Winners and Losers

Bruce Krasting's picture

I loved this story. Some poor bastard over at Chevron
accidentally released the company’s crude/distillate trading results for
the year. An effort was made by the company to squash the information.
Dow-Jones said, "the hell with that" and went public with the info.

Not surprisingly, Chevron is doing just fine in its oil trading business. They show year to date gains of a very tidy 360 million. I find it amusing that they are making such a bundle. The President said a month or so ago that he was going after the speculators
who he thinks are driving up the cost of energy. Look no further Mr.
President. It’s the oil companies that are driving up prices and making a
bundle in the process, not some ‘locals” who trade crude futures in NY.

Speaking of making a bundle in oil trading it’s worth taking another look at the SPR oil sales that Obama ordered to “reduce the price at the pump”. This chart looks at LLS (Louisiana Light Sweet) for the past month.

Note that as of Friday’s close of $116.49 we are now above the level for
pricing before the SPR sales (June 22). Therefore one would have to
conclude that nothing of lasting value was accomplished by the effort to
manipulate markets.

The government sold off 30 million barrels to the LLS market at the very
favorable price of 107.20. Comparing that to Friday’s close gets a loss
to the SPR of $280mm. Keep in mind that it only took a few weeks to get
these gains, so the folks who played in the deal made a bundle.

Given that sweet crude is now above where it was on June 22 we have to
anticipate that the deep thinkers in D.C. may well try another round of
oil sales. If they do, it will have the same results. Big Oil
will make a bundle, gas prices will not go down at the pump and the
‘owners’ of the SPR (all Americans) will get ripped off again.

There is the possibility that the bright folks who dream up these
silly plans will come to their senses. They might just do the ‘right thing’ and preserve the SPR for what it was supposed to be for in the first place; an emergency. I doubt that will be the case. Gas prices are going to be going up in the next few weeks. Given that the ‘Deciders’ have absolutely no other options (monetary and fiscal policy is now dead in the water) they may well take the step to manipulate energy prices again. It won’t work the next time either.

There is no way to determine how much money was made by the principals
who bought the SPR oil. We know what price they paid and we know how
much oil each company got. We don’t know when/if they sold it. On the
assumption that the inventory profits were all retained, the paper gains
would look like this:

What’s $280 million amongst ‘friends’? By they way, they don’t pay taxes on this crap either.

At some point someone in D.C. is going to defend the decision to sell crude reserves from the SPR. I can’t wait. This effort to manipulate the economy produced no meaningful results, other than to make some fat cats fatter.