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

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

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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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.

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.

Whats that smell's picture


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

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

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.

trav7777's picture

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

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 ;)

Texas Gunslinger's picture

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

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.  

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.

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.

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?


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


LawsofPhysics's picture

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

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.

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.

TruthInSunshine's picture

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

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...

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.

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.

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.

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.

Texas Gunslinger's picture

<comment removed by the administration>

code: 25840







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.

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.

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.

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.

tarsubil's picture

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

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)

drink or die's picture

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

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".

duo's picture

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

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.

Texas Gunslinger's picture

<removed by the administration>

code: 13854

knowless's picture

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

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"

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

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?



SheepDog-One's picture

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

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. 

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?

NOTW777's picture

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

augie's picture

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

AgShaman's picture

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

Id fight Gandhi's picture

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

alexwest's picture

will fix in jiffy..


see oil at 40$ in 1 month

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).

Sudden Debt's picture

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