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Is It Time For Obama To Spook The Oil Markets (And If So, How?)

Tyler Durden's picture




 

And now for a contrarian view on the fate of crude, and the Obama administration, from Oil Price: "The nation has about eight months of supply of crude oil saved in salt domes, in what is called the Strategic Petroleum Reserve. There is more oil available in the Naval Petroleum Reserve, a set-aside of oil in the ground. Obama needs to say that we are going to start using this oil as soon as it can reach the refineries. He has to go the whole hog – to set the machinery of using our special reserves in motion. That will counter-spook the market and humble the traders." Alas, any article that discusses the price of oil and ignores the possibility of another trillion or so in free liquidity courtesy of the Fed, which will immediately make its way to crude and the entire commodity complex, is woefully inadequate in our view.

From Oil Price: "It's Time for Obama to Spook the Oil Markets"

The fate of the Obama presidency hangs not on a birth certificate or
the red ink on the federal budget but by the hose nozzle of your local
gas station.

Electoral discontent is measured by the price of a gallon of
gasoline. Heading past $4 toward $5, that is a lethal trajectory for
President Barack Obama.

Enter the demagogues, especially the clown-in-a-business-suit, Donald
Trump. Unfettered by the gravity that goes with facts, Trump says that
he would fix the oil price – now around $110 a barrel – by facing down
the producers, particularly the Organization of the Petroleum Exporting
Countries (OPEC). He told an interviewer on television that he would
call OPEC and tell them to pump more or face the consequences. The
latter, he did not specify. War? Against whom?

In a compelling book by Leah McGrath Goodman, “The Asylum: The
Renegades Who Highjacked the World's Oil Market,” the author lays out
the ugly fact that often – in fact, as often as not – the price of oil
is set not in Vienna at the headquarters of OPEC, but in downtown
Manhattan at the New York Mercantile Exchange (NYMEX).

Tens of thousands of future contracts are traded in nanoseconds at
the NYMEX, and the price of oil is set. This price affects not only the
price which will be paid when these contracts expire and delivery takes
place, but also, according to Goodman, the all-important
over-the-counter market, where sellers trade more directly with buyers
without government oversight.

Goodman contends that there is little oversight of the NYMEX because
the agency charged with the role is the weak and ineffectual Commodities
Futures Trading Commission (CFTC), where many staff and commissioners
are busy burnishing their resumes so they can cash in later as market
executives.

The over-the-counter market is not regulated at all because of a
pernicious interference from Congress known as the “Enron Loophole.” How
did it get into law? It is one of those pieces of special-interest
protection that owes its existence to legislative immaculate conception.
It was not in the committee version of the bill; it slipped in along
the way without parenthood, but is largely believed to be the work of
former Sen. Phil Graham (R-Texas) whose wife, Wendy, was chair of the
CFTC.

In classic theory, a market is where a willing buyer and a willing
seller strike a price. In the world of traders, it is something else: It
is where volatility is rewarded and myths hold sway.

Today there is no actual shortage of crude oil. Supply and demand,
according to those who monitor these things, is in balance. But fear
stalks the trading floors because fear is good for traders; and fear is a
critical part of the oil price.

Wars and rumors of wars are relished in trading pits. They raise the
specter of coming shortage and introduce the instability the traders
love. During the electricity shortage in California in 2001, traders,
particularly at Enron, sought not only to capitalize on fears of
shortage, but also to guarantee shortage by taking generating equipment
off line.

Of course, reality must eventually catch up with speculation. The
production of oil must meet demand and the price will briefly reach real
world equilibrium. This happened in 1986, when the price collapsed
because Saudi Arabia opened its spigots after the volatility of the
1970s. Many traders were wiped out and speculative billions were lost.

Some oil industry observers believe that the market is trading on a
“fear premium” of about $1 per gallon of gasoline, spooked by the
uncertainty in the Middle East and traders exploiting that fear.

Good for Obama. Time for the president to engage in a little market spookery of his own.

The nation has about eight months of supply of crude oil saved in
salt domes, in what is called the Strategic Petroleum Reserve. There is
more oil available in the Naval Petroleum Reserve, a set-aside of oil in
the ground. Obama needs to say that we are going to start using this
oil as soon as it can reach the refineries.

He has to go the whole hog – to set the machinery of using our
special reserves in motion. That will counter-spook the market and
humble the traders.

However, any new wars in the Middle East, and all bets are off. Poltergeists would stalk lower Manhattan.

 

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Thu, 05/05/2011 - 12:35 | 1243742 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Call the world's producers bluff?  No, what he should do is pull troops from all wars and give himself creditability.  The last thing we need right now is for our Supreme Dictator to politic.

Thu, 05/05/2011 - 12:46 | 1243819 optimator
optimator's picture

Pulling the troops alone would reduce the amout of fuels the largest user of POL uses.....the U.S. Military.  One F-15 burns 500 gallons in one hour on average.

Thu, 05/05/2011 - 14:31 | 1244271 Whats that smell
Whats that smell's picture

+1000

Wars on the other side of the globe use a gallon too!

Maybe we should save some powder for when we truly need it?

Thu, 05/05/2011 - 15:51 | 1244727 augie
augie's picture

anger not direct at you optimator don't take offense but 500 gallons is piggon feed compared to the support staff requirement necessary to keep the damn plane in the air for even 1 hour. Helicopters are even worse.

Bring the boys home.

Thu, 05/05/2011 - 12:51 | 1243866 trav7777
trav7777's picture

the bluff of world producers is that they CAN produce more....you really wanna call that??!?!

Thu, 05/05/2011 - 13:04 | 1243922 tmosley
tmosley's picture

What is the inventory situation, Trav?  In 2008, anyone who hiked production in response to the rising prices got badly burned, because all the inventory that had completely filled all onshore storage and had spilled out into leased tankers anchored along the coast all came rushing back in at once.

You ever think maybe they don't want to repeat that?

Proceed with the vendetta ;)

Thu, 05/05/2011 - 13:06 | 1243926 Texas Gunslinger
Texas Gunslinger's picture

Is this like silver today, and those silver etf's? Tons of hoarded supply, rushing into the market?

Thu, 05/05/2011 - 14:12 | 1244201 tmosley
tmosley's picture

Possibly, but silver costs much less to store than oil.  It can thus be held for a much longer time period.

Also, you are truly the king of trolls.  You're like a ninja or something.  Act totally dumb most of the time so no-one takes you seriously, then BLAM you cut deep into your opponent's argument.  Really and truly excellent.

Tons of supply is unlikely to come out, however, because most of it doesn't exist, and what does exist will be gobbled up by Eastern governments as a strategic resource in the course of dollar divestment.

If it is real, I will happily buy some, however.  Large amounts are cheap to smelt into other forms, which are going for huge premiums right now.  That's if you can get time at a smelter.  

Thu, 05/05/2011 - 13:05 | 1243939 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Finance should not be a game.  The world needs to come together, not bluff at each other.  America needs oil.  It has not prepared for peak oil.  The middle east needs to continue its development.  It is not prepared to sustain growth.  Both sides are currently in the dark.  They should recognize their collective failures, and program a cooperative agreement.

Thu, 05/05/2011 - 13:09 | 1243954 LawsofPhysics
LawsofPhysics's picture

Maybe, but who really cares?  I know what the margins are for my books.  In order for me to produce more, I first need more customers.  While we are growing a bit (biotech) the margin compression is horrible and getting worse.  At some point that closes and the cost is passed on to the customer.

Besides, just like the oil that sat in tankers and came flooding back into the U.S., so will all of Ben's funny money.  Of course the is still digital money, anyone know what the levels of physical dollars in circulation are?  Could be another win-win for physical metals.

Thu, 05/05/2011 - 13:18 | 1243967 Texas Gunslinger
Texas Gunslinger's picture

If the Fed becomes our largest creditor, is it possible for them to forgive the Treasury's debt, if/when compounded interest begins to drown them and the dollar flood begins?

CLICK!

If the Fed can create dollars, the Fed can taketh away.

 

Thu, 05/05/2011 - 13:22 | 1244010 LawsofPhysics
LawsofPhysics's picture

That would be great, but very deflationary.  deflation rewards you and I and punishes banks, never going to happen.

Thu, 05/05/2011 - 13:31 | 1244038 TruthInSunshine
TruthInSunshine's picture

Deflation actually rewards most creditors, including almost all banks, and crushes debtors.

If you are a bank, and I borrow a dollar from you, deflation means I pay you back with increasingly valuable dollars as time goes on.

Thu, 05/05/2011 - 13:46 | 1244078 LawsofPhysics
LawsofPhysics's picture

Bullshit.  The banks "assets" are deflating too.   Moreover, a stronger dollar, means I spend less on the things I need to keep my business and home afloat.   Hence I have more cash to invest elsewhere.  Having the ability and freedom to invest as you see fit (and not simply spend everything on survival) is real wealth idiot.

Thu, 05/05/2011 - 13:52 | 1244115 TruthInSunshine
TruthInSunshine's picture

I don't take it personally, but you are arguing against mathematical certainty, essentially.

Thu, 05/05/2011 - 14:15 | 1244202 MachoMan
MachoMan's picture

That, and the reason why he has "margin compression" is because his increased costs CAN'T be passed on to customers...  I think what he meant was once the last bit of available profit is squeezed down via margin compression, he'll shut the doors rather than pass it on to customers...  at least he won't be alone...

Thu, 05/05/2011 - 14:27 | 1244227 LawsofPhysics
LawsofPhysics's picture

Yes, thanks for helping macho man.  Tough day.  I will shut my doors.  At least in the public sense.  I will essentially move to a black market business in a truly free market.  I have already spoken with a couple of my people about this.  People will still need/want products that help them survive better (improve their quality of life).  In general, that is what our products do, looking for more local suppliers of raw materials now.

Thu, 05/05/2011 - 14:57 | 1244429 TruthInSunshine
TruthInSunshine's picture

It's hard to be a competitive business, know matter how competent the management, when you have a rigged market (in the specific and broadest senses).

Many feel the way you do. I have seen two generations of well-etablished family businesses wiped out in the last two years, some very modest and some extremely wealthy, because of the fraud and crime inherent in an increasingly desperate Ponzi Scheme that is being run by our government, The Federal Reserve, and the global cabal.

Thu, 05/05/2011 - 15:10 | 1244502 LawsofPhysics
LawsofPhysics's picture

You are right, and yet I encounter "educated professionals" every day that claim centralization is a farce.  Well, maybe they will be right when the giant ponzi collapses and local black markets rule.

Thu, 05/05/2011 - 13:50 | 1244116 Dr. Engali
Dr. Engali's picture

Deflation punishes us and rewards the banks. You are bass ackwards. If we have inflation I can pay of my mortgage with a trillion dollar bill and get some cash back.

Thu, 05/05/2011 - 15:50 | 1244200 Texas Gunslinger
Texas Gunslinger's picture

<comment removed by the administration>

code: 25840

 

 

 

 

 

 

Thu, 05/05/2011 - 14:28 | 1244258 LawsofPhysics
LawsofPhysics's picture

No, I am not.  I have cash.  Perhaps I simply want deflation, that better?  Moreover, you only get a trillion dollar note in an inflationary (increase in available money) cycle.

 

From my perspective, buying power is all that matters.  I have customers, I make a profit, I want/need more buying power.  But then again all my profits are reinvested in my people and my technology.  How many operations in the U.S. are doing that now?  Maybe that is the problem here.

Thu, 05/05/2011 - 15:01 | 1244447 TruthInSunshine
TruthInSunshine's picture

We should have had deflation from 2008 through now, in just about everything - but Bernank, being the 'expert' that he is, decided that any deflation would cause a depression (Not really, but that's what he claimed publicly), in order to get his masters' TARP, TALF and QE in the works.

Deflation would have been a boost to almost every American's standard of living, and it would have reset the economic table for ORGANIC growth, of the sustainable kind, going forward.

But central bankers only care about serving their bosses, and their bosses are NOT the American People.

Thu, 05/05/2011 - 12:59 | 1243897 Id fight Gandhi
Id fight Gandhi's picture

Pump prices now at 4 and the price of oil is down. They're so quick to raise it but never quick to drop it.

Then the gas station owners are on tv saying they have no say in the matter and gas makes them only a penny a gallon profit. Yeah right. They'd be better off going cheap with gas and getting high margin snake food and cigarettes sales instead.

Thu, 05/05/2011 - 15:02 | 1244206 TruthInSunshine
TruthInSunshine's picture

It's actually true that gas station owners do not profit from the sale of gas, and in fact, many lose money on gasoline/diesel sales.

Most stores are leased, and the franchisor (the oil company), ties the rent to number of gallons sold, and then prevents the franchisee from 'cross shopping' for gas/diesel from anyone but the oil company suppliers.

The franchisee then has to expand convenience, food and other sales to compensate.

I did not junk you.

Thu, 05/05/2011 - 16:00 | 1244786 tarsubil
tarsubil's picture

I've never seen a bank shuttered. I see gas stations shuttered all the time.

Thu, 05/05/2011 - 12:28 | 1243744 pan-the-ist
pan-the-ist's picture

All he has to do is point out that the situation in the ME is actually stabilizing.  (Not looking for Junks like Hamy, thanks)

Thu, 05/05/2011 - 12:31 | 1243762 drink or die
drink or die's picture

By "stabilizing" do you mean "not being reported on as much"?

Thu, 05/05/2011 - 12:35 | 1243768 pan-the-ist
pan-the-ist's picture

Exactly that.

Thu, 05/05/2011 - 12:32 | 1243749 SoNH80
SoNH80's picture

It's the Strategic Petroleum Reserve, meant for use in a serious war, not the "Tatical Pissing In the Wind Wankery Reserve".

Thu, 05/05/2011 - 12:45 | 1243828 duo
duo's picture

I was going to say "Tactical Election Year Manipulation Reserve"

Thu, 05/05/2011 - 13:01 | 1243908 Id fight Gandhi
Id fight Gandhi's picture

Isn't it used for emergencies and wars? And they have the whole middle east in uprising and were going into hurrican season, they should not touch those unless its dire.

Otherwise they'll piss away the reserves and we will have $10 gas.

Thu, 05/05/2011 - 12:39 | 1243753 Texas Gunslinger
Texas Gunslinger's picture

<removed by the administration>

code: 13854

Thu, 05/05/2011 - 12:43 | 1243806 Alcoholic Nativ...
Alcoholic Native American's picture

code: 13854 = Full Retard.

Thu, 05/05/2011 - 12:53 | 1243854 Spastica Rex
Spastica Rex's picture

Wait... what?

Thu, 05/05/2011 - 16:38 | 1245063 knowless
knowless's picture

i can hear you giggling man, this must be really amusing to you.

Thu, 05/05/2011 - 12:36 | 1243755 SoNH80
SoNH80's picture

Dbl post

Thu, 05/05/2011 - 12:50 | 1243843 I did it by Occident
I did it by Occident's picture

Agree, basically to assure the flow of oil if they refuse to sell it.  If they don't sell it to us, then we (the US) will take it by force if it comes to that.  the 8 months gives enough time to take over.  Of course China buying lots of resources in Africa and the rest of the world does complicate that calculus.

  to quote from Dune, "the spice must flow"

Thu, 05/05/2011 - 12:33 | 1243757 augie
augie's picture

"spook" and obama should never be used in the same sentance. Moron, imbacile, tyrant, loving father and husband, terrible basketball player, kenyan, American, or poindexter are all perfectly good substitutes. 

 

exhibit A:

 

by Texas Gunslinger 
on Thu, 05/05/2011 - 12:32
#1243753

I'm from Texas, so racism is all around me, but does this title seem racist?  Or have I been conditioned by my surroundings to think everything is racist?

 

 

Thu, 05/05/2011 - 12:37 | 1243790 SheepDog-One
SheepDog-One's picture

Oh, well when I read spook and obama in the same sentence I immediately thought the proper connection, CIA.

Thu, 05/05/2011 - 12:41 | 1243807 augie
augie's picture

Probably because you are not glued to drudgereport 24/7 like some American'ts i know. Cue the moron riding the quad. 

Thu, 05/05/2011 - 12:46 | 1243821 drink or die
drink or die's picture

Have you ever noticed that every conservative radio talk show consists of Limbaugh/Beck/Hannity/etc reading headlines off drudge and commenting on them?

Thu, 05/05/2011 - 13:01 | 1243920 NOTW777
NOTW777's picture

have you noticed that 99% of MSM report directly from the WH script?  state media

Thu, 05/05/2011 - 13:51 | 1244108 augie
augie's picture

it really is two sides of the same coin...apparently  judging by the junks, some don't think so.

Thu, 05/05/2011 - 12:48 | 1243830 AgShaman
AgShaman's picture

Don't forget knowledgeable Chicago White Sox Fan...as well as deficient in military terminology...particularly Navy medics

Thu, 05/05/2011 - 13:04 | 1243921 Id fight Gandhi
Id fight Gandhi's picture

One thing cool about zh is they let you be politically incorrect.

Thu, 05/05/2011 - 12:33 | 1243759 alexwest
alexwest's picture

will fix in jiffy..

ALL OIL FUTURES ARE ONLY PHYSICAL DELIVERED..
++ FUTURES LEVERAGE IS NO MORE 1:8/10..

see oil at 40$ in 1 month
alx

Thu, 05/05/2011 - 12:33 | 1243761 Silver Bug
Silver Bug's picture

This will go over, just as how it did with Paul Volcker when he sold a massive amount of the US Silver Reserves. He did this, just as now Obama will sell their oil cheaply to "teach the dirty speculators a lesson". It back fired in Volckers face and it will backfire in Obama's face (Just like everything else does).

 

http://silverliberationarmy.blogspot.com/

Thu, 05/05/2011 - 12:32 | 1243765 Sudden Debt
Sudden Debt's picture

If he says that the government has found a way to turn crap into oil.

AND BOY DO THEY HAVE PLENTY OF IT!!

 

 

Thu, 05/05/2011 - 12:32 | 1243767 NOTW777
NOTW777's picture

just what we need - more obama cheerleading

Thu, 05/05/2011 - 12:38 | 1243771 SheepDog-One
SheepDog-One's picture

This is just stupid. It would not 'humble the oil traders' at all as an announcement to suck up and use all the 8 months reserve would be immediately priced in FAR higher, what the hell are you going to do after all your strategic reserve is sucked dry??

Retarded article.

Thu, 05/05/2011 - 12:52 | 1243846 disabledvet
disabledvet's picture

"reaching for rightness" with no need to do so either.  it's the service sector that's fallen off a cliff--by far the largest user of "oil and petroleum distilates."  with nat gas on the ascendency suddenly oil exploration budgets are surging as "oil companies discover their job is to get oil out of the ground" especially with "usurious prices."  throwing this spanner would at this point simply say "we really do have a crisis in the oil complex" and thus be self-defeating.

Thu, 05/05/2011 - 12:34 | 1243774 mynhair
mynhair's picture

'Obama' and 'spook' in the same sentence?  Goodness.

Thu, 05/05/2011 - 12:50 | 1243842 Sophist Economicus
Sophist Economicus's picture

It's OK.   This POS was written by Llewellyn King...of PBS fame.    They can never be racist....

Thu, 05/05/2011 - 13:03 | 1243936 Id fight Gandhi
Id fight Gandhi's picture

So you think it should be renigged?

Thu, 05/05/2011 - 17:12 | 1245213 pan-the-ist
pan-the-ist's picture

The actual term is reneg, as in renegociated.  That word is to big for poor white trailer-trash such as yourself, so your lack of understanding is forgiven.

Thu, 05/05/2011 - 17:42 | 1245311 Id fight Gandhi
Id fight Gandhi's picture

Actually, it's a perfectly acceptable alternative to renege, which I believe you intended to write but misspelled as "reneg."

I got a snigger out of that!

Calling someone white trash is a racial slur though.

Thu, 05/05/2011 - 12:38 | 1243780 TruthInSunshine
TruthInSunshine's picture

Why won't the Peak Oil Church Members ever acknowledge that oil is about 50% overpriced (maybe more?) based on current supply/demand curve due to the Enron Loophole?

Or do they?

 

Thu, 05/05/2011 - 12:44 | 1243824 SheepDog-One
SheepDog-One's picture

Well likewise why would they never admit that stocks are 50% overpriced? Or bonds are virtually worthless? Or that the currency is up in flames?

Thu, 05/05/2011 - 13:03 | 1243917 TruthInSunshine
TruthInSunshine's picture

I would argue stocks are about 70% overpriced and agree with you about bonds and currency (although it's all on a relative scale with currencies unless the world goes back to some other interchange mechanism besides fiatkis).

Thu, 05/05/2011 - 12:57 | 1243883 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

P* may be inaccurate due to the fiat ponzi (afterall, what is a dollar?), but the fact that oil is a finite resource, and the blood of the economy should also be taken into account.  The low hanging fruit is gone, and to get crude, dictatorships like the House of Saud are pumping salt water into the reserves just to keep supply up.  America thinks the Bakkan reserve can mitigate its problems, even though shale oil has a EROEI that is much lower than crude.  Russian production peaked in '89, and they are now the world's largest producer, which means there is no swing producer.

Yet America pretends like the dollar can solve these problems, and so they continue to fill up their SUVs and drive to and from their suburban McMansions.  And some untapped oil reserve in Alaska, even if it could produce hundreds of thousands of barrels a day, will not help.  Peak oil is very real, as it is finite.

Thu, 05/05/2011 - 12:57 | 1243902 TruthInSunshine
TruthInSunshine's picture

Actually, oil consumption is dropping in the U.S..

Let China take away the subsidies on petrol and diesel, and see what happens there, too.

There were near riots by truckers and taxi drivers the last time they pared back the subsidies.

Thu, 05/05/2011 - 13:07 | 1243950 EscapeKey
EscapeKey's picture

consumption in emerging market economies is rising substantially faster than the reduction in the us

Thu, 05/05/2011 - 13:20 | 1244002 TruthInSunshine
TruthInSunshine's picture

Do you have a credible current link for that (the offset part, especially)?

Thanks.

Thu, 05/05/2011 - 13:46 | 1244080 GoldenCalf
GoldenCalf's picture
The site, theoildrum.com, has lots of interesting information about oil production and consumption.  Check out figure 3 on this report for oil consumption in US,EU,Japan, Aus vs everyone else: http://www.theoildrum.com/node/7831#more
Thu, 05/05/2011 - 13:54 | 1244121 TruthInSunshine
TruthInSunshine's picture

That's a great link (and site), but the charts referenced only go through 2009, which was when oil was near $38/barrel USD.

I'd love to see the data since oil began its mammoth run back up from $38 USD to $112 or so USD.

Thu, 05/05/2011 - 14:24 | 1244237 GoldenCalf
GoldenCalf's picture

That's a good point. I was able to find limited consumption stats for 2010 from the CIA world factbook but nothing for, for example, China vs the USA. 

 

Oil has a strange market in third-world countries because the fragile govts there have to subsidize it to keep the riots down. Venezuela has <$.50/gal gas but bad food inflation. I think Canada is the only major oil producer that actually taxes rather than subsidizes, and it shows majorly in how much the consume vs export and the growth in their consumption.

Thu, 05/05/2011 - 12:35 | 1243781 Muir
Muir's picture

Ridiculous.

Thu, 05/05/2011 - 12:36 | 1243783 Henry Chinaski
Henry Chinaski's picture

Obama team is happy with higher gas costs

http://www.livingstondaily.com/article/20110505/OPINION03/105050318/Obam...|newswell|text|Frontpage|s

Thu, 05/05/2011 - 12:53 | 1243855 NOTW777
NOTW777's picture

one of a few campaign promises kept - crank those fuel prices for the peasants

now if you could just push thru cap and trade and reward GS and soros

Thu, 05/05/2011 - 12:37 | 1243787 EscapeKey
EscapeKey's picture

I like how oil is down 6%, but DJIA only 0.3%. Because a significant drop in oil demand would only curtail economic activity fractionally, and hence Wall Street profits would not be impacted at all. Yeah fucking right.

God damn, this is madness.

Thu, 05/05/2011 - 12:46 | 1243818 augie
augie's picture

did you say MADNESS!?!

http://youtu.be/N-uyWAe0NhQ

Thu, 05/05/2011 - 12:41 | 1243800 wang
wang's picture

zero doubt that the prez would use the spr if it would further goose his poll numbers, I think part of the cliff dive of crude is the percieved reduction in mideast tensions with the takeout of binny - WTI  headed for 85 or lower unless something blows up

Thu, 05/05/2011 - 12:44 | 1243810 TruthInSunshine
TruthInSunshine's picture

Would Peak Oil Occultists at least acknowledge that a simple rule mandating traders had to take physical delivery and close out positions on contracts within x number of days would submarine the price of oil?

Maybe Goldman would build a 500 trillion barrel storage tank off the Texas Coast, though...hmmmm.

Thu, 05/05/2011 - 13:53 | 1244128 trav7777
trav7777's picture

so you imagine that oil production can grow to infinity?

Second, wtf does the futures price have to do with the sale and purchase of REAL oil?  Nothing.  Real oil deals are inked between sovereigns.

Thu, 05/05/2011 - 14:20 | 1244225 tmosley
tmosley's picture

It doesn't have to, child.  It doesn't have to.  No more than charcoal production had to keep growing forever during the industrial revolution, even though at one point that was the only process available for smelting steel.

Also, I lol that you think that oil markets don't trade oil.  They might be able to get away with that shit on precious metals that can sit in a vault for a hundred years, but not oil.  Oil producers go short oil to even out returns in volatile markets.  You think those producers don't deliver the oil they promised, but deliver it to some central government repository to sell to foreigners or to use internally?  I'd like to see some proof of that.

Thu, 05/05/2011 - 12:45 | 1243816 sangell
sangell's picture

Sell the gold too. Sell our Trident SSBN's, Sell everything, nothing is more important than Obama's re-election.

This is about the dumbest post I've ever seen on ZH!

Thu, 05/05/2011 - 12:46 | 1243837 SheepDog-One
SheepDog-One's picture

Agreed. Makes no sense at all. 8 months of oil, big deal....THEN what? Im sick of everything being predicated on how the biggest morons in america can be fooled to vote Barry Soetoros sorry ass back in. The whole country is worthless, no one takes any action in any form at all its just Stockholm Syndrome crap, all of it.

Thu, 05/05/2011 - 14:08 | 1244184 j0nx
j0nx's picture

Nobody does shit because everyone is afraid of the government instead of the other way around. I constantly have to watch what I say on forums for fear that a gray sedan with guys in black suits and sunglasses will be knocking on my door. Because of that fear most people just self medicate and watch glee in their underwear on their couch. Until that changes then I don't see anyone doing shit about this epic fraud and thievery that wall street and the feds are pulling and it will take someone or some THING to manage to get enough people united to actually stand up to these mobsters.

Thu, 05/05/2011 - 12:44 | 1243826 Dapper Dan
Dapper Dan's picture

Please check the link below, add to that the farmland soon to be lost to the Mississippi flood and you have the makings of a larger problem than most things posted here lately, with all due respect TD.  This will have terrible repercussion on food production  and worsen as time goes on. 

 

http://www.drought.unl.edu/dm/monitor.html

Thu, 05/05/2011 - 12:49 | 1243847 AgShaman
AgShaman's picture

Food Rationing would be a good thing.

Start messin' with an American's waistline...and they may actually wake up and take notice of the world around them.

Thu, 05/05/2011 - 12:50 | 1243848 duo
duo's picture

Land that could have fed 100,000 people for a year is ruined forever, to save a Wal-mart and a small town of 9K people.

Obviously, food isn't expensive enough yet to change thinking.  In a few years the town would sacrifice itself to save the farmland.

Thu, 05/05/2011 - 13:32 | 1244045 Dapper Dan
Dapper Dan's picture

If you want control of the population starve them out.

See.  

         Sevastopol

         Vicksburg

         Berlin

         Rhodes

         Stalingrad 

         Leningrad  (worst ever)

Thu, 05/05/2011 - 12:49 | 1243839 Tracerfan
Tracerfan's picture

There is no reduction of Mideast tensions.

Libya is off-line.

Yemen is off-line.

Iran-Saudi tensions are increasing.

Syria is exploding, and can bring Lebanon and Israel into a hot war in the space of an hour.

Thu, 05/05/2011 - 12:55 | 1243873 SheepDog-One
SheepDog-One's picture

Whole country and world economy now reduced to 'How can we fool the biggest morons among us today'?

Good luck with all this, its going down in flames.

Thu, 05/05/2011 - 12:51 | 1243858 sbenard
sbenard's picture

There's already plenty of "humility" being spread around the Nymex today, even without Obama's intervention. GOOD!

Best to save the SPR for a time when we need to use it for national survival rather than to merely send a message.

Thu, 05/05/2011 - 12:51 | 1243860 Al89
Al89's picture

Tapping those emergency supplies would send a message that the shortage is real and would send the price even higher. 

Not even mentioning QE3.

Thu, 05/05/2011 - 13:03 | 1243932 SheepDog-One
SheepDog-One's picture

And priced in higher on the need to replenish those reserve amounts. If I was writing this article I would have scrapped it after the first couple sentences and told myself to get a grip and stop the 9 am shots of bourbon.

Thu, 05/05/2011 - 12:51 | 1243861 oldmanofthesee
oldmanofthesee's picture

The One prohibits drilling, onshore in ANWAR. They stop Shell after Shell spent $4 Billion developing. Energy Sec Chu said "we've got to get gasoline prices higher, like in Europe"! And someone suggests this "shortage" means we should tap the Strategic Oil Reserve. Want to read that again, the key would is Strategic, not to be used because of high prices! And today, this fraud walks on hallowed ground.

Thu, 05/05/2011 - 12:54 | 1243863 ShankyS
ShankyS's picture

I can't believe you used spook in the same sentence with Barry. Must be a racist.

 

/Sarc

Thu, 05/05/2011 - 12:52 | 1243869 Spastica Rex
Spastica Rex's picture

This all feels a tad like 2008 to me.

Thu, 05/05/2011 - 12:55 | 1243871 TruthInSunshine
TruthInSunshine's picture

I believe it was William Wallace who said:

They may take our wives, but they will never take our Cool Ranch Doritos.

Thu, 05/05/2011 - 12:55 | 1243872 Mercury
Mercury's picture

Obama needs to say that we are going to start using this oil as soon as it can reach the refineries. He has to go the whole hog – to set the machinery of using our special reserves in motion.

Yeah, he can do that.

But you only get to play that card once.

Thu, 05/05/2011 - 12:55 | 1243889 SheepDog-One
SheepDog-One's picture

'YEA, we got our OWN oil now, bitchez at OPEC and you oil traders! See, we're gonna suck dry our 8 month emergency war supply (highly doubtful number) THEN we'll really be showing you all a lesson'!

How retarded can it all really get?

Thu, 05/05/2011 - 13:02 | 1243906 Mercury
Mercury's picture

If it turns out that high oil prices were not in fact the only thing standing in the way of accelerating economic activity then it's really going to look like he trashed the house, invited a bunch of friends over to live for free and sold off the silverware.

Thu, 05/05/2011 - 12:56 | 1243874 Gold 36000
Gold 36000's picture

Gold 36000 for president, because I hate everyone including myself.

Thu, 05/05/2011 - 12:54 | 1243875 Caviar Emptor
Caviar Emptor's picture

He already did spook the oil market. He pre-announced that he would last week, remember? 

All the supprseeive moves this week in the commodities markets are a prelude to full capital controls. They simply have to suppress commodities and capital flows while they devalue the dollar or else have killer inflation and capital flight to foreign markets. Price controls may be coming too. But in so doing they are robbing Americans of any hope of avoiding a big drop in their standard of living. Gold, PMs and broader commodities were the only reasonable hedge possible inside the US. 

Thu, 05/05/2011 - 12:56 | 1243877 SoNH80
SoNH80's picture

Some phantom junker working overtime to junk sensible commentary.  Here's something you might like, junker:  "Everything is fine.  The Dow will go to 34,000 by the end of the decade.  Oil will decline to $25/bbl.  Our deficits will disappear, just like the President, who is not an Affirmative Action empty suit, promises.  Go Bruins!  I have to go work on my golf game....."

Thu, 05/05/2011 - 12:57 | 1243879 PulauHantu29
PulauHantu29's picture

Gas tax is the solution.....but you will never see it.

In fact, oil has ALOT going for it:

1. infinite weakening of the dollar;

2. expanding the money supply every day;

3. MENA turmoil;

4. loss of reserves;

5. massive use due to wars, business, etc.

BTFD! Nomura says $220....BAC says $160.....

Thu, 05/05/2011 - 13:44 | 1244091 CrashisOptimistic
CrashisOptimistic's picture

You actually do not realize what is truly in play.  Simply, this:

 

http://www.theaustralian.com.au/business/news/iraq-halves-oil-output-as-reality-replaces-ambition/story-e6frg90o-1226050334199

IEA was depending on that oil in 2015 to fill the consumption requirements.  The Iraqis not only are not going to do it.  They CAN'T do it.  

It's all going to fail.  The engine can't run without per capita fuel.  

 

Thu, 05/05/2011 - 12:56 | 1243896 espirit
espirit's picture

Oil goes up 2 bucks a bbl, and gasoline goes up proportionally the same day.  Now that oil is off the high large, WTF?

Gas is still the same price.

Thu, 05/05/2011 - 13:08 | 1243943 Bastiat
Bastiat's picture

Funny how that works, isn't it?

Thu, 05/05/2011 - 14:17 | 1244221 j0nx
j0nx's picture

No, not really. Not at all in fact.

Thu, 05/05/2011 - 13:01 | 1243900 koot
koot's picture

Llewellyn King, author of the above has so many holes in his opinion it is hard to begin criticism.  First the US is the worlds biggest debtor and gets most of the oil through imports.  Second it does not import most of its oil from OPEC, but instead it's neighbors to the north and south.  Third prices at the pump are not based to large degree on WTI but actually on Brent because of how many and where its distillates come from.  Fourth, the US is no longer worlds biggest petroleum consumer and its percentage of total consumption is and will continue to decline.  Mexico will soon be a net importer and Canada will soon price its oil on World markets not at Cushing after it gets the West Coast terminals and pipelines completed. 

Should Obama tap the strategic reserves in order to fool Americans to vote for him, what will be the consequences in 2013 when it has to expand imports at same time pay exorbitant interest rates on its debt.  This is a fools erand, designed by a fool, supported by fools and will only end up one way.

Thu, 05/05/2011 - 13:02 | 1243924 chistletoe
chistletoe's picture

Behavior like that makes for good short stories ...

 

http://www.jacklondons.net/buildafire.html

Thu, 05/05/2011 - 13:03 | 1243934 NOTW777
NOTW777's picture

get your re-elect barack 911-i killed OBL wreath now.  if you lost a love one, give a small donation and get a picture with barack

Thu, 05/05/2011 - 13:04 | 1243935 Mad Max
Mad Max's picture

The "Naval Petroleum Reserve" is an area of oil shale that has no commercial value.  With current methods it would have an EROEI of less than 1, which makes it an energy sink, not a source.  Total joke.

This article is poor.

Thu, 05/05/2011 - 13:26 | 1244018 LFMayor
LFMayor's picture

you mean it's not "thousands of gallons, much as you want.  Ku chunk, Kuchunk" ?

Thu, 05/05/2011 - 13:42 | 1244069 Mad Max
Mad Max's picture

Uh, no.  :)

And even if it were, "thousands of gallons" is literally one single flight for a jet fighter or attack plane.  ONE SINGLE FLIGHT.  The quantities of fuel used by the military are enormous.  I believe I've read that the US War Department (err excuse me, Department of Defense) is the single largest oil consumer on earth.

Thu, 05/05/2011 - 14:24 | 1244236 j0nx
j0nx's picture

Yeah and that shit needs to stop right the fuck now. Bring ALL soldiers home from around the world now and redeploy them along the Mexican border with orders to shoot to kill anyone that so much as sticks their big toe on our soil. The days of policing the world at our expense are over.

Thu, 05/05/2011 - 13:10 | 1243951 SheepDog-One
SheepDog-One's picture

PBS hack journalist putting forth an idea to help 'The One'. Whatever.

Thu, 05/05/2011 - 13:44 | 1243958 ivana
ivana's picture

Gov reserves are just preparing to BTFD. Obama's PR is using it for some popularity gains.
Oil is ultimate inflation booster weapon and will be used as such - even if it will cause new recession. Or China riots which is more desirable outcome.
Oil is essential part of bankster scenario as always.

Thu, 05/05/2011 - 13:11 | 1243961 American Sucker
American Sucker's picture

In 2005, worldwide oil exports reached 46 million barrels of oil a day.  China and India together imported just over 5 mbpd.  In 2009, worldwide oil exports declined to 43 mbpd.  China and India together imported just over 7 mbpd.  I haven't seen recent numbers, but with Libya down, and oil exporters burning more in their domestic economies, it's safe to say that fewer than 43 mbpd being exported right now.  China and India together are probably importing more.  Higher demand + lower supply = higher prices.

The good news is that oil prices are probably coming down soon.  The bad news, that's because the economy is prepping for another crash.  People without job buy less gas.

Thu, 05/05/2011 - 13:19 | 1243984 MCHedgeHammer
MCHedgeHammer's picture

wanna spook oil?  get bernanke to whisper the word "tighten."

Thu, 05/05/2011 - 13:27 | 1244030 DrunkenMonkey
DrunkenMonkey's picture

Err but the military needs that oil to obtain more oil, although a little bird mentioned that the Libyan incursion was about subterranean water supplies rather than oil.

Thu, 05/05/2011 - 13:36 | 1244061 FreeNewEnergy
FreeNewEnergy's picture

Worst.Article.Ever. Written by a moron, two days too late.

The paradigm shift has begun. Oil down $14 in a week, dollar up today. This is NOT a BTFD moment. This is a GYA grab your assets moment.

CNBC does help on occasion. They were showing a very slow-moving auction of modern art at Christie's and one of the comments was that investors (in art) were holding their valuables and borrowing against them. Best outright deflationary sign I've seen in months.

Nobody's buying, for now, so nobody's selling. Those who are tapped out - 90% of Americans - will be forced to sell AT LOWER PRICES.

Get on the escalator down, boys, the elevator is out of service for now.

Thu, 05/05/2011 - 13:42 | 1244088 Mashuri
Mashuri's picture

+1

 

Another major unwind is underway.  BTFB (if you can call it!)

Thu, 05/05/2011 - 13:47 | 1244103 Peak Everything
Peak Everything's picture

uhh... or he could say that oil supplies and affordability (higher prices and/or lower incomes)  will decline in perpetuity (with some bumps of course) and therefore everyone should start using less now.

That'll really spook them.

 

Thu, 05/05/2011 - 13:49 | 1244110 Greyzone
Greyzone's picture

The SPR does not contain 8 months of oil for the US, no matter how you look at it, except in an extreme war scenario.

Here's the deal - the SPR has about 700 million barrels of oil. The US consumes around 20 million barrels per day (mbpd). If we draw strictly from the SPR, we get about 35 days of oil available. However, the US produces about 8 mbpd so maybe we need to only draw down 12 mbpd to cover imports. That gets us just short of 60 days.

If we are going to draw down the SPR over 8 months, we only get 2.9 mbpd. What good is 2.9mbpd? Well, that's about enough to run the US military and FEMA, period, full stop everything else.

So the initial assumption of this article, that we have reserves of 8 months available, is baloney. Ergo the conclusions are worthless. The only thing going on with oil that matters right now is speculative activity in direct correlation to the crooks at the Fed. If the speculators think Ben will pump, oil's going to rise. If they think he might stop pumping, oil's going to fall. It really is that simple, at least for now, folks.

Thu, 05/05/2011 - 14:23 | 1244247 Mad Max
Mad Max's picture

Also I don't think it's technically possible to draw oil from the SPR at a rate as high as 12mbpd, much less 20mbpd.  The lower figure of 2.9mbpd may be in the ballpark.  Put simply, it's several big caverns of oil, but the straws in/out are only so big.

And FWIW, there won't be much point running FEMA if we don't have oil going to farms and food delivery networks.  And not much more point running the military either if we go any length of time without producing and distributing food.  Cheers.

Thu, 05/05/2011 - 14:41 | 1244318 Urban Redneck
Urban Redneck's picture

To say the article is contrarian is polite.

The way that SPR facts can be manipulated to state that the SPR is an eight-month supply is because while there is a one-month supply of oil in the SPR based on domestic consumption, it would require 6-8 months of "full speed pumping" to extract all the oil from the SPR.

Most OPEC nations do not have any significant domestic oil storage capabilities so there must be available storage capacity in either refineries or tankers, otherwise they are forced to reduce output. 

If the tap on the SPR is opened, some specs may be shaken out of the market.  However, it is just as likely that China would effectively absorb & convert the US SPR outflow volume into SPR inflow volume for its own SPR, and it also would serve as a convenient mechanism to reduce their USD holdings.

To repeat, since there is NO SIGNIFICANT UPSTREAM STORAGE CAPACITY ONCE THE OIL IS PUMPED OUT OF THE GROUND, if the SPR is competing with producers for available storage space to feed refineries- then producer suply is NECESSARILY REDUCED. 

Playing with the SPR is politically equivalent to Barry pulling the pin and shoving an M67 up his ass and "hoping" it's a dud.

There are only two reliable courses for decreasing the nominal price of oil domestically.  The first is to increase DOMESTIC production, the second is to SIGNIFICANTLY STRENGTHEN the USD. 

Thu, 05/05/2011 - 13:55 | 1244127 Dr. Engali
Dr. Engali's picture

Tyler seriously? I can read this crap above the fold on the NYT. Or Yahoo finance.

Thu, 05/05/2011 - 13:58 | 1244135 Lord Peter Pipsqueak
Lord Peter Pipsqueak's picture

Great idea that,sell off the Presidential Strategic Re-election Reserve,only problem is,after the people see through it and Obama is kicked into the annals of history as possibly the most hated President since the formation of the Union,the reserve will have to be replaced - but at what cost! Using Benny's Bucks?Worthless FRN's?By then QE3 will probably be underway and the dollar halved in value,oil price then anyone?

What madcap brainless,headline grabbing,hairbrained scheme will the then president come up with then?Force producers to give their oil away at gunpoint??

 

 

Thu, 05/05/2011 - 14:38 | 1244303 LawsofPhysics
LawsofPhysics's picture

"Force producers to give their oil away at gunpoint??"

 

Err, have you not been paying attention for the last 50+ years.  We do this already.

Thu, 05/05/2011 - 14:17 | 1244207 lieutenantjohnchard
lieutenantjohnchard's picture

according to the fed higher crude is gdp stimulative. remember that one.

now that crude is dropping does that mean it is gdp de-stimulative.

Thu, 05/05/2011 - 15:26 | 1244577 GoingLoonie
GoingLoonie's picture

All that Obama has to do to cut the oil price in half is to annouce that he is bringing our troops home.  Three wars at the same time with logistics lines that extend halfway around the world?  Are we nuts?  There is no peak oil.  This is peak waste.  Wasted lives, wasted oil, wasted money.

Oh, and by the way.  Let me get this straight.  We pay subsidies to big oil to take our very valuable natural reserves of oil out of the ground to ship to the highest bidder anywhere in the world?  What?  These are the resources of the US Citizens.  They should be paying us for the right to drill.  And that cost should include a pro-rata share of all profits-somewhere around the 50% rate.  If the shills out there do not like that idea, then I am for nationalizing big oil.  That will help with the budget problems.

Thu, 05/05/2011 - 15:28 | 1244596 GoingLoonie
GoingLoonie's picture

Maybe that is why oil is falling.  Maybe the decision to end the wars has been made.  A decision that was a promise 3 years ago.

Fri, 05/06/2011 - 01:42 | 1246493 Eric Cartman
Eric Cartman's picture

This entire article is bullshit. 

Fri, 05/06/2011 - 08:45 | 1246914 davidgn
davidgn's picture

I just threw up in my mouth a little.
http://bit.ly/13GTqv

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