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Oil In The Rock

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Bought gas lately? Could be that you are buying more than gas–you could be buying a speculators speculation too. Are we being sold a swamp about crude oil and gas prices? Congress is trying to do something about what's called "dark markets."  But the bill was defeated. If politicians and legislators don’t reign in the speculators there will be hell to pay at the pump. The bill could have helped to cut the cord that ties oil speculation to higher crude prices:

Legislation is pending in the U.S. Senate that would require the Commodity Futures Trading Commission, which regulates NYMEX, to significantly raise the amount of money, or margin, that speculators have to put up to trade oil futures. This planned bill, defeated today, is controversial as to its effect on oil prices.

Bush bashes desert sheiks

It’s not rumor mill or lie, oil was just under $30 a barrel when Bush took office, it is now $130 a barrel and people are mad as hell. Bush recently tried to “jawbone” his friends into greater oil production but had no luck. Bush along with the Dems and Republicans are complicit. However, can the blame be squarely placed at the door of the Fed?

The Saudis are making it clear that they believe that the price of oil is not borne out by current market price. 

The culprits I suspect are the billions banks and the financial sector lost in the housing bubble, recall that?

It's similar to the housing bubble," said Ernie Acebo of Concord, referring to trading in oil futures. "It (oil) will continue to go up, then the bubble will pop," Acebo said. "I think it's a result of commodities trading," Behrens said. "Demand is not that great."According to oil industry analyst Stephen Schork, Behrens and Acebo are right on track. Mercury News

Americans are still reeling from it. So, we could have double-trouble on our hands. There is an oil bubble now—strange coincidence or strong connection? Did the weak dollar cause the rapid crude rise since 2003? The hard evidence points the compass of the needle at the regulation or lack of it for future and market speculation, oil cronies of Bush, Halliburton, hurting banks and the cupidity or stupidity of plain folks. The bill to regulate the speculators was defeated today. So the question remains: Do we really want to make another batch of millionaires on the backs of the $10.00-an-hour-job crowd? I don’t think so. 

You've got grease on your hands

When returning from my daily walk I spied a neighbor who has an old Mercedes Benz wagon and was filling it up with grease. I asked him how much he paid for the grease. He said "it was free." He got it from churches and others who were willing to give him the grease–impressive. But it is becoming a hot market for fast food joints and others with grease on their hands. They used to have to pay for haul-off! Did you know that not only does it burn cleaner but the octane (power) is nearly double that of gasoline? This has been demonstrated when a Chevy beat a Ferrari. The Chevy had the grease and the Ferrari had the gas. That means mileage is also increased with grease. So, one might be better off, not retrofitting one’s car, that can be costly, but by buying a used VW or Mercedes Benz that can be converted to an SVO (straight vegetable oil) vehicle. Here’s the skinny on grease, SVO, biodiesel, and hybrids. My personal solution: keep the SUV and buy a scooter. That is what I wanted to write about but I think we can go farther than that by talking about the real problem—money and speculation. 

It’s Wall Street not Wal-Mart, stupid 

According to the Asia Times and George Soros and US margin rules of the government's Commodity Futures Trading Commission allow speculators to buy a crude oil futures contract on the Nymex by paying only 6% of the value of the contract. At the present price of around $130 per barrel, that means a futures trader only has to put up about $8 for every barrel. He borrows the other $120.This extreme "leverage" of 16 to one helps drive prices to wildly unrealistic levels… Asia TimesWhen I buy stock or anyone–it's stock per share pricing. That’s a straight stock purchase but remember—oil is a commodity and it is bought, sold and regulated a little differently.

If it were parallel in the oil market and you wanted to buy one share (or one barrel) you would then pay the going rate of 130+ dollars or so. And if you wanted to buy one thousand shares @ 130.00 that would be a cool 130,000 dollars. Chump change for banks but big change for individuals. So how is it possible that you and I could buy a thousand of anything with these prices? The answer is somewhat like putting clothes on layaway. You leave a deposit and only pay the whole amount when you pick up the goods. It’s easier that way. The only difference is that when you pick up (or sell the futures) you could lose your shirt or a reap a whirlwind of profit.

Bakken oil Trumps Desert oil

Are there future solutions out there just waiting to be found? America seems to be blessed with oil and natural gas riches right under its own rocks.

The Bakken was discovered in 1951 and was all but forgotten because it takes billions to get the oil out of the ground and before that there is the R&D stage, also costly.Reston, VA – North Dakota and Montana have an estimated 3.0 to 4.3 billion barrels of undiscovered, technically recoverable oil in an area known as the Bakken Formation.

The oil is there, and the natural gas, literally in my backyard, here (in Texas). There is more oil and gas in the continental U.S., not including Alaska that would make us oil independent forever. Here’s the only silver lining in the oil cloth: the fetching price could fuel those who don’t think that oil will pay off.

Everyone can read the writing in the sky-high prices but it’s time to get on the bandwagon. Conservatives are blaming liberals for not wanting to drill here and now. But money talks louder than any big mouth talking head—whether he or she pledges Democrat or Republican. This is a job for bipartisan unity, not bipartisan bickering because we Americans and Europeans will pay the jump at the pump and will also pay a price on the world stage where everyone else will be laughing at us.   

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About Heloise

  • David

    A writer for Harpers, I forget who at the moment, said that this nation’s economy is now bubble driven. Instead of a bubble happening every once in a while, people getting upset, legislative change happening…, we are getting bubbles every few years, only to pop and then a new bubble takes over, with no legislative activity whatsoever to curb the abuses and excesses. So what is the eventual outcome? We are seeing it in the devaluation of the dollar and the destruction of the global marketplace, first with food. This is because all the fake money generated by people using very easy credit are suddenly finding that banks and other lenders are wanting their money back. Now. Because they see the writing on the wall and want to get out while the getting is good. Imagine when the US’s bank, China, comes calling and we don’t have the money to pay them….

  • jamminsue

    Just out of curiosty, does anyone know how many barrels of oil the US uses in a day? and, what our processing capacity is and how old those facilites are? These are questions that should be addressed when discussing accessing US oilfileds of any wort, anywhere. Sorry, I honestly do not know.

  • bliffle

    We currently owe the Chinese about $1.5trillion and they are angry that we devalued the dollar. Not good.

    David is right, we have a bubble driven economy that flits from one bubble to another. There is too much cash in the hands of speculators. It’s a failure of Monetarism: we have monetarized everything imaginable and then mortgaged everything. Thus, we have about $550trillion in monetary paper (representing what economists calll extrinsic value, i.e., perceived value other than what things are really worth) riding on the backs of about $45trillion in capital (representing intrinsic value, i.e., the real irreducible value of things, like houses, buildings, land, etc.)

    We’re running about 8% margin, just like 1929. Our system has not been able to control margin abuse.

    Consider the plight of a Hedge Fund operator who has leveraged some market, then pumped and dumped it, and now has unwanted excess cash. He must join or create the next bubble so he can pump and dump again.

    So the huge Hedge Funds leverage another market and create more diaphonous wealth.

    And so it goes. A vicious cycle of ever-increasing bogus values. But no one can stand aside for fear of being left behind, so all must participate and hope their timing is good.

    We have a gamblers choice between riches and ruin.