Obama Redistribution Step #1: A Windfall Profits Tax on "Excessive" Oil Profits

From the official Obama-Biden Office of the President-elect web site:

Barack Obama and Joe Biden will enact a windfall profits tax on excessive oil company profits to give American families an immediate $1,000 emergency energy rebate to help families pay rising bills. This relief would be a down payment on the Obama-Biden long-term plan to provide middle-class families with at least $1,000 per year in permanent tax relief.

Ike Forces Shutdown of 19% of U.S. Refining Capacity

At least 13 refineries in Texas including plants operated by Exxon Mobil Corp., Valero Energy Corp. and Royal Dutch Shell Plc shut 3.64 million barrels a day of refining capacity as Ike approached Texas. Exxon and Shell said today they would begin assessing damage of Gulf facilities as soon as weather permitted.

``If these refinery outages go three weeks or more, most of the nation could see $4 gasoline again,'' Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University in Dallas, said in an telephone interview with Bloomberg. ``If they are back up in a week, it may be a 15- or 20-cent-a-gallon increase.''

-EPJ Newsdesk

On Wads of Cash and An 80% Approval Rating

Mudflats reports on Sarah Palins return to Alaska, and her speech upon landing at the airport:

Palin also made reference to the $1200 energy rebate that’s about to land in the bank account of every Alaskan man, woman and child. This amount is in addition to the $2069 permanent fund dividend check from oil profits in the state that also goes in to the bank account of every man woman and child. As you can imagine, handing out wads of cash to people doesn’t hurt your approval ratings. The Permanent Fund Dividend (pfd) is something Alaskans have gotten every year since 1980, and has ranged from a few hundred dollars to this years biggest check ever. The energy rebate, though, is something new....

She talked about how this type of energy rebate is “unheard of in other states”. That one had to be for the national media, because, of course it’s unheard of in other states… the only reason we’re getting it is because the price of oil is so high, and as the oil companies make more money, so does our permanent fund, and so do we. We all know that. It got applause anyway - it’s cash. She went on to say:

“But we believed that you believed you could spend that money better than government could spend it for you.”

Also a bit strange, because Palin’s original idea was to give Alaskans an energy debit card that would have a certain amount each month and had to be used for energy expenses. Eventually, she was talked out of it, and just decided to stick with cold hard cash… which means many Alaskans are probably going to be getting big screen TVs and freezing their butts off this winter. But that’s another story.

OPEC Cuts Output

OPEC members said the group will cut crude-oil output by 520,000 barrels a day under a plan to roll back production to quotas set in September 2007. The cutbacks will be phased in over the next 40 days.

-EPJ Newsdesk

Major Earthquake in Iran

A major earthquake has hit Iran. The U.S. Geological Service said the quake's magitude was 6.1.

Bandar Abbas is a major Iranian port city with oil installations including a major refinery.

Iran is the world's fourth largest oil exporter.
-EPJ Newsdesk

Rising Costs Erode Oil Industry’s Profits

Oil companies’ profitability fell last year as rising costs eroded gains from the rise in oil prices, an industry study has found.

The companies’ return on capital from their oil and gas production fell to 19 per cent, 3.5 percentage points lower than in 2006, according to the study from IHS Herold, a research firm, and Harrison Lovegrove, a corporate finance firm owned by Standard Chartered bank.

The study of 232 leading quoted oil and gas companies also found that they had not increased their total reserves last year, and raised production only slightly.

Rodney Schmidt of Standard Chartered suggested that if oil prices continued to fall, oil companies could face growing difficulties. “We are now at a point of greater uncertainty...where there are questions about demand and about where prices will end up. At the same time, profit margins have not been increasing.”

Company profits have been squeezed because costs have risen along with revenues, and governments of resource-holding countries have been taking a greater slice of the proceeds through tax increases or contract renegotiations.

Although big companies have still been capital spending, excluding acquisitions, has soared from $139bn in 2003 to $342bn last year, the study found.

The result has been that, in spite of the steep rise in oil prices over the decade, profitability has risen only slightly from 16.5 per cent of cumulative capital costs in 2003 to 19.1 per cent last year.

The difficulties facing the industry are also reflected in slow production growth, which averaged just 1.3 per cent last year. Production increases in the US, Russia and the Caspian area and the Asia Pacific region were offset by declines in Canada, Europe, and South and Central America


Source: Financial Times
http://www.ft.com/cms/s/0/329a6df6-79f3-11dd-bb93-000077b07658.html

Soaring Gas Prices Force P. Diddy to Fly Commercial

Climbing gas prices have cut into the standard of living of hip-hop entrepreneur Sean "P. Diddy" Combs. He no longer takes his private jet from New York to L.A. In a video he explains gas prices are too high:

As you know, I do have my own jet, but I've been having to fly back and forth to L.A. pursuing my acting career.Now, if I'm flying back and forth twice a month, that's like $200,000, $250,00 round trip. I'm back on American Airlines...Give a shout out to all my Saudi Arabia brothers and sisters and all the brothers and sisters in all the countries that have oil... if you could please send me some oil for my jet, I would truly appreciate it...

Here's the full video:

Obama Wants To Employ 'Millions' In Alternative Energy

Vedran Vuk reports that Barack Obama promised today, in Martinsville, VA, to bring "millions" of union jobs through alternative energy.

At the beginning of the twenty-first century, 1.5 million people in the United States were employed in the petroleum industry.

If Obama thinks he is going to increase energy productivity and at the same time increase the number employed by in the energy industry by "millions" he doesn't understand that the growth of America has occurred because of the increased use of capital which resulted in less labor intensive industries.

Hey Bam,

If you would like to understand this, think about farming. From The 20th Century Transformation of U.S. Agriculture and Farm Policy:

American agriculture and rural life underwent a tremendous transformation in the 20th century. Early 20th century agriculture was labor intensive, and it took place on a large number of small, diversified farms in rural areas where more than half of the U.S. population lived. These farms employed close to half of the U.S. workforce, along with 22 million work animals, and produced an average of five different commodities. The agricultural sector of the 21st century, on the other hand, is concentrated on a small number of large, specialized farms in rural areas where less than a fourth of the U.S. population lives. These highly productive and mechanized farms employ a tiny share of U.S. workers and use 5 million tractors in place of the horses and mules of earlier days.


1900--41 percent of workforce employed in agriculture

1930--21.5 percent of workforce employed in agriculture;
Agricultural GDP as a share of total GDP, 7.7 percent

1945--16 percent of the total labor force employed in agriculture;
Agricultural GDP as a share of total GDP, 6.8 percent

1970--4 percent of employed labor force worked in agriculture;
Agricultural GDP as a share of total GDP, 2.3 percent

2000/02--1.9 percent of employed labor force worked in agriculture (2000); Agricultural GDP as a share of total GDP (2002),0.7 percent

Vitol At One Point Held 11% Of All Nymex Oil Contracts

A single energy conglomerate held 11 percent of all contracts on the New York Mercantile Exchange at one point last month, according to a story out of WaPo.

The Commodity Futures Trading Commission made an unusual request last month for data from Vitol Group, a private Swiss energy company that regulators thought was helping industrial firms get the oil they needed.

The commission discovered, however, that the Vitol would be better described as a speculator for its own account , trading oil contracts to turn profits rather than assisting companies that actually needed oil delivered for their operations.

The commission investigation showed Vitol was one of the most active traders of oil on Nymex as prices reached record levels.

By June 6, Vitol had amassed contracts equal to 57.7 million barrels of oil, about three times the amount the United States consumes daily. On that day, the price for a barrel of oil spiked $11 to settle at $138.54, per barrel, valuing Vitol's oil holding at nearly $8 billion.

Interestingly, the CFTC issued a statement in response to the WaPo story saying:

To date, the CFTC has found that supply and demand fundamentals offer the best
explanation for the systematic rise in oil prices. Regardless of their classification . . . the CFTC's market surveillance group scrutinizes daily the positions of all large traders, both commercial and non-commercial, to guard against market manipulation.

Hmm, the CFTC may actually have staff members that understand how markets work and that the chance Vitol "controls" the oil market is slim to none.

Crude Oil Soars on US Mischief With Russia

GW has found a new way to drive up the oil price. The war in Iraq and the threat of war with Iran are not enough. GW has decided to surround Russia. First by turning Georgia into a US proxy and then by placing a military defense shield in Poland.

The plan(?) is working.

Crude oil futures are above $120, again.

Crude for October delivery rose $5.64, or 4.9%, to $121.20 a barrel on its first full trading day on the New York Mercantile Exchange.

To understand the national psyche of Poland that would allow the US to plant a missile defense shield there, see Peter S. Rieth's important analysis,Oh, Me! Me! Shoot Me!: A Summary of Contemporary Polish Foreign Policy

Raimondo on Russia and the Nature of Oil

Raimondo gets it:

The sudden resurgence of Russia on account of its status as a major oil roducer has got the Americans and the Brits in a real lather...Russia's prosperity sticks in their collective craw, and, in response, the Russophobes have developed an entirely novel theory of political economy, which is an outgrowth of the environmentalist fad and the extreme nationalism of our ruling elites. It is the absurd idea that any and all countries that depend on oil to generate the bulk of their national income are unnatural, inherently flawed, and even intrinsically aggressive and a threat to the security of the West. Oil-producing states are inclined, by their very nature, to authoritarianism, they argue, although somehow I don't think they mean the state of Texas.

The Bizarro World "logic" of this new economic fallacy is based on the concept that oil is, somehow, not a commodity like any other, that it has some special status over and above all others, and yet this is clearly not the case. Oil – like wheat, cow's bellies, and platinum – is subject to market forces and is unevenly distributed geographically. The economic arrangements that go into the production, distribution, and sale of oil are not fundamentally different from those related to any other commodity, from bananas to high-grade steel. The U.S. has been a major oil producer, at least in the past, and that didn't distort or retard our economic and political development: quite the contrary, it fueled a new era of industrial and intellectual innovation, freeing the individual from the land and inaugurating a new era of political and economic liberalism.

Yet now we are told that oil is a curse that empowers tyrants, who can't be entrusted with such a precious commodity in any event. This is what is behind much of the buzz against Putin's Russia, flush with oil revenues, and the real source of friction between the Kremlin and the West. It is pure nonsense, economically, but, then again, like most war propaganda, it doesn't have to make sense; it only has to demonize the enemy from as many different angles as possible.

Read Raimondo's full column, here.

BP Reopens Georgia Gas Pipeline

BP resumed exports of Azerbaijani natural gas exports through a pipeline across Georgia to Turkey on Thursday. However its oil pipeline to the Georgian Black Sea port of Supsa remained out of action because of fears of fallout from Georgia’s conflict with Russia.

Oil exports from Azerbaijan were drastically reduced last week after an explosion on the Turkish section of the Baku-Tbilisi-Ceyhan pipeline to the Turkish Mediterranean, the main artery for Azerbaijan’s oil exports. Kurdish separatists claimed responsibility for the accident on the pipeline which was carrying about 850,000 barrels a day of oil to western markets at the time.
Repair work on BTC is expected to take several weeks.

Russia invited Azerbaijan on Wednesday to increase its oil exports through a pipeline from Baku to Novorrosiysk on the Russian Black Sea. Exports of Azerbaijani oil through the pipeline to Russia have slowed to a trickle since the Baku-Tbilisi-Cehyan pipeline began working in 2005.

Russia is also pressing Azerbaijan to export gas through Russian pipelines, diverting supplies away from the route across the Caucasus.

Supply and Demand Works...

...there is no need for government to regulate a decline in gasoline consumption.

As the gasoline price has climbed, consumers, on their own, have cut back on their consumption of gasoline.

New data released today by the U.S. Department of Transportation shows that, since last November, consumers in the United States have driven 53.2 billion miles less than they did over the same period a year earlier – topping the 1970s’ total decline of 49.3 billion miles.

Consumers drove 4.7 percent less, or 12.2 billion miles fewer, in June 2008 than June 2007. The decline is most evident in rural travel, which has fallen by 4 percent – compared to the 1.2 percent decline in urban miles traveled – since the trend began last November.

On the Nonsense of Hybrid Cars Solving the Energy 'Problem'

Robert Samuelson explodes the myth:

It's easy to exaggerate how quickly new technologies can improve our situation. Obama says that we can have a million plug-in hybrids averaging 150 miles a gallon on the road within six years (plug-in hybrids run on electricity and gasoline). Sounds impressive. But that would be less than one-half of 1 percent of all vehicles, and the forecast is probably a stretch. The battery technology required for plug-in hybrids is still not competitive, adding $7,000 to $10,000 per vehicle, says Brett Smith of the independent Center for Automotive Research. Obama would address this problem by providing a $7,000 tax credit (in effect: a rebate) on plug-in hybrids. These subsidies might go mainly to upper-middle-class buyers, permitting them to flaunt their "green" credentials

Stephenson Picks Apart Pickens

Billionaire Boone Pickens wants your tax dollars so he can build windmills with your money. He has been ranting on about a $700 billion annual "wealth transfer" to foreigners.

E. Frank Stephenson explains here why Pickens is blowing enough hot air with his argument to probably fuel a dozen windmill farms all by himself.

BP Shuts Pipelines On Fears Over Georgia

BP shut down a pipeline carrying Caspian oil from Azerbaijan to the Georgian Sea on Tuesday citing concern about security in Georgia.

Toby Odone, a BP spokesman, said the 150,000 barrels a day pipeline from Baku to Supsa on the Georgian Black Sea had been closed as a “security precaution.”

A natural gas pipeline linking a BP-operated field offshore Azerbaijan with Georgia and Turkey has also been closed.

Exports through the Baku-Tbilisi-Ceyhan pipeline to the Turkish Mediterranean, the main artery for exports from BP’s huge Azeri field offshore Azerbaijan, halted last week after an explosion on the Turkish section of the pipeline. The pipeline carries 850,000 barrels a day

Dubai Mercantile Investors Include Goldman, Morgan Stanley

Goldman Sachs Group Inc. Morgan Stanley and four energy-related companies are taking minority stakes in Dubai Mercantile Exchange Ltd., adding clout to the fledgling exchange as it seeks to establish itself as a major player in the global crude oil market, according to AP.

The exchange said Monday that the new investors, which also include a division of Royal Dutch Shell PLC and energy trading companies Vitol, Concord Energy Pte Ltd. and Casa Energy Trading, bought their stakes after the exchange's board approved a 20% sale.

John Lott Thinks Through Another Problem With Obama's 'Tire Inflation' Way To Energy Conservation

First Obama:

"Let me make a point about efficiency, because my Republican opponents - they don’t like to talk about efficiency. You know the other day I was in a town hall meeting and I laid out my plans for investing $15 billion a year in energy efficient cars and a new electricity grid and somebody said, 'well, what can I do? what can individuals do?'

"So I told them something simple, I said, 'You know what? You can inflate your tires to the proper levels and that if everybody in America inflated their tires to the proper level, we would actually probably save more oil than all the oil we'd get from John McCain drilling right below his feet there, or wherever he was going to drill.' So now the Republicans are going around - this is the kind of thing they do. I don't understand it! They’re going around, they're sending like little tire gauges, making fun of this idea as if this is 'Barack Obama's energy plan.'

"Now two points, one, they know they're lying about what my energy plan is, but the other thing is they're making fun of a step that every expert says would absolutely reduce our oil consumption by 3 to 4 percent. It’s like these guys take pride in being ignorant.

Now Lott:

Obviously, there are simple factual mistakes (e.g., the saving from air tires is up to 3 percent of gas used by cars, not of all oil consumption; the up to 11.2 million gallons saved of oil per day (about 267,000 barrels of oil) is just a fraction of the 1.25 million barrels of oiltht could be produced dailt from the Outer Continental Shelf...

So what is the problem with Obama's notion of efficiency? He only includes some costs and not others. There are 250 million cars in the US. Suppose that you would have 100 million cars having their tires checked once a week. Suppose that it takes on average 5 minutes to check the pressure on all the tires (remove the stem covers, check the pressure, fill up the tires with air when needed, put the covers back, clean your hands). If that is done once a week, it would take 500 million minutes a week, or 42 million hours. At $10 per hour time costs on average, that comes to $417 million. If gas prices are $4 a gallon, you would save $44.8 million (11.2 million gallons saved * $4 a gallon) but lose $417 million

Murphy On Obama's Shift In Favor of Some Offshore Drilling

I emailed Bob Murphy, economist with the Institute for Energy Research, for his take on Obama's latest stance on offshore drilling. He wrote back:

It's great that Senator Obama has reversed his earlier opposition to offshore drilling, and now recognizes that proper tire inflation is not enough. However, one suspects that his reversal is simply a political move, given the public's support for such drilling. Who's to say what new information will change his mind back again if elected?

Of course, Murphy is referring to Obama's stance just days ago that proper tire inflation would result in oil savings equal to that of oil production from offshore drilling.

Murphy writes that IER will soon have a response in the works to Obama's announcement of *last* Friday, when he called for $1000 rebate checks to families, paid for by windfall profits tax on big oil.

Obama Touts Plan to End Imported Oil Reliance Within 10 Years

The micro-manager is at it.

Barack Obama put forward a broad energy plan today designed to end U.S. reliance on imported oil within 10 years. If anyone thinks this is actually going to happen, I have some mortgage-backed securities I would like to sell them.

The scary part, Obama said:

"It will take nothing less than a complete transformation of our economy."

As we pointed out earlier today, as the price of gasoline goes up, people figure out their own ways to conserve. When a politician says "complete transformation", think higher taxes, more regulation and a lower standard of living.

Obama has an early price tag on this madness, $150 billion.

Of course, somewhere around 70% of the oil price increase is a direct result of money printing by Alan Greenspan and Ben Bernanke, but not a word from Obama about the major role played by the Fed.

Further, if the great fear is that Middle East or Venezuelan oil producers may cut off supplies at some future date, wouldn't it make sense to conserve U.S. supplies now and use up as much Middle East oil and Venezuelan oil now, while we still can?

Supply and Demand Works, Again

Soaring gasoline prices have caused drivers to change their gasoline consumption habits.

According to a survey by Edmunds.com:

"This is a fascinating insight into how quickly consumer behavior is changing in response to high gas prices," said Philip Reed, Edmunds.com Senior Consumer Advice Editor. "Based on the results of the survey it appears we are moving into a very different era both on the highways and in the showrooms."

The survey, available to all Edmunds.com home page visitors between June 20 and June 25, asked visitors to respond to several brief questions. The 1,312 responses indicated the following:


95 percent of respondents report making changes to lifestyle as a result of high gas prices

o Nearly 50 percent are driving fewer miles or combining errands to reduce fuel consumption

93 percent of respondents have changed the way they drive or maintain their vehicle

o 44 percent of respondents report driving slower or less aggressively to increase fuel economy

35 percent of respondents say they are already in the market for a more fuel-efficient vehicle

o Over 50 percent will be in the market if gas reaches five dollars per gallon
Consumers are generally optimistic that fuel prices won't rise much more in the near future

o 73 percent believe the national average gasoline price will be under five dollars per gallon during Labor Day weekend (August 29 – September 1, 2008)

According to Edmunds.com, there are about 60 vehicles in the new-vehicle market that now cost over $100 to fill the gas tank. Edmunds.com says the median household is spending 11.5% of its income on gasoline, up from 4.6% of its income five years ago.

Must Read: Rick Rule On Energy

mInvestor, broker and analyst Rick Rule, founder of Global Resource Investments, began his career in the securities business in 1974, and has been principally involved in natural resource stocks ever since. In an extensive interview with The Energy Report, he explains why energy prices are headed much higher in the next three to five years.

Read the entire interview here.

Obama: The Taker

Oh boy, it is going to pay to be really low profile in a Barack Obama administration.

If Obama senses you have a little stash, he is going to come after it. You see, he needs the cash. None of this, “Give a man a fish; you have fed him for today. Teach a man to fish; and you have fed him for a lifetime," stuff.

For Obama, it's: "If you want fish, take it from the fisherman."

Obama is out today with an Emergency Theft Program. He needs votes and he has a plan. It is going to cost a lot of money, but forget fund raising, he is just going to decree a new law and take the money for his new plan, and then spread the money across the land. "It's to help working families deal with energy costs," says he.

$500 to each individual, $1,000 to each married couple, it will be according to his decree. Where will Obama get the money for this plan? Will he chip in some money of his own from the "windfall" royalties he has earned from his books? Puhleeze.

Oil, Black Gold, Texas Tea is where it is going to come from. If your company, explores for it and produces it, a good chunk of the money you earn for being right and not producing SUV's, but spending investment money in the oil field, has just become Barack Obama's money.

You see the plan is to convince America that every time they want more, Obama, if he becomes president, will read from his magic teleprompter and find a successful earner and say, "Your money is my money....for the people. We have a Decider no more, I am The Taker."

Of course, as The Taker takes, the fisherman fishes less, the oil producer produces less and The Taker takes from even more. It's for the people, he will say. And soon The Taker will read your name off the Teleprompter, first to take two years of your youth for "National Service" and then to take the money you were planning to store. And, if you say, "But it is my money, I worked for it." He will say, "I am The Taker, you money grubbing whore, those are MY 'windfall' profits there. Go out and earn me some more!"

Obama's Energy Plan: Hot Air....

...in your tires.

I'm glad this is on youtube, otherwise, it is hard to believe. Obama claims that if only we all just properly inflated our tires, we would save as much gasoline as "all the oil that they're talking about getting off drilling. "




Writes Power Line:

The stunned silence with which the crowd greets this howler suggests that most Americans have a more practical understanding of energy consumption than Obama.

Just for fun, I did the math. Properly inflating your tires can improve gas mileage by 3%. Of course, many people already keep their tires properly inflated, and many more are at least close to being properly inflated. Let's be generous and assume that one-half of the total possible savings would be realized if we all inflated our tires properly; that's a net gain of 1.5% fuel efficiency.

Americans drive approximately 2,880 billion miles per year. If we average 24 mpg, we use around 120 billion gallons of gasoline in our vehicles. If, through perfect tire inflation, we improved our collective fuel efficiency by 1.5%, that would be 1.8 billion gallons. A barrel of oil produces around 20 gallons of gasoline, so the total savings available through tire inflation is approximately 90,000,000 barrels of oil annually.

How does this stack up against "all the oil that they're talking about getting off drilling?"

ANWR: 10 billion barrels
Outer Continental Shelf: 18 billion barrels (estimated; the actual total is undoubtedly much higher, since exploration has been banned)
Oil shale: 1 trillion barrels

So, on the above assumptions, it would take only 11,308 years of proper tire inflation to equal "all the oil that they're talking about getting off drilling."

McCain Tests Out Total Economic Stupidity

Economists have pointed out that John McCain's proposed gasoline tax cut would result in a benefit to oil companies as opposed to consumers, since the gasoline price is set by supply and demand, and in the short-term supply is pretty much fixed. Any change in taxes would not change the supply and demand factors, thus not changing the price, but simply result on oil companies keepng a larger percent of gasoline revenues.

In an interview on ABC yesterday, John McCain said he stood by his earlier call for a so-called “gas tax holiday”. Asked how he would prevent oil and gas companies from absorbing the tax break themselves, McCain said Americans would not “let” the companies do do.

Murphy Explains The Oil Price Spike

For a thorough well reasoned analysis of the current state of the oil market and what caused the oil price spike, check out the prepared remarks of Dr. Robert P. Murphy, made this week in testimony before Congress.

Murphy is an economist at the Institute for Energy Research.

His opening statement to Congress can be read here.

CFTC Gets In The Act...

... with a "show trial," um, "show enforcement action". The CFTC has charged a Netherlands-based trading firm with manipulating the muti-billion dollar oil markets. These guys were so good at it that the CFTC says they actually made a million dollars.

Manipulating a billon dollar market and making just one million dollars, oh yeah.

Here are the details on this goofy charge:

CFTC has charged Optiver, a Netherlands-based global proprietary trading fund, two of its subsidiaries and three employees, with manipulation and attempted manipulation of crude oil, heating oil and gasoline futures contracts listed on the New York Mercantile Exchange in March 2007.

The regulator has filed the civil enforcement action in the U.S. District Court for the Southern District of New York against Optiver Holding BV and two subsidiaries -- Optiver US, LLC, a Chicago-based corporation, and Optiver VOF, a Dutch company.

The complaint also named defendants Christopher Dowson, head trader of Optiver; Randal Meijer, head of trading and supervisor of Optiver and Optiver VOF; and Bastiaan van Kempen, chief executive officer of Optiver.

The complaint charged all defendants with 19 separate instances of attempted manipulation involving the energy futures contracts on 11 days in March 2007.

In at least five of those 19 attempts, the defendants successfully manipulated certain energy futures contracts, causing artificial prices, CFTC alleged.

"Although this alleged energy trading scheme lasted only several days in March 2007, even short-term distortions of prices will not be tolerated by the Commission," said CFTC Acting Chairman Walt Lukken.

The defendants used a scheme known as "banging" or "marking" the close, which refers to the practice of acquiring a substantial position leading up to the closing period, followed by offsetting the position before the end of the close of trading in an attempt to manipulate prices, according to the CFTC complaint.

On March 19, 2007, van Kempen told an Optiver trader: "You should milk it for right now because you never know how long it's going to last," according to CFTC.

In a separate conversation, Dowson said that with 1,000 gasoline contracts, one could "really bully" the market. Meijer added that "you can bully around more with more."

The complaint also charged Optiver and van Kempen with concealing the scheme and making false statements in response to an inquiry from the Nymex.

Here's where it really gets good:

Acting Enforcement Director Stephen Jay Obie said at a news conference on Thursday that "these [Optiver's] manipulations had an impact on the market. At this point, we're not in a position to quantify the impact on the market."

"This is not a politically motivated case," Obie said. "What we're going after are manipulators of our markets. We pursue all manipulators."

Not sure of the impact? Let me put it this way, it had about as much impact as this CFTC enforcement action will have on the price of oil: None.

Not political? Obie held a press conference for this goofy charge!

If I had a dime for every trader who tried to close his stock, commodity, whatever, up on the day, I would be an American Oligarch before Randal Quarles.

Actually, van Kempen on tape pretty much says they are just taking advantage of a very strong market that won't last: "You should milk it for right now because you never know how long it's going to last."

No manipulation here. These dudes were just surfing the Federal Reserve money printing, inflation creating, Big Wave. Case dismissed!

So Much For Speculators Driving Up Oil Prices

SemGroup, the US physical oil trader, on Tuesday filed for bankruptcy as it acknowledged trading losses of more than $3.2bn in different energy markets after betting this year that crude oil prices would fall.

It took a $2.4 billion loss on July 16 after it transferred its New York Mercantile Exchange oil futures trading account to Barclays Plc, converting what they called "loss contingencies" into an actual loss. Included in the NYMEX loss was $290 million owed to SemGroup by a trading company owned by co-founder and former chief executive Thomas Kivisto, who was placed on administrative leave on July 17.

It also also took $850 million in losses on July 17 when its over-the-counter hedging program was marked to market. It listed liabilities of $7.53 billion in its bankruptcy filing, including $3.1 billion of total debt $2 billion of secured debt and $594 million in unsecured notes.

SemGroup was ranked the No. 12 private U.S. company by Forbes.com in a 2007 article.

In New Attack Ad, McCain Blames Obama For Higher Gas Prices

In a new McCain attack ad, Barack Obama is blamed for higher gas prices. LOL

The theory is that the lack of new drilling in the United States is behind the climb in gas prices. Obama has voted against off shore drilling. Certainly, if more oil was produced in the United States, the additional supply would put more downward pressure on oil prices. But as long as you have Ben in his helicopter increasing the money supply, oil prices are going to go up and up.


Here's the new ad, get a load of the "Obama, Obama" chant.

Bernanke Defends Oil Speculators

Federal Reserve Chairman Ben Bernanke in testimony, yesterday, in his Semiannual Monetary Policy Report to the Congress before the Committee on Banking, Housing, and Urban Affairs of the U.S. Senate, defended oil speculators by saying:

Another concern that has been raised is that financial speculation has added markedly to upward pressures on oil prices. Certainly, investor interest in oil and other commodities has increased substantially of late. However, if financial speculation were pushing oil prices above the levels consistent with the fundamentals of supply and demand, we would expect inventories of crude oil and petroleum products to increase as supply rose and demand fell. But in fact, available data on oil inventories show notable declines over the past year. This is not to say that useful steps could not be taken to improve the transparency and functioning of futures markets, only that such steps are unlikely to substantially affect the prices of oil or other commodities in the longer term.

The only argument that critics have against this line of defense is that oil production may be down by oil producing countries because they are speculating on higher prices and are reducing short-term output, thus causing the decline in oil inventories. It does not appear on first glance that this is the case. But, Bob Murphy, senior economist at The Institute for Energy Research, informs me that he is doing some work on recent oil production levels and sales levels by oil producing countries. Once he's out with the numbers, I'll post them here at EPJ.

UPDATE: Bob Murphy just sent this email note over to me:

All I've got right now is the official EIA estimates, but if they're in the right direction then I think we can rule out supply cutbacks. Both OPEC and total world supply did fall ever so slightly from 2006> to 2007, but they're up sharply in first quarter 2008. So I don't think you can blame the huge run up in prices on "speculators pushed up futures prices so producers cut back" argument.

About Those Arctic Oil Reserves

Who knows what's really there? It could be much more, or much less, than current reports indicate.

FT writes:

No one knows the extent of US oil and natural gas reserves in the offshore and Arctic areas that are off-limits to drilling. The last time they were surveyed was in the 1980s and the technology then used is no longer considered accurate, say industry experts.

“The youngest seismic [tests] in some of these areas is 25 years old,” said Bobby Ryan, Chevron’s vice-president for global exploration.

Report: New Iranian Oil Field Discovered

Iranian state TV says the country is exploring a newly discovered oil field believed to contain more than 1 billion barrels of crude oil, according to AP.

The report quotes Iranian Oil Minister Gholam Hossein Nozari as saying the area holds about 1.1 billion barrels of crude oil. He says about 220 million barrels are "recoverable." He did not elaborate.

The report broadcast on Sunday says the oil field is located near Andimeshk, in the oil-rich province of Khuzestan, located about 290 miles southwest of Tehran.

Iran is the fourth-largest oil producer in the world and ranks second in output among OPEC countries. It controls about 5 percent of the global oil supply.

Israeli Warplanes Practice in Iraq; US Bases in Iraq Might Serve as Platform for Iran Attack; Oil At New Record High

I have a sense someone is making a good buck on these Israeli exercises. If you are in the know , buy oil just before the news breaks. That's what I call real insider trading.

The Jerusalem Post reports:

Israel Air Force (IAF) war planes are practicing in Iraqi airspace and land in US airbases on the country as preparation for a potential strike on Iran, sources in the Iraqi Defense Ministry told a local news network, Friday.

The report, carried also by Iranian news outlets, claimed that recently massive nocturnal activity by IAF craft was noted in several American held airbases, including measures by the US army to increase security around the bases

According to the sources, former military officers in the Anbar province said IAF jets arrive during the night from Jordanian airspace, enter Iraq's airspace and land on a runway near the city of Hadita. The sources estimated the jets were practicing for a raid on Iran's nuclear sites.
The sources also said the American bases in Iraq might serve as a platform for the IAF from which to attack Iran. If Israeli warplanes will take off from Iraq, they can reach Bushehr in five minutes - a "record time," the sources said.

As a result of the reports on the exercise, by midday in Europe, light, sweet crude for August delivery rose $3.53 at $145.18 a barrel electronic trading on the New York Mercantile Exchange. Prices at one point jumped well over $4 to a record $145.98.

OPEC Chief Warns of 'Unlimited' Oil Prices if Iran is Attacked

Unlimited price? Don't know what that means. The price will be very high, but there will be a price.

"We really cannot replace Iran's production - it's not feasible to replace it," Abdalla Salem El-Badri, the OPEC secretary general, said in an interview with IHT.

Iran is the second-largest producing country in OPEC, after Saudi Arabia. It produces about four million barrels of oil a day out of the daily worldwide production of close to 87 million barrels.

Badri also said that steps taken by the European Union and in the United States to cut dependence on fossil fuels meant that OPEC had no alternative but to take a cautious approach before going ahead with plans to invest up to $540 billion in oil production up to 2020.

"If we don't see the demand, we are not going to invest," said Badri, adding that there was real doubt over what amount of money OPEC nations would invest after 2012.

OPEC nations "don't want to spend their money on something they cannot use," he said.

OPEC nations contribute about 40 percent of daily worldwide production.

Boone Pickens: Subsidize My Windmills

Boone Pickens is a very smart man. He understands oil and energy better than most analysts. But, he has just made an $85 million ad buy to run the above commercial. The ad says he has a plan to solve the energy "problem". The ad states that wind power is part of his plan. What he doesn't tell you is that he is looking for his subsides for his own wind farms. When someone has a plan, they can go ahead and execute it. When someone has a plan and they run commercials to tell you about the plan, they want you to pay for their plan.

Boone, also, bitches that 700 billion dollars are leaving this country every year for the purchase of oil. I say that it's a pretty good trade for us. We get oil, the oil producers get deprecating dollars. Hey, isn't that what Boone is doing in his oil trading business, laying off dollars and buying oil?

These Guys Have To Be Long Oil Futures

Iran will hit Tel Aviv, U.S. shipping in the Gulf and American interests around the world if it is attacked over its disputed nuclear activities, an aide to Iran's Supreme Leader was quoted as saying on Tuesday

"The first bullet fired by America at Iran will be followed by Iran burning down its vital interests around the globe," the students news agency ISNA quoted Ali Shirazi as saying in a speech to Revolutionary Guards, according to Reuters.

Clamping Down On Speculators Would Push Oil Prices Higher

Paul Horsnell, commodity chief at Barclays Capital, says speculators are now net "short" oil. If this is the case, a clamp down on futures traders by increasing margins would force them to cover positions, pushing prices even higher.

"Increasing Likelihood" That Israel Will Attack Iran

ABC News is reporting that Senior Pentagon officials are concerne that Israel could carry out an attack on Iran's nuclear facilities before the end of the year.here.

What's Behind The Oil Price Climb?

Stefan M.I. Karlsson provides a thorough analysis of the oil markets in a column at LRC, today. He explains what is causing the current spike in oil prices, including a great analysis of why speculators are not the cause of the current price spike in oil.

My only slight quibble with Karlsson is that he seems to put a bit more emphasis on new demand factors, then on the Federal Reserve's monetary policy, for the spike in oil. He certainly mentions the money supply factor, I just think it should have been emphasised a bit more, given the seeming across the board hikes in commodity prices--which, to me, is an indication of a strong monetary influence.

Karlsson's column is here:

http://www.lewrockwell.com/orig6/karlsson9.html