and production whose numbers are you looking at that you trust?

    Your claim that the articles don't indicate abiotic production indicates to me that you need to read them. Deep down can't be biogenic origin since sedementary rocks don't exist deep down. Those are igneous rocks deep down.
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    May 27 10:12 PM
    The speculator witch hunt is on again, and here we have another useless article on seekingalpha, with many alarmingly ignorant comments. Many if not all of the fallacies the author indulges in were already dispelled in other articles or comments, especially to earlier articles written by the same author. Whose agenda is this author pushing? I am wondering if there are special interest groups that pay people to spam a seemingly professional forum like seekingalpha with this nonsense. The author seems to have little knowledge of oil, as can be seen among other things by the sources he cites. The oil industry is highly secretive, and what data there is in the public is to a large extent of poor quality. Even with inside experience it is tricky to call the market.

    Yes, OPEC producers publish either no or wrong export stats for exactly the reason nerfer stated. This is one of the more well known "secrets" in oil and if that's news to you then you might want to reserve your views on oil until better knowledge of the market is established.

    These monthly Middle Eastern export stats available with only a short time lag are usually derived from tanker movements. But shipping is no less secretive than oil and the data is probably even worse. The movements data is not of good quality, and I have first hand experience with it (it may work well for certain individual vessels but on the grand scale it is poor). Annual exports stats may have been reworked from import stats of the receiver countries, but trade stats are also problematic, and are revised for years to come.

    And that Russian abiotic oil theory is actually not completely wrong - some oil is abiotic, but that's only a very small amount, what we use on a daily basis is organic.
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    May 27 11:22 PM
    For abiotic oil to save the day....the rate of that would need to regenerate itself at hundreds of millions of barrels a day.

    I highly doubt that we can grow exponential and have the RATE of oil production meet our demand......abiotic, if true, could only cover a very small portion of demand.

    There is nothing on this earth or solar system that can cover exponential growth.....the argument can be food, metals, energy, etc. Sure we can probably produce a lot more of food or energy...or possibly metals from other metals....but we aren't god...and we cannot make something from nothing when it comes to that point.
    Reply