EXCLUSIVE: OIL – THE REAL MOTIVES BEHIND THE PRICE INCREASES

In this Slog special:

How the numbers on oil supply disruption don’t add up

Why the IEA doesn’t believe them

Why and how oilcos are profiting from the spin

What links Iran, Nigeria, Israel, and Greece in US foreign policy

Why Obama wants to open up the reserves, even though they aren’t needed

The carrot he’d like to offer the oil business to ensure his re-election

An in-depth investigation by The Slog reveals that disruptions in oil supply have been massively hyped – and used as the cover for naked oil company profiteering, US Presidential politics, market speculation, and broader geopolitical aims.

The reason I’ve waited until now before posting anything about the oil ‘shortages’ – and subsequent price hikes –  is that I truly could not get my head round them. It appears as of yesterday that the US, UK, France and Japan are thinking about starting talks to release some of their strategic reserves. Yesterday morning, the FT reported, ‘Industry officials said the four countries were quietly drawing up contingency plans for the release, which could surpass the size of last year’s use of the strategic stocks to offset the shortage triggered by the war in Libya.’ As the FT is wrong about almost everything these days, I decided to dig a little deeper. Having already invested a couple of weeks in the energy subject, it seemed the right time to do it.

Throughout the ‘liberation’ of Gadaffiland, I kept on seeing this statistic telling me that Libya produces just 2% of the world’s oil. So even if Libyan production had stopped dead – which it hasn’t – I figured that, in a global economy not exactly bounding along at the moment, there wasn’t a lot to worry about. To offer a comparison, oil production dropped by about 1 million barrels a day in 2005 when Hurricanes Katrina and Rita forced companies in the Gulf of Mexico to shut down many of their wells. It was a disruption, but not an economic catastrophe. The total output from Libya is roughly 1.6 million a day. At midpoint last year, it was estimated that the world had a surplus of some 4 – 5 million barrels a day.

Hmm. Maria van der Hoeven, the International Energy Association’s (IEA) executive director, claimed only last week, “As no specific supply disruption is currently under way, we are not planning any co-ordinated actions at the present time”.  And earlier this week, Business Week talked about ‘resurgent Libyan oil exports’.

The very latest ‘reason’ being offered for all this panic floating around the MSM is the gas leak in the North Sea’s Elgin platform. But all the price rise malarkey was taking place long before that happened. Late last week, Reuters suggested that, ‘Civil unrest, adverse weather and technical glitches disrupted 1.2 million barrels per day of global oil output in March’. But it added that such a combo was ‘rare if not unique’…and it didn’t, as such, give us a clue about where all this bad weather and glitching had happened.

However, the investment site thisismoney.co.uk recently instanced one example: ‘Disruption of supplies from unstable oil producer Nigeria’. Now this is more like it: 10% of US oil is imported from Nigeria, which is capable of producing over twice as many barrels per day as Libya. But other sources are quick to point out that Nigerian production is set to increase later this year with the sale of new drilling rights.

Another obvious ‘culprit’ is Iran. At 4 million barrels a day capacity, the Tehran regime could produce twice as much again as Nigeria, and has the third biggest reserves in the world. But because of its obsession with developing nuclear power for peaceful purposes (the way you do when you’re sitting on more oil than anyone could ever use) investment in oil machinery updates has lagged behind the search for atom-splitting street lights. Thus, since roughly early 2010, it’s been producing about 2.2 million bbds. And in recent months, that’s dropped a further 300,000 barrels.

Once again, it doesn’t add up, does it? The world has lost 2 million barrels from its fourth biggest oil producer – and nary a peep of pain from the West. Now it loses 300,000 barrels, and immediately the price sky-rockets.

Yet again, the IEA said that it “does not see any significant disruption”. I italicise the word ‘see’ there because I think it is quite significant. It’s in the present tense, and there’s no ‘think’ or ‘maybe’ about it. The IEA is politely saying it doesn’t know WTF the four countries planning to release reserves are on about.

You can sort of see why. Qatar, the world’s biggest producer of liquefied natural gas, increased its capacity to make natural gas to an annual 77 million tons last year with the start of its 14th liquefaction plant. It also opened the world’s largest plant that converts gas into liquid fuels such as diesel and jet fuel. Clearly, all this is unlikely to lead to gas rationing any time soon.

Nor is all this anything to do with fears about reserves. Huge new finds have emerged under the seas that lie between Greece and Israel, and around the coasts of Cyprus. Nigeria alone is known to have 53 billion barrels of reserves, and Chinese engineers talk of a potential 300 billion in total there. Every month now – as world demand makes exploration sensible once more – new fields are being found from the Maltese waters to the Mississippi delta.

Then there is the shale issue. Industry websites estimate that this method of gas production will rise to around 7000 billion cubic feet by 2021, or roughly 12% of the globe’s energy needs. Finally, thisismoney quotes warm weather across Europe, and the EU debt crisis, as further factors already depressing demand. As most Western leaders must have grasped in private by now, demand is not going anywhere northwards over the next two years. Yet some folks are predicting $140 a barrel by mid 2013.

The real motives behind the spin

So what gives? Why all the pressure to release reserves from the major industrialised nations? [Surprise, surprise, excluding Germany - which has massive reserves, and is doing its 'serves you right' display on this issue too]

Speculation is clearly a factor to some degree. Over-zealous trading makes the market more volatile than it would otherwise be. And speculation is definitely on the increase. The simple truth is that, according to the IEA, world oil demand is expected to increase by a mere 1.5% to around 90 million barrels a day in 2012. In reality, the market is already behaving far too capriciously to be based solely on supply and demand: look across the major traders and analysts in the sector, and you will note that almost ubiquitous is the frantic attempt at self-fulfilling prophecy. It’s a bit like looking at the UK’s real estate sites in 2011: total, nonstop bollocks from end to end.

But there are much bigger factors in play behind the scenes. They concern geopolitics, profiteering, and re-election politics.

Geopolitics

The geopolitics of all this is pretty obvious, and not news to anyone who’s awake: we saw late last year how America’s control of the global Dollar transmission system brought Iran close to its knees, and we also saw how peace-loving Islamists in Nigeria blew up a church full of Christians on Christmas Day in Nigeria – as the formal kick-off for a murderous campaign of gentle killing. Some 3,200 Nigerian citizens have since perished – although the newish Government there denies this.

So, one reason why the price of oil is rising concerns the War on Terror, and the closely associated worry about Islamic fundamentalists controlling African oil production. What Nigeria and Iran have in common is Islamist nutters, and unstable government of a population in pretty bad shape. What they also have in common is Chinese technicians just gagging to lend a hand.

I wrote in the summer of 2010 about the inevitable flashpoint we will reach as a species when Beijing meets Allah in Africa. The Chinese already have a serious foothold in southern Africa (spend any time there, and one of the most common sights is Chinese blokes with surveying equipment) and they will soon effectively control South Africa. That the place needs propping up cannot be denied: I learned from S&P yesterday that they’ve downgraded SA debt again, citing  how (my italics) ‘…fundamental structural economic and social problems continue, such as very high unemployment, and a structural current account deficit that makes the economy dependent on external financing….’

The dominant Left Wing of the ANC now more or less accepts that it’s in hock to Beijing. The boss of one of its biggest banks and the biggest gold mining company has long been an enthusiastic traveller to and from China, initiating a two-way technical flow that benefited both countries. The Beijing politburo (itself in some disarray at the minute) sees precisely the same set of bankrupt, unstable politics in Iran and Nigeria. Iran in particular has kicked the West out…and is already heavily dependent on China for foreign currency.

This Friday, President Obama will without doubt sign off a Bill designed to turn the screw more tightly on Iran. He has also, off-stage, been fully briefed about Nigeria’s social problems. Nigerian President Goodluck Jonathan (that is his real name) was elected in 2010 on an anodyne reform programme, since when there has been little or no reform as such. Almost none of Nigeria’s oil wealth is trickling down to the poor folks, and Goodluck made a bad decision earlier this month when he decided to remove the petrol subsidy. Faced down by thousands of demonstrators, demands for his removal and a weeklong general strike paralysed the country. Mr Jonathan quickly gave in, partly restoring the fuel subsidy that — more than an Islamic insurgency in the north or a long-running conflict in the south — seemed to draw citizens onto the streets in rage.
In short, there really is going to be a potential oil shortage later this year or by early 2013. And a White House desire to increase its access to oil, while halting the marches of China and Islam, could very easily exacerbate the supply problems that already exist. All that’s happened thus far is the analysts, markets, hedge funds and sector experts have factored in what will probably happen….and got it kick-started in order to maximise the potential profit stream.  The suckered investors will eventually realise that a Global economy on its arse is not going to need anything like the oil it has already: at which point, the price will plummet.
The Electioneering politics
Barack Obama obviously doesn’t need a US in panic about gas-pump prices. So why is he hyping the whole business by talking about releasing oil reserves? Well, at this point we need to return to November’s Presidential Election.
There are powerful elements in the oil industry who do not like Barack Obama one bit. Again this Friday, Barry hopes to finalise and pass a Bill to remove the oilco tax breaks and subsidies. Even I as a lifelong capitalist would tend to view these subsidies as an outrage when most people under 21 can’t even find a job. But as with things here in Merrie Olde England, Americans are not really “all in this thing together”.  And to be fair – knowing the Obama Administration’s track record on, say, housing market intervention – they’d probably waste all the new money on hare-brained schemes that failed to address the real econo-fiscal problems faced by the US.
The sum of money involved – some $4bn net to the Treasury per annum – is a gnat bite on the bum to the oil business – it makes $200m each and every day. But with prices rising at the pumps, Barry desperately needs to show he is taking action against profiteering: for nothing riles an American voter more than some jumped-up Arab or fat oilco suit denying his eternal right to cheap motoring. What Obama won’t do (because he lacks the necessary cojones) is put forward a game-changing oil-tax bill – because the guys in the big hats would pass it on to John Doe, who in turn would stick it to the Black Dude in the privacy of the ballot booth.
Now the truth is, there is no financial point or logic to the removal of these subsidies: the Obamites are positioning it as the President getting tough with big oil, and the more downmarket Democrat voter base is too insular or thick to question that. The issue has no bearing at all on the pump-price of petrol – but it sounds good. (And, to my mind, it represents good governance over an industry that has been taking the piss for decades).
However, at the same time it enhances a threat to Obama’s re-election.
Oil company profiteering
Estimates suggest that 93% of oilco political contributions go to Republican candidates – added up, it comes to roughly $54m a year: but that doesn’t include the vastly greater amount spent lobbying Congress about tax; and in an election year like this, it doesn’t include the monies invested in getting rid of a bloke you don’t much care for. Just to get him this far in the Primaries, the oil business has contributed in excess of £2m to the Mitt Romney campaign alone.
But these guys are much smarter than that. They have much more subtle ways to help turf out the Black Dude from the White House: and they can make yet more money while doing it.
Read this startling admission from the California Energy Commission:
The Energy Commission cannot estimate profit margins based on average retail prices and observed wholesale market prices. This is because detailed data on refining and distribution costs, costs paid by approximately 10,000 retail locations, hundreds of wholesale marketers, jobbers, and distributors is not available.’
Nice work if you can get it, eh? Basically, the oil barons can hide, fiddle, manipulate and exaggerate the accountancy of all this any which way to suit their needs.
However, the Commission provides handy tables of the bare facts. Drilling down into these, we find out how all that money spent lobbying Congress about tax has kept all taxes on the oil business at 64 cents per retail gallon for some time. Since the end of January, however, the price of crude has risen 25 cents. What the oilcos need to explain to us is why, over the same period, the retail price has increased by 64 cents. What an ironic coincidence that the industry is raking off, in unjustified margin increases, exactly what the IRS takes per gallon….but only 25 cents of that reflect crude increases.
And there’s yet more. A funny little column three in on the best table there shows that, since the start of the year, ‘refining costs and profits’ have leapt from 19 to 54 cents a gallon. Now, fans of GAAP will know that that is just accountancy bollocks: something is either a cost or a contributor…it can’t be both. What we can say is that the oil business has trebled its take on refinery (which it does itself, of course) in 2012 alone…..the re-election year for a man whose fan club they have chosen not to join.
The White House is well aware of what’s going on. Just as Slick Willy once said ‘it’s the economy, stoopid’, it is also a truism that the US doesn’t re-elect Presidents who preside over petrol price hikes.
And this is the real reason why Barry and Dave were so cuddly-snuggly last time they met: because they both have an interest in keeping pump prices down. Cameron has his own additional strike problems, but right now they are friends in need. So too does Sarkozy want to be seen to be tough on petrol prices….he too is in the middle of an election. And with their own special ‘lost decade’ problems, the Japanese need rising oil prices like another Nagasaki.
Angela Merkel has flatly (and smugly) refused to join the Gang of Four. Not only does she have lots of reserves (and some intriguing influence with the Eastern bloc as was) she would also much prefer to deal with Mitt Romney than Barack Obama. Berlin has, as a whole, had more than enough of Obama plots and Geithner demands. She favours a more isolationist America: all the more room for her to be the undisputed Queen of Europe.
Stick and Carrot from Obama
Look at the US/UK MSM spin in recent weeks about unrest, glitches, supply problems and the Iranian threat: then look at the numbers (as I have done in this piece) and you see an immediate mismatch.
Barack Obama and others have hyped a supply disruption in order to be able to solve a problem that doesn’t exist.
On Obama’s home patch, that ‘solution’ will involve unleashing massive barrelage into the US domestic refining process, telling the American people that this must inevitably bring down retail petrol prices….and then daring the oil barons not to fall into line. That barrelage should last just beyond November: it which point, the re-elected President Obama won’t give a tinker’s cuss about oilco profiteering.
Do you think Obama has the power to make this stick? If the bankers screw up again – and more banks start falling over – then a lurch to the Left – by damning Big Business generally – would play very well among the American middle and lower class voter. But me – I doubt it: for a calculating man like the President, that’s far too big a risk.
But supposing alongside the Rooseveltian Big Stick, he dangles a 24-carat carrot right in front of the oil industry’s dollar-dazed eyeballs? You may not realise it yet, but we are right back in Iran….and Israel…and Greece.
The win-double of compliant oilcos and good geopolitics
Israeli Prime Minister Benjamin Netanyahu left Washington earlier this month well satisified with Barack Obama’s attitude and assurances. Since that time, several senior members of the US Administration have hinted that an American-led ‘solution’ to the Iranian problem would be vastly preferable to an Israeli one. There has also been much gobblydegook on both sides of the Atlantic about how the Tehran regime “represents a threat to global recovery by restricting oil output”. Again, the recent history and the facts associated with it simply do not bear that assertion out.
But Netanyahu and Israel also discussed the enormous mineral and energy wealth the Israelis have found in their own waters, stretching across to Greece and further still to Cyprus. Greece, Israel and Cyprus have already issued an accord about joint prospecting – albeit it vague and not as yet formally signed. And as we saw with the ‘amputate Greece’ plan, Obama wants friendly folks owning the Med’s undersea oil: folks he can influence by bankrolling the exploration. Further, the Americans have eyed Greece as a perfect military base from which to face off China, Russia and Islamism at the eastern end of southern Europe. Hence the desire to befriend a Greece which finds itself somewhat isolated.
However, the final ace up the White House sleeve is this: ensuring profitable oil concessions for the oilcos in a defeated/neutralised Iran and/or Nigeria – and with new best friends (like a eurozone-ejected Greece) in the Mediterranean.
As so often, it takes a long time to get to what’s really at stake in today’s 24/7 news events mania. But the bottom line on rising petrol prices is, I would suggest, very roughly 50% oilco profiteering from a groundless scare, 20% market speculation, and 30% politics. Plus ca change.
This essay was put together with the help of industry sources, Slog readers, media folk and political insiders in the US, UK, eurozone and Africa. My sincere appreciation of their efforts goes to all those concerned.

75 thoughts on “EXCLUSIVE: OIL – THE REAL MOTIVES BEHIND THE PRICE INCREASES

  1. Ah,capitalism,don’t you love it?General strike in Spain,and we are still in March.Double dip,here we come,no hurry to fill up your oil tank,yet.As Roop’s empire implodes at the speed of the Euro,keep a beady eye on the BSkyB share price,which is beginning to offer real value,which is more than you can say for the cover price of the NI’s offerings.

  2. John,I told you about the 12 drilling spots in Greece.And it’s not only Greece.If something is making the world go round is Oil not money as money comes after the oil drilling.
    Unfortunately and even though i am risking my neck here,i don’t think anybody’s paying attention.
    Iran had interests in the Burgas -Greece pipeline.
    There’s more than oil like natural gas.
    Take care because your research is risky mate.

  3. The more likely scenario is that the oil companies have decided The Won must go and will ratchet up prices between now and election day. They know a liar and cheat when the see one and cannot trust anything he might promise.

    America’s oil reserve has less than 90-days supply. It’s not enough to really influence price and won’t last long enough till the election. If The Won releases more than a tiny bit of the reserve, the American voter will be angry, not pleased.

    Then again, The Won is incompetent to the core and just might try to release every drop in the reserve. That will only show how incompetent he is.

  4. You are all letting your dislike of Obama get the better of you. In the last 80 years only 3 sitting Presidents have failed to be re-elected. The first was Ford – a he was an ersat, unelected president who just failed to be elected in his own right – the other were Carter and Bush senior. In both of these cases it took a significant thrird party candidate( Anderson with 10 percent of the votes in 1980 and Perot with 18 percent in 1992) to upset the balance and sent the sitting Prez home. That is not on the cards this year.

    On top of that you have to take into account the rapid browning of America (over 50 percent of first grade classes nationally are now nonwhite). These new voters are not going to vote for some bonkers plutocrat with an offbeat religion. Neither are the Occupy group or the university educated classes. It will be tight on the electoral college but I don’t see Obama losing.

    • You’re assumnig the Occupy group is something other than a Potempkin village. You’re also assuming the university educated classes will be coming out to vote in numbers again for The Won. They did so in 2008 to be part of an historic event and have been sorely disappointed and are now sorely dispirited. They’ll be sitting this one out. (Hence the White House efforts to gin up some sort of racial outrage in an incompetent attempt to recapture the “historic” motivation to vote.)

      The “brown” America includes a now-largest minority hispanic block that can’t be too pleased with the latest “racial incident” in Florida and The Won going along with tarring and feathering an hispanic male in a state with one of the largest hispanic populations in America.

      We are led by a deeply confused and deeply incompetent man who will be flailying about incompently in the coming months. America won’t re-elect a loser. We have at least a bit of self-esteem left.

      • I hear what you say Paladin…but I think OAH’s assessment is right on the money. I’d be amazed if Obamarama wasn’t re-elected despite his obvious shortcomings.

      • I have never questioned his competency or lack thereof for the Presidency and hence have not been disappointed. He never managed anything greater than a senate office before the White House. I don’t disagree with much you say but, at the end of the day, you weigh the votes, taking into account the Electoral College uncertainties and my money is till on bhim getting through. Time will tell.

      • OAH, Back to my main point…the oil companies, if THEY are competent, will ensure the price of gasoline rises incrementally in the coming five to six months toward $5 to $6 per gallon to undermine his re-election.

        Americans might possibly abide an incompetent, but they will not abide paying increasing amounts for gasoline. The Won will fight back by trying to trash the oil companies, which might work, but then the average American will ask themselves, “Well, Mr. Obama, isn’t that why we elected you in the first place, to protect us from predators, and now you’ve failed one more time and my gasoline is costing me more and more each month.” He’ll lose all 50 states (or all 57 if you prefer).

    • @ oldasiahand

      I for one hope you’ve called it accurately. The GOP have been working like devils, as usual, to deny access to voting in the crucial ‘battleground states’ of the electoral college. Maybe I should have turned off the MSM TV last two nights –if I’m not careful those nitwits will influence me. SCOTUS on the health care package has certainly been set up to deliver maximum embarrassment. Who knows though? If they rule against it at the end of June or so as the MSM is ‘pre-ordaining’ for us slobs, that could yet be turned to advantage Obama.

      This will be my first time watching JW cover a US presidential campaign, and if this is him in mere warm-up mode then it should be quite something to see!

    • Oldasiahand, I take my hat off to you. No matter what the topic to hand, you always, ALWAYS, seem to be able to back up your point with a landslide of stats.

      Bula-bus! (“Applause”, as Gaeilge)

  5. You wrote:
    “Speculation is clearly a factor to some degree. Over-zealous trading makes the market more volatile than it would otherwise be.”
    I enjoy your blog every day, many thanks for your efforts. But here you are dead wrong.
    Why?
    First of all, as a market maker for many years I see the complete opposite effect every day. The higher the amount of speculation in an asset or security, the lesser volatile it gets. The highest volatile ones are those with the least market participants. And this is logical from every point of view. The (long) speculators usually buy when supply is high and the price is low. Their buy orders prevent the market from from further price drops. When they sell in times with high demand, they prevent the market prices from further rises. Speculators are helping to get the markets less volatile. There’s nothing evil about it. The real problem is the FIAT-money-system, which is a different story. Speculators should invest sound money instead.
    (Austrian) regards
    McSurfy

    • McSurfy
      By ‘volatile’, I suppose what I really mean is shifts upwards in price that don’t reflect either increased demand or disrupted supply. They just involve jerks trying to make money.

  6. I don’t understand how you can discuss the price of oil or geopolitics without discussing the dollar at any stage. In a distressingly rambling piece, I was left struggling to identify quite what the real point was, or exactly how you got there from whatever evidence it was based on.

    • Timothy
      I’ve discussed the dollar on this site until me and the readers are up to here with it.
      I’m sorry you didn’t get the point, which for Sun readers is that: oil industry PRs put out bollocks about supply disruption, which speculators then use to buy oil (so it looks like there really IS a suply disruption) which then gives the oilcos a golden opportunity to rip off the American motorist by adding roughly 50c to the ‘real’ price.
      There’s another site run by a Mr Fawkes where all the stories are very simple and always about MPs that are corrupt. Perhaps you’d be happier over there, rather than being distressed by rambles over here.

  7. 1. There a lot of dollars sloshing around the world affecting the price of all commodity’s
    2. Green”s vs Big Oil ……..Obama sided with the greens on the Keystone pipeline enraging Big Oil, they will do everything they can to get him out of office.
    3. Actually capitalism still sort of works (the populous comments in this blog to the contrary) if you owned oil stocks you could hedge the price you pay at the pump with your dividend check.

    • Bill
      I love it: capitalism still works because stock holders can recoup their illegal losses on gas with dividend cheques from the oilco.
      Yup, that sounds like blue collar America to me. Somehow, I doubt if many folks in Detroit do that kind of investing.

  8. Nice piece John.
    At the moment there is no shortage of crude in the world. A release of the SPR would probably lower prices by $5bbl or so for no more than 10days, and would be purely political.
    A complete surrender by Iran on the nuclear issue (improbable and in any case TPTB would never let us know/believe it) would on the other hand drop prices by at least $10 initially and would almost certainly reverse the forward curve …. just until TPTB found the next excuse for warmongering of course.

    What is important to remember is that there are 6billion consumers in this world and only, what, a few hundred thousand oil wells. Therefore supply is far easier to disrupt than demand and any “unexpected” occurrence has a 9 in 10 chance of disrupting supply rather than demand. In general demand is only disrupted when prices are high enough to cause “demand erosion” … this is beginning to show its head by the way.
    The oil market knows this and therefore both elements are “priced in”. What changes daily is the ratio between “war risk” and “demand erosion”.
    Technically the Brent 1st contract has been over bought for the last couple of weeks but it is moving sideways. It cannot break and hold the falling resistance from the 2008 high through Feb`12 – each upside break has been immediately followed by a sell-off – but at the same time it cannot fall because of the war mongering.

    That the crude price is too high is ably demonstrated by the fact that, whilst petrol prices are approaching, or are already at, all time highs, and demand erosion is beginning to appear, refineries are cutting runs or even shutting down all together because they cannot make money. Logically if people are not buying your “unique product” (i.e. no alternative available) because the price is too high then either your manufacturing process is too expensive or your raw material costs are too expensive.

    A further reason for crude`s high pricing is the availability of “cheap” money – if your a bank of course – and the liquidity of the oil markets.

    In short John, you are right, it is not speculators that are keeping the price too high at the moment, it is TPTB that want it there and so that is where it is, no matter how much it hurts us or how much damage is does to the economy , (I don`t differentiate between the industrial/oil companies and governments – they are all part of the same bunch).
    As an aside, watch the MSM (I include Reuters and Bloomberg in that) and see the plethora of comments, articles and even headlines with a “bullish” tone that appear as soon as crude starts dropping.

  9. Only Two million for Mitt!

    Lots of interesting stuff here, but the dots you are joining at the moment don’t make much off a picture. Though it is reported that USS Star Trek passed through the Suez this morning.

    No mention also that the US energy profile is now heavily titled towards the Homeland (round of applause for GWB and his Successor in carrying on the good work) I only the Mad Men of the Euro and our own part timers put in the hours.

    We shall see, also an Iranian friend of mine once told me that Tehran and the surrounds because of its climate and geography can only be attacked in the summer.

    My money and I would be a joint Saudi-US mission sometime in Sept. Remember that Americans are a lot like Israelis they put aside partisan ship when it comes to defence. Would not that be a think Barry the warmonger, the lefties would obviously be right behind him.

  10. “In order to be able to solve a problem that doesn’t exist.”
    Isn’t this the normal way of Government?
    It’s been using this tool for a while now.

  11. John, several comments on oil…
    one of the issues with discovering new oil reservoirs is that many people assume they can be switched on like a tap inside 1-2 months. It isn’t so. Recall the bell curve of oil supply because it’s very relevant. Another issue is that people tend to ignore what’s happening to existing wells. The result is that they see a growing supply of oil that exceeds rising demand. Again, it isn’t so. Haven’t seen latest figures but since ~1995 the number of wells running out of easy oil exceeded new finds, but it’s only the new finds that get on TV News. Meaning that remaining wells become more costly to harvest because the remaining oil is like tar and many of the new ones are expensive to find and take time to harvest. The apparent oil in the Greek seas is one example: it hasn’t even been found or confirmed yet but some people are already including it in global reserves at 40 billion barrels or whatever. That’s plain daft. And we cannot ignore reports of the world’s largest oil lake: Ghawar in Saudi – it is reported to have a water cut of well over 55%, meaning that the easy oil is gone and growing amounts of water under pressure is required to harvest what’s left. That means it’s getting more expensive.

    I recommend anybody who’s interested in peak oil to do some swotting up at http://peakoil.com/ and elsewhere to really understand what it’s about.

    Another likely factor in rising oil prices is that IF Israel and/or the US decide to turn Iran into glass, there will be serious disruption to western oil supplies from that region…whatever the political elites say. Obamarama is possibly planning to release US strategic oil stocks in preparation of such an event. Ditto UK/France. If not, the price of oil could go through the roof and bring the global economy to a shuddering halt.

    • @BT … releasing the SPR will not do really do anything to prices if the straits of Hormuz are closed.
      Talk of the release is being used to hold the price roughly where it is and to counter the “warmongering” neocons/israelis.
      If we attack Iran crude will rise $20-30 with or without SPR release
      How long it stays there depends on the result of the attack, a couple of days if everything works out well …. longer if it doesn`t. Eventually it will ease back down again as price driven demand erosion arrives.

      Talk of SPR plus a few other awful economic indicators/Chinese hard landing may be enough to drop Brent front month to $114ish – maybe as low as $110 – basically the “shoulder” on the daily continuous chart.
      To get any lower we need serious “demand erosion” which means a serious economic jolt somewhere.

      • @mountainman: No problem with what you say, except I don’t think Hormuz will ever get closed despite Iranian threats, unless by serious US miscalculation or cock-up. That is one reason they have three carrier groups, mine sweepers and a lot of other heavy metal in the Gulf…USS Enterprise arrives there today or very soon.

      • MM: “To get any lower we need serious “demand erosion” which means a serious economic jolt somewhere.”

        It’s coming.

    • @BT;
      This would be my take on affairs, I did a little research some months ago and took the opinion that the oil is getting harder to mine and also more expensive to do so, hence, a price rise is needed to pay for new wells to come on-stream. All would like to see oil at say, $50 pb but, that would in my opinion make things much much worse, what it would appear is really needed is oil at about $125-135 + pb to pay for the ever increasing costs of production.

      • @kfc: Indeed. Given the extra pollution that the new oil finds often create (oil from shale, tar sands etc) what would be even better is for the West to get off oil altogether, at least for motor cars.
        A lot of work is being done on alternative energies but IMHO not enough.
        Five years ago I recall saying that America needs to lead a global 10 year programme to replace oil for major uses. Summat akin to the “Man on the moon in 10 years”. Sadly, Obama hasn’t driven this forward too fast.

        I dream that by 2020 all new cars are powered by alt energies (probably mostly electric batteries) but look and feel like the cars we have today. The cars we have today powered by electric are getting better but not yet ready for prime time. Let’s see………..

    • Here are some very interesting charts showing the yearly oil production of some of the biggest producing countries, along with the price of oil. The point of the article is to show that, unlike what the “market will solve everything” types say, rising prices can’t bring new, harder-to-reach oil sources online in sufficient quantities to compensate for the drying up of easy-access wells.

      The article is in Swedish, but the charts speak for themselves.
      http://cornucopia.cornubot.se/2012/03/peak-oil-101-for-moderated.html

      • @Börjesson: Thanks, I agree with your explanation of that article. It’d be nice to see an English language version of it. My take is that we are seeing a steadily rising oil price due to supply becoming increasingly constrained and new finds are more expensive to find & harvest.

        The acid test will come when & if the West ever comes out of this depression and shows economic growth. At that point I expect to see oil prices begin to rise again as demand matches supply. That in turn will constrain economic recovery and a new cycle of growth/recesssion will occur. During the period since 2007-8, the political classes have been able to ignore the oil situation as demand has fallen off and the price has fallen from its highs. They won’t be able to ignore it when economies show signs of recovery.

    • Mountainous person
      Thanks for that, it makes a number of valid points.
      The one point it still doesn’t answer is why, when the market loses 2m barrels in economic growth times the price hardly shifts; but when it loses 300K barrels in a time of gearstick in neutral, the price goes crazy.
      That’s manipulation, pure and simple.

    • BT
      I don’t dispute that reserves take time to come onstream. On the other hand, if the oil bizz had given fewer dividends and drilled more wells after 1980, they wouldn’t be able to claim disruption now. I think it highly unlikely that this thought didn’t occur to them along the way.
      Nor do I dispute that serious disruption would follow any of these foreign policy actions. I just don’t think there’s a problem now – and the figures support me.
      Several people have mentioned peak oil. I can’t make my mind up whether it’s just very complex or complete bollocks.

      • I don’t think P/O is bollix, because oil is certainly a finite resource and peak supply must be reached at a point in time. And oil supply is certainly quite complex. The supply bell curve is relevant, although many people think the top of the bell is a pointy head (up one side and down the other) whereas it’s actually a flat bumpy surface which we travel across before we go down the other side. Further, as the price rises, it becomes viable to harvest reservoirs which were already known about (or suspected) but too expensive to harvest at the prevailing price level. Add to that, new technologies which allow higher rates of extraction from existing wells and you get a moving picture.
        The oil price at the peak of the credit bubble was a strong indication that demand was matching supply at that time. But demand’s now fallen off a bit which has caused a fall in price from its peak but nowhere near to its earlier levels. I’m sure if/when global growth recovers and demand rises, prices will start rising again, taking us into the cycle of growth/recession/growth/recession until we finally get off oil or our economies collapse due to political elites being in denial. Several inputs to this are: major M/E suppliers cannot be believed about their claimed reserves due to events in the 80s (and Saudi deny the state of Ghawar) and new finds do not replace the wells that are peaking despite all the MSM hype. Other sources of oil, shale & tar sands are very polluting. Fracking too.

        My personal view is that we are travelling across the top of the bell.

        Within all of that, I am also sure that the oil price is manipulated by speculators, oilcos and even government.

        The Left find this whole subject far too complex for their tiny minds to understand and limit themselves to whining about pollution, hence the Ed Miliband windmill brigade. The man’s a complete fool. They simply cannot understand that cheap energy was a main driver of the industrial revolution and it remains the lifeblood of our economic system. Without it we will be back in the stone age. R&D to find new, cheap, green energies is vital for the future and will solve all the issues raised by Friends of The Earth and all their other pals on the Left. But I suspect that many on the Left have another agenda: to drive down economic wealth and prosperity which will give them a huge rise in power and control over us by way of survival dependency on the Big State.

  12. Strange; Germany has no oil supermajor and stays on the sidelines, for the moment. Oh, no, a ‘friendly’ bid for Total would do nicely to cement Franco-German friendship. Only dreaming…

  13. http://www.hydrocarbons-technology.com/projects/trans-balkan-pipelin/

    This plan was supposed to be continued all over Europe.All of the sudden- after the Georgia war- was abandoned even though it was based on a rich-sources plan and schematic.Even though billions of USD had been spent on this programm.All of the sudden a “war” bursts” out of the blue and the entire plan goes like 10 years behind.All the surrounding countries are facing financial issues in a range of 3 years. While OPEC keeps it silent as the crude oil goes up worldwide.Iran & Iraq doesn’t exist just as “threats” YPF is the the MS representative in South America drilling the 20% of oil,( MS= Microsoft) South America takes hold of all exportation(not on Feta cheese) Hugo Chaves is the USA threat.
    What else!!!!Pure equation!
    p.s.Chaves has no real connection with the rest of S.A. mostly with the EZ pure economics

  14. Pingback: John Ward – Exclusive : Oil – The Real Motive Behind The Price Increases – Special Report – 29 March 2012 | Lucas 2012 Infos

  15. Some of these comments are just overanalysed tosh.

    One reason for the high price, speculation and the need to make a quick buck.

    Oil consumption has fallen off a cliff and will continue to fall. Did you not read the memo?

    • Tronnis
      It all depends whether you mean the memo my Chairman wrote to me the day I decided to call it quits at the agency, or the one from Putin telling me exclusively he was keen to shag Merkel and Schauble in a menage a trois.
      Just say what you mean: cryptic is only clever in crosswords.

      • Ok, fair point. We are kind enough supply the banks with tons of cash, they return the favour by sending commodity prices sky bound.

        Call it what you like, but capitalism it ain’t…

  16. I think you’ve missed the main reason why oil is going up in price. Quantitative Easing? All that magic money looking for a home. With QE 3 round the corner I can see food and oil prices continuing their rise. If I had a can big enough I’d be stocking up.

  17. Here in the UK and Europe an oil cracking company goes bust ,PetrolPlus,whose assets are being snapped up by Putin backed companies out of Switzerland.In the meantime,there is a rolling schedule of cracking plant “slow run”due to reduced demand.In the USA,a number of cracking plants are closed or shut down one day a week across the country,so much for a roaring economy,this may be the reason cracking prices have escalated.Actual demand for gas/petrol is down across the west and also down in China-oops!

  18. Haven’t had time to read all of this and comments John.
    But did anyone mention USA oil security?
    It in the US interest to have oil at over $125 a barrel. [Of course don't tell the US public this.] But at $125 a barrel [rather than $75] there are HUGE reserves of US oil, gas and shale based petroleum. This applies to the rest of the world of course. But at that sort of price the USA would be self-sufficient for the next 25-55 years or so minimum. And that strategic self-sufficiency is what drives much of US forward thinking – from military to White House I think.

    • Dunc
      Right on the money – this is my view too: US oil security, oilco profiteering, and Barry’s re-election campaign.
      Quite amusing on one thread to be told I’m wrong because Oba can’t lose, and wrong because he can’t win.

  19. So it’s “bend over” at the pump for a while yet.

    Also it seems Big Dave & chums are suggesting panic buying today to prevent the threat of panic buying in a week. They must have received a bad “package” at the last Cobra meeting/party

  20. Pingback: Slog Exclusive: Oil - The Real Motives Behind the Price Increases

  21. Just think about it…
    When USA and UK are self sufficient in Oil and Gas from the new Fracking technology…….
    China, and any other wannabe competitive economies will still be at the mercy of the traditional fuel sources. All USA has to do is stir up a bit of trouble in the region, and oh dear the price goes ever higher…haha hahaha…what a shame.

    • Hagtroll
      Yes, very true. Good point.
      Do yourself a favour and change your name: half the world’s sites will spam you out on the basis of it.

  22. This is OT but relates to hacking et al: On Channel 4 News tonight:

    Private investigators used police to destroy intelligence records
    Tonight, a startling exclusive: our home affairs correspondent Andy
    Davies has had a sighting of a confidential report from the Serious
    Organised Crime Agency (SOCA). In essence it describes how organised
    crime used private investigators to access the police national computer.
    For non-security cleared personnel to access this computer is an
    impossibility. The report implies that access was gained through corrupt
    relationships with personnel who did have access, such as police
    officers. Ever since 1998, there have been repeated calls from all
    branches of the security services for private investigators to be
    regulated. We already knew that some of these people had accessed the
    private telephone calls and emails of public figures and Lord Justice
    Leveson is looking at this. But Leveson has no remit to pursue tonight’s
    line of enquiry. For, having seen this report, we now know that
    organised crime penetrated the very deepest portals of the police
    national computer. The question tonight is why successive governments
    have never regulated private security in this country. And why this
    report appears never to have been shown beyond the confines of the
    ministerial teams at the home office.

      • On Youtube their is a video of a cop shooting a trapped dog. On the news a while ago a cop beat attacked an elderly man. In the Uk riots one man was beaten to a coma-like-state.

        The police are corrupt, either trying to save their own hides or too dumbed down to care for anything other than money

      • Ho-ho! It certainly confirms suspicions that hacking and related corruption goes far wider and deeper than we’ve been led to believe by the authorities and MSM.
        I found it mildly interesting that C4 News thought the biggest concern of this new revelation is whether private investigators should be regulated. For me, the corruption in the Met Police is far more important. It’s getting to the point where Met Police claims of “1-2 rotten apples” is no longer tenable. It’s as though the Met has a secret price list. And it hasn’t escaped my notice that corruption took off during the years of Labour Govt. Imagine that!

  23. Cameron created this current fuel panic, his cohorts joined in aided by the media – to fill the exchequer coffers up.

    Cameron is a PR control freak, at whose knee did he do his early learning- He is young and looks for adventure and excitement and I think he gets bored very quickly, that’s why he can’t settle at his desk.

    He also could be as clever as a barrel full of monkeys, and is skilled at distraction techniques.

    Something fishy must be going on, this is all steady groundwork- the Easter break , trouble in Europe, Oil refineries going down in the USA, politics and Obama , trouble there,.

    What don’t we know that we should know?

  24. It’s all terribly simple. The world needs expensive oil. Expensive oil is the kick necessary to get innovation moving. Fracking for shale gas and mining oil sands are not going to work for the simple reason that the pollution they give rise to contaminates food supplies. They will be stamped on in due course.

    But the problem is that there is no supply crisis to really ramp prices, and when there is on it will be too late and the shit will be hitting the fan. Hence the engineering.

    I spent my working life in the oil industry, mostly in refining and trading. I know whence I speak. Your observations are fine, but your analysis is limited.

  25. Quite a feast. You’ve had me consulting archives of the days of 1975 when Kissinger was said to have written a famous article in Harper’s under a pseudonym, concerning oil. What a perspective, to read that again. Whew!

  26. Just going to say one of my views why this is happening;
    The country is in a recession, support for the government is low, they have alienated the very people they are supposed to be working for, the general public.

    After the riots in London the Uk government has released that the general public need to be kept occupied. Since that we have had; Water shortages mentioned, increased levels of crime reported and now this fuel issue clearly the same panic as caused by the Swine-flu problem.

    The main situation here is, the government is loosing control, they`re normal methods of control – money, position in power – mean nothing any longer so they are finding alternatives.

  27. JW: Towards the end of this most interesting piece you said the following:

    “…..the Americans have eyed Greece as a perfect military base from which to face off China, Russia and Islamism at the eastern end of southern Europe. Hence the desire to befriend a Greece which finds itself somewhat isolated.”

    Is this statement based on what you think is the Americans position or what you know is the Americans position? If it’s the latter, can you show me what has illustrated this fact to you in such concrete terms?

  28. Matt: ” In the Uk riots one man was beaten to a coma-like-state.”

    Matt, the fact that it was just one man illustrates how restrained the Police were.

    • I agree, more to the point, doing so would have made the various issues clearer. In John’s defence, this was a pet project and seeing it from a perspective is hard when it is your own creation. Add that there is small mention in the MSM that he could measure it against.

  29. JW,

    A few thoughts re: oil
    In the early 80’s Aramco was a large client of mine and oil was $15/ barrel the cost of extraction was estimated by management at under $1/ barrel, the difference being o/profit’!

    Saudi is currently pumping 10 M/ barrels a day. Currently S/Arabia are getting paid in depreciating Dollars.

    Surely it is in their interests to maintain a high price for their oil and balance their receipts to their needs for Dollars and no more, as CB’s are pumping ever more fiat money into their economies making real assets such as oil ever more ‘safe havens’ for money?

    Also is there not an oil refinery capacity problem worldwide?

    Furthermore not all oil is equal in quality.

    Lastly last year there was an early months of year price ramp then a slump possibly the same pattern will repeat this year especially if China, India, US and Europe continue to stagnate.

  30. Just clear the point on the Obama call for higher taxes on the large oil companies, it should be noted that they are taxed in the same way as all other US companies. The outrage, according to Obama, is that the large oil companies are profitable. Banks and financial institutions will not be paying income taxes for years as a result of the loss carry forewards from loan writeoffs. Same with the auto sector. When the ravenous government monster must be fed, Obama has adopted the Hugo Chavez approach of pillaging the only sector actually generating income. Chavez was simply more direct in actually taking it all, without compensation. One of our talking head news commentators even suggested that it was ludicrous to allow the companies to expense the costs of dry hole exploratory wells. There are a couple of areas of favorable tax treatment for SOME relatively small producers, being those with less than 1,000 boe per day of production. The Obama speeches are much in the style of every politician who must redirect the public blame or outrage from their own failed policies toward another target.

  31. Pingback: GREECE EXCLUSIVE: BRUSSELS & BERLIN FEAR ANTI-TROIKA MAJORITY IN MAY 6TH ELECTIONS | A diary of deception and distortion

  32. Pingback: GREEK AEGEAN BONANZA: New study confirms potential Greek wealth | A diary of deception and distortion

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