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Politics and Economics
Record Oil Company Profits and High Gas Prices: A Connection?
Super G, The Oil Drum
There’s been some grumbling in the media about how Big Oil is gouging the public by charging record prices for gas while they reap record profits.
…No one can dispute that oil companies are doing really well. And certainly no one can dispute that gas prices are high. But is the connection as straightforward as the article suggests? If the oil companies were less greedy, would we see lower prices as the pump?
(6 September 2005)
Pumping Us Dry
Katrina tragedy is an absolutely perfect storm for oil companies
James Ridgeway, Village Voice
The very first thing George W. Bush did in response to Hurricane Katrina was to offer a helping hand—not to the people stranded on rooftops in New Orleans, but to his friends in the oil industry. These were the same people who gave him $52 million in his last campaign. The president released millions of barrels of oil from the Strategic Petroleum Reserve so the oil companies would have enough fuel to make gas and keep the country going. But the companies don’t need this oil. They’re already swimming in it.
Pouring more oil into the marketplace didn’t reduce gasoline prices, which kept on going up, hitting $4 a gallon in some places.
While crude oil production doubtless was curtailed by the storm, the companies face a surplus, not a shortage, of crude oil. So why dump more on the market?
“Despite growing inventories, U.S. commercial crude oil inventories (excluding the Strategic Petroleum Reserve) increased by nearly 5 million barrels over the past 3 weeks,” wrote the federal Energy Information Administration. Continuing in the clipped industry jargon, the agency added, “While this may not appear to be a substantial build, it comes at a time when crude oil inventories typically decline, as refiners use more crude to make gasoline needed for current demand and heating oil as they stock up for the winter.”
(2 September 2005)
For a contrary view see previous piece, Record Oil Company Profits and High Gas Prices: A Connection? at The Oil Drum.
Iraq: Petrol rationing in a country awash with oil
Oliver Poole, Telegraph (UK)
Drivers in Baghdad, the capital of a country with the world’s third largest oil reserves, can now use their cars only on alternate days because of the continuing petrol shortages.
Under a new government directive that has left residents furious and traffic police complaining that the plan is unenforceable, cars with odd numbers at the end of their registration plate will be allowed on the roads one day and those with even numbers the next.
The order was issued on Sunday and comes into effect today, although it is uncertain how widespread its implementation will be.
The Department of Traffic Police said it learnt of the ruling only when it was reported on the evening news and still had no idea how its overstretched and under-resourced force would be able to put it into practice.
Along with electricity cuts and lack of fresh water, petrol shortages have been one of the main problems affecting ordinary people across Iraq since the fall of Saddam Hussein’s regime more than two years ago.
(6 September 2005)
The search for solutions to Africa’s energy problem
Bamuturaki Musinguzi, The Monitor (Kampala) via allAfrica.com
Germany has been behind the formation of the Forum for Energy Ministers of Africa (FEMA). Mr Holger Liptow, the GTZ Director of Energizing Africa and Climate Change Projects, attended the inauguration of FEMA in Entebbe, Uganda recently. He talked to Bamuturaki Musinguzi:
Q: What has been the cause of the low level coverage and access of modern energy in Africa?
A: think its because many Africans have very little income which will not allow them to have access to modern energy.
The projects that have started over the past several years have altogether not properly reached the people so that they are in a position to take up modern energy.
Knowing that the poor may spend up to half of their little income on energy is already an indication that they are spending too much and more advanced stoves for example would allow to spend less if they are in peri-urban areas. All this needs to be strongly supported unlike what we have seen in the past.
(5 September 2005)
Canadians favour nationalizing gas
Nelson Wyatt, Canadian Press
MONTREAL — Almost half of Canadians wanted to see petroleum resources and oil companies nationalized as fuel prices hit record levels, a new poll suggests.
The Leger Marketing telephone survey of 1,500 people was conducted between Aug. 24 and Aug. 31, the bulk being done before the devastating effects of hurricane Katrina were felt.
Gasoline prices have jumped around 25 cents a litre since the storm that battered the U.S. Gulf Coast.
(6 September 2005)
EU says high oil prices and nuclear power to stay
Andrew Rettman, Eurobserver
STRASBOURG – Brussels predicts that oil prices will stay high in the foreseeable future and that the EU will need to build more nuclear reactors, while pressing for extra transparency on oil markets as part of new measures to curb inflation.
…He explained that instability in the Middle East and the impact of hurricane Katrina helped push levels up from $45 a barrel at the start of the year to some $70 a barrel today, causing alarm for EU motorists as petrol prices shot up across the union.
But he warned that the EU must focus on combating the long-term problem of demand growth outracing supply, with Chinese consumption alone soaring by 65 percent in the past three years.
The European Commission plans to accelerate the implementation of energy-saving and renewable energy source directives in the coming months to help stem European demand for fossil fuels.
But he warned that new coal and nuclear energy plants might also have to be built to help deal with the global problem.
“I expect investments in the nuclear sector in Europe, and in the rest of the world, will grow”, the commissioner said.
(6 September 2005)
Oil and troubled waters
The Economist
The economic effects of Hurricane Katrina, like the human costs, are hard to predict. But the disaster is already putting upward pressure on oil prices at a time of strong demand, tight supply and refining bottlenecks.
…The real concern, however, is not how high prices will go, but how long they will remain there. After the American Petroleum Institute said last week that the effect of Katrina on oil and gas production would be “significant and protracted”, oil rose towards the record $70.85 it had hit earlier in the week; by Tuesday, it had fallen back again to just under $67. Though in real (inflation-adjusted) terms prices are still lower than in the wake of the Iranian hostage crisis in 1979, that reassuring mantra has worn thinner in recent months as real prices have edged closer to those historical highs. Furthermore, while much of the recent oil-price increase was demand-driven, and thus expected to have relatively benign economic effects, any sizeable outages owing to Katrina could cause a supply shock similar to those that repeatedly battered the world economy in the 1970s.
Those fears may be overdone. But $70 oil and petrol futures at double the level of a year ago raise the possibility of lingering economic effects, particularly if the region’s oil infrastructure takes months to get back online. Though America’s economy has recently posted enviable growth rates, these have been kept up by consumers who have run down savings and taken on debt in order to keep spending growing faster than their income. With consumers stretched thin and interest rates rising, a prolonged period of high petrol prices might well force households to retrench, at least temporarily. Mr Rosenberg calculates that every one-cent rise in the price of a gallon of petrol takes $1.3 billion out of consumers’ pockets, which could trim as much as a full percentage point off consumer spending this winter. Speculation is growing that the Federal Reserve will temporarily halt its steady tightening of the money supply at its next meeting, on September 20th.
Already there are calls for policy changes to fix the flaws in America’s energy infrastructure exposed by Katrina: its tight refining capacity, its dependence on offshore drilling in the hurricane-prone Gulf, its love affair with big, inefficient cars. The Senate committee on energy has scheduled a hearing for Tuesday to explore some of these issues.
But oil and gas are not the only industries to be affected. While construction companies and their suppliers are no doubt gearing up for a bumper season when the waters recede, agricultural exporters are busy looking for alternative shipping routes if Gulf ports do not re-open soon. Particularly hard-hit will be the corn harvest, which started last week, but all farmers will suffer from higher energy prices. Insurers, of course, will take a nasty hit to earnings from claims that may run as high as $25 billion. And the combination of cancelled flights and higher jet-fuel prices threatens to push more airlines into bankruptcy.
(6 September 2005)
Katrina and the Gas Pump
Editorial, NY Times
In Katrina’s wake, gasoline prices are rising faster than oil prices – an odd, but explicable, phenomenon. Enough crude oil is being produced to meet global demand, but the ability of the Gulf Coast’s many refineries to turn the oil into gasoline has been devastated, as has the ability to transport the gasoline that does become available. Those supply bottlenecks are chiefly responsible for this past week’s higher prices at the pump.
President Bush’s immediate response is to lend oil from the government’s Strategic Petroleum Reserve to refineries and to streamline the refining process by temporarily relaxing environmental standards – sound stopgap measures to help ensure a steady supply of gasoline. The International Energy Agency, whose members are 26 rich nations, has also made a big contribution, pledging on Friday to supply world markets with an additional 60 million barrels of oil and gasoline over the next 30 days, half of which would come from the United States’ emergency stockpiles.
But it would be wrong to think – and act – as if this crisis is fundamentally a supply shock. Rather, it is a supply shock on top of blatantly excessive demand. The near-term responses from Mr. Bush and the international agency, welcome as they are, will not solve the larger problems laid bare by Katrina. Worse, Mr. Bush’s record on energy issues does not suggest that he is up to that task.
(6 September 2005)
Chad activists say oil revenues fail to help poor
Tansa Musa, Reuters via Planet Ark
YAOUNDE – Activists accused the World Bank of failing to ensure that Chad invests newfound oil wealth in development, saying the money had only enriched foreign firms and political elites in one of the world’s poorest countries.
The World Bank helped set up what it calls unprecedented safeguards to manage the earnings in Africa’s newest oil producer, a test case of whether petrodollars can fight poverty on the continent instead of fuelling conflict and corruption.
But campaigners say they have seen no sign of promised schools and roads since oil began flowing in 2003 via a pipeline through Cameroon built by a consortium led by US-based Exxon Mobil and partly funded by the World Bank.
(6 September 2005)
Rise in fuel subsidies turns budget surplus into deficit – Jordan
Staff, Jordan Times via MENAFN.com
AMMAN (Petra) — A JD110.2 million budget surplus recorded during the first seven months of 2004 turned into a JD110.8 million deficit during the January-July period of this year.
If external aid is excluded, the deficit would amount to JD427.9 million compared to JD419 million during the first seven months of 2004. …
The higher current spending was attributed to a surge in fuel subsidies by JD162.6 million or 117 per cent to JD301.6 million as a result of the increase in world oil prices. …
(6 September 2005)
Chavez: ‘Oil ‘could surge to $200”
News24.com
Caracas – Venezuelan President Hugo Chavez warned on Monday that world oil prices would surge to $200 a barrel if the United States attacked his country.
“If they attack us with their battleships, with waves of intelligence officers, bombs, marines and all of that, well, you can forget about oil,” Chavez said in a CNN interview released by the Information Ministry.
Chavez, who charged that the United States was drafting a plan to attack his South American nation, said that an invasion would leave Venezuela and the Americans without oil.
“The barrel could reach $200, from one day to the other,” said the leftist leader, who has accused the United States of wanting to assassinate him. The price closed at just under $65 in London on Monday.
(6 September 2005)
China mulls raising renewable energy commitment
Emma Graham-Harrison, Reuters via Planet Ark
BEIJING – China, the world’s second-largest oil consumer, may boost its long-term commitment to renewable energy use by 50 percent, a top policy maker said on Monday.
Beijing currently aims to get one-tenth of its energy from renewable sources by 2020, and this year passed a law forcing power suppliers to buy more electricity from plants that do not burn fossil fuels.
But with imports rocketing and the environmental toll of dirty coal climbing — Premier Wen Jiabao said on Monday it met 75 percent of the country’s energy needs — officials are eyeing an even more ambitious programme.
“By 2020 renewable energy (could) account for 15 percent of energy production in China, including large-scale hydropower projects,” Shi Lishan, director of renewable energy at the policy-setting National Development and Reform Commission, told an energy conference in Beijing.
(6 September 2005)
China farmers steal oil in plastic bags
Reuters
BEIJING – Farmers in impoverished central China, tempted by soaring global crude prices, are stealing oil from state pipelines in plastic bags, the official China Daily newspaper reported on Tuesday.
Villagers in dusty Shaanxi province are siphoning off enough crude every day to fill up to five bags each, which weigh around 50 kg (110 lb) when full. They sell them on to small private refineries earning and make about $1,000 (543 pounds) a month, the paper said.
It did not say how they get access to the oil.
(6 September 2005)
Government Intervention in Stock Market
Detailed by New Report, GATA Says
John Embry and Andrew Hepburn, Sprott Asset Managementvia GATA, YahooFinance
A major Canadian financial management firm that a year ago published a compilation of evidence of central bank manipulation of the gold price has just done the same in regard to the U.S. stock market and has reached a similar conclusion.
The new report is titled “Move Over, Adam Smith: The Visible Hand of Uncle Sam,” and has been published by Sprott Asset Management of Toronto. It was written by the firm’s president, John P. Embry, and his assistant, Andrew Hepburn, and concludes that the U.S. government has intervened to support the stock market so many times that “what apparently started as a stopgap measure may have morphed into a serious moral hazard situation, with market manipulation an endemic feature of the U.S. stock market.”
The Sprott report concludes:
“We have not taken a position on the wisdom of intervention in this paper, largely because exceptional circumstances could argue for it. In many respects, for instance, the apparent rescue after the 1987 crash and the planned intervention in the wake of September 11 were very defensible. Administered in extremely small doses and with the most stringent safeguards and transparency, market stabilization could be justified.
“But a policy enacted in secret and knowingly withheld from the body politic has created a huge disconnect between those knowledgeable about such activities and the majority of the public, who have no clue whatsoever.
“There can be no doubt that the firms responsible for implementing government interventions enjoy an enviable position unavailable to other investors. Whether they have been indemnified against potential losses or simply made privy to non-public government policy, the major Wall Street firms evidently responsible for preventing plunges no longer must compete on anywhere near a level playing field. It is most unfair that the immensely powerful have been further ensconced in their perched positions and thus effectively insulated from the competitive market forces ostensibly present in our society.
“In addition to creating a privileged class, the manipulation also has little democratic legitimacy in the sense that the citizenry has not given its consent. This has tangible ramifications. By not informing the public, successive U.S. administrations have employed a dangerous policy response that is subject to the worst possible abuse. In this regard, the line between national necessity and political expediency has no doubt been perilously blurred.
“We can only urge people to see what the evidence indicates and debate what is and ought to be a very contentious matter. The time for such a public discussion is long overdue.”
The full 41pg .pdf report can be found here.
GATA is the Gold Anti-Trust Commitee
(6 September 2005)
