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Brainstorming on Oil Price Manipulation

Jeffrey Vail, A Theory of Power
There is plenty of conjecture and theorizing about why oil prices are dropping at the moment (currently at $63.75). I’ve certainly engaged in some of it myself. The most popular line seems to be the theory that President Bush is magically pushing down oil prices just in time for the mid-term elections (with the corollary that they’ll shoot up again shortly thereafter).

If you asked me to guess, I would say that this is exactly what is happening–it certainly wouldn’t be a first, after all, considering that Clinton did the same thing by opening the Strategic Petroleum Reserve to drive down prices shortly before the 2000 elections. What bothers me about all of this conjecture is that no one seems to be pointing to details of how this is actually being done.

After all, it’s not like someone–even the President–can just wish the price of a market-traded commodity lower. So my goal here is to engage in a little honest brainstorming about how this could actually be accomplished. Who knows, it may even lead to the discovery of how it IS being accomplished. As far as I am aware, despite all the talk about oil price manipulation prior to the election, none of these theories have yet been publicly articulated:

Theory 1: Political pressure on, an administrative agency–let’s say, just for fun, the Regulatory Commission of Alaska–to drop some cumbersome environmental regulation that is currently keeping a significant amount of oil off the market. For example, approval to skip replacing all the corroded, leaking pipeline from Prudhoe Bay and just build a quick bypass around the broken section, releasing 400,000 barrels of oil back on the market by October. Surprise, BP granted initial approval for bypass.
(12 Sep 2006)
On the other hand, Jerome a Paris says, “There is NO manipulation of gas prices. An explanation (also in Daily Kos).

Volatile Oil Prices a Big Worry’

Tang Li, Arab News
SINGAPORE, 17 September 2006 — Indian Finance Minister Palaniappan Chidambaram called on the International Monetary Fund (IMF) to play a more proactive role in regards to the oil market.

Chidambaram, who is leading the Indian delegation (comprising of Bangladesh, Bhutan, India and Sri Lanka) to the IMF’s Monetary and Financial Committee, was addressing the committee on the global economy.

In his statement to the committee, Chidambaram noted that while the global economic climate was healthy, the global economy faced risk from inflationary pressures, high and volatile oil prices and global trade imbalances. He noted that oil prices were a major concern, especially for developing nations.

Chidambaram told the committee that while rising oil prices had initially pushed up headline inflation, spare capacity and an increase in productivity and stronger corporate balance sheets had helped the global economy sustain inflationary pressures. Major central banks, he said, had been promoted to raise interest rates to keep inflationary pressures in check.

However, Chidambaram questioned how long raising interest rates would be effective in slowing down economic growth and inflation if high oil prices remained high. He noted that, “Higher interest rates in advanced economies had implications for financial markets,” but for emerging markets, they could, “Exacerbate vulnerabilities.”
(17 Sep 2006)

Capacity limits to curb oil price fall

Jamie Freed, Sydney Morning Herald
THE world should get used to oil prices above $US60 a barrel for at least the next two years due to capacity shortages, said Claude Mandil, the executive director of the International Energy Agency.

Speaking from Paris, Mr Mandil told ABC’s Inside Business that increased upstream supplies were not expected until at least 2008 and refining capacity would probably not increase until 2010 or 2011.

“I expect at this time, barring, of course, any unexpected event, we could again see prices which are at a more comfortable level,” he said.

Mr Mandil declined to specify his idea of a “comfortable level” but indicated the $US40 to $US50 a barrel range could be appropriate.
(18 Sep 2006)
ABC transcript of talk with Mandil.

IMF Raises 2007 Oil Price Forecast 20% to $75.50 on Supply Risk

Gavin Evans, Bloomberg
The International Monetary Fund raised its 2007 oil price forecast 20 percent to $75.50 a barrel, citing the risk of cuts in supply from major producers amid rising consumption.
The IMF boosted the forecast for next year from $63 in April. The measure is an average of the expected spot prices for Brent, Dubai and West Texas Intermediate crude oil grades.
“With spare capacity remaining at very low levels, supply concerns have played a growing role in pushing up oil prices,” the IMF said in its World Economic Outlook published today. “A major disruption in a large producer or a further escalation of security concerns in the Middle East could well lead to another upward oil price spike.” ..
Oil options trading last month suggested there was a 10 percent chance that Brent crude oil would exceed $90 a barrel in December this year, the IMF said.
(14 Sept 2006

Get ready for price rationing, oil guru says

David Parkinson, The Globe and Mail
Groppe foresees new oil era of high prices, limited supply, new consumption patterns
Henry Groppe has been tracking the ups and downs of oil through 60 years, 11 U.S. presidents and five full cycles in the commodity. So he knows what he’s talking about when he says that this time, it’s different.

“This is the most interesting time I’ve ever experienced,” he said.

The 80-year-old Texan, who has been an independent consultant on oil and gas markets for longer than most of his competitors have been alive, believes we have seen more than just an overheated oil market over the past couple of years. Rather, he argues it’s the beginning of a new era for oil — one of sustained high prices, limited supplies and tough consumer choices.

“We think this is new territory,” Mr. Groppe said in an interview this week in Toronto. “We call this new era ‘The Era of Price Rationing.’ We think that total world production is levelling out and will be declining, and prices are going to have to be high enough to restrain consumption to match a supply that’s no longer growing.”

What this means is that investors and consumers shouldn’t read too much into the recent 17-per-cent drop in crude prices from their August peaks, a move he dismissed as a typical seasonal dip.

Mr. Groppe, who specializes in long-term analysis (“It’s impossible to make short-term forecasts that have any meaning whatsoever”), predicts average prices for crude for the next 10 years will be $55 (U.S.) to $65. He said the chance of $20, $30 or even $40 oil for any sustained period is “very close to zero.”
(15 Sep 2006)