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Oil Prices – Get Used To It.
The Saudis allegedly said they will produce more oil and promptly oil hits $140/barrel.
U.S. refiners don’t want more Saudi Oil saying it is too pricy. If the journos were knowledgeable they would point out that U.S. refiners simply can not refine the sulphur heavy stuff the Saudis peddle as additional capacity.
This hapless UN idiot Ban Ki-moon was the one who brought the original message of increased Saudi oil production. Like usual, he has no idea of the real problems. He is now announcing even more of unusable Saudi spice. Is that in his job description?
Pat Lang thinks the Saudis are angry at the "west" and keep production down for that reason. Maybe that is part of the story, but I do not believe it is the main issue.
There is population growth on this planet – fed by and demanding oil.
There is too little additional supply possible for now to feed that demand.
There is too little refinery capacity to make use of marginal quality stuff.
There are too many conflicts in the producing areas to allow additional supply.
There is like always a lot of speculation that exacerbates price moves.
In short: Get used to it.
$250 a barrel by next June would be a slower increase in price than last years surge.
That’s a positive sign, isn’t it?
Meanwhile many people will die because we covert food into gas.
jcairo is bang on.
And there’s another Enron bubbling just below the surface as well, more Texas Tea.
For decades the American people, through their thieving Congress, gave Big Oil huge tax incentives (and still do, recently refusing to end the dole) so Big Oil would **produce low-sulfur refined products**, reducing air pollution and acid rain, and allowing the refining of more prevalent high-sulfur crude supplies like tar sands.
Instead, instead, BigOil **pocketed those tax incentives** for their corporate balance sheet, so principals and investors could boost the value of their stock options and bonus packages. Instead of investing in desulfurization plant and equipment available since the 1980s, Big Oil bought up sweet Saudi crude futures.
That’s what Peak Oil refers to. The theft of the low-hanging fruit. Refiners that were producing at 115% of certified capacity in the 1990s are producing only at 85% today using sweet crude. With egregious profits, it boosts the balance sheet more to cut production costs by slowing down, by layoffs, by delayed deferred maintenance, by keeping low inventories, especially with the all-time record oil prices.
States are complicit, they want higher refined prices too, it brings in more gas tax.
NYC, WADC, Houston, Riyadh and your local state capitol want to see you slaughtered.
Pure, deliberate, egregious fraud, direct pipeline from public tax coffers to private bank vaults, and they are STILL getting away with it, right now today, right down to the vote last week to keep the tax incentives in place, pumping our life savings down to Houston, even in this egregiously huge profit environment, tax incentives!
Debs, “the increase in gas (petrol and CNG) prices was necessary to cut usage and make alternatives viable.” Whiskey Tango Foxtrot?! Bush.Con cut tax incentives for alternate energy, and keeps pushing at AWAR and nuclear. There are solar farms in California and Arizona for miles, wind turbines across every windswept plateau, and hydro in every last available rivulet, it’s only a tiny fraction of our energy use.
The world is swimming in hydrocarbons, you can’t give high-sulfur tar sands away, even at $140/bbl. And there is so much natural gas, trillions and trillions worth, they’ve simply been flaring it off at the well head *for a century* as a nuisance!
There’s your global warming, flaring a bazillion cubic feet of gas at the well head!
By any metric it’s now runaway. China just stopped exporting hydrocarbons Friday,
like grains, everyone is closing up, protecting their natural resources from theft.
The Saudis can’t pump any faster without stranding the sweet crude and bringing a disaster none could imagine. Instead they offer sour high-sulfur crude, and people wonder why their engines act up and their fuel gauges stop working. $200/bbl soon.
All because Big Oil never spent the tax incentives we lent them on desulfurization!
$100B’s, a dozen Enrons, all in plain view, with full knowledge of the Executive.
Where is our low-sulfur tax rebate!! BIG OIL OWES US OUR TAX INCENTIVES BACK, WITH INTEREST AND LOST OPPORTUNITY COST!! What do we get? Nada. ‘Iran the Evil Empire’.
Our President and Vice President are arch war criminals and master embezzlers. How
did Dick Cheney get $600M in the bank on a vice president’s $175,000 a year salary?!
jcairo is dead bang on. We have a thief in the Oval Office, and Congress driving the getaway car. Big Oil and Defense will destroy America as surely as a plague of rats.
Where is our Pied Piper, our Che Guevara, among this rabble of Peak Theorists and media sycophants with their hands in our back pockets, and their tins in our ears?
Face it, the NeoZi.con’s goal is a dualist world of vampiroyals, and bled-out plebs.
Learn, or toast.
Posted by: Bulia Base | Jun 17 2008 5:42 utc | 13
It’s always interesting when “folklore” and “popular wisdom”
are confirmed by competent technicians. Now more than ever, consumer laments for increasingly higher prices and (relatively) shrinking incomes are so widespread as to be commonplaces. However, the precise measurement of rates of inflation, even their precise definition, is in itself a serious question. Indeed, throughout the industrialized world, entire governmental bureaucracies are dedicated to that hum-drum calculation. Since the question, though exquisitely economic in content, is fraught with political sequela it comes as no surprise that the
econometric elves tasked with collecting and elaborating the relevant data, and grinding out the fateful estimates have frequently received various forms of “friendly persuasion”. In an ideal world, those elves would live a cloistered existence dedicated to the precise calculation of their estimates on the basis of clear scientific criteria while using only the best available data. But, of course, the elves’ masters seek results that maximize a perceived political advantage or minimize adverse electoral shifts. Such manipulation of the econometric methodology is usually too recondite or too well hidden to receive much public attention, but the long term effects can be deleterious.
Recently two respected figures have raised precisely this point.
In his June market commentary letter Bill Gross of Pimco offers the following
observations:
It’s Sunday afternoon at the Coliseum folks, and all good fun, but
the hordes are crossing the Alps and headed for modern day Rome better educated, harder working, and willing to sacrifice today for a better tomorrow. Can it be any wonder that an estimated 1% of America’s wealth migrates into foreign hands every year? We, as a people, are overweight, poorly educated, overindulged, and imbued with such a sense of self importance on a geopolitical
scale, that our allies are dropping like flies. “Yes we can?” Well, if so, then the “we” is the critical element, not the leader that will be chosen in November. Let’s get off the couch and shape up physically, intellectually, and institutionally and begin to make
some informed choices about our future. …
I’ll tell you another area where we’ve been foolin’ ourselves and that’s the belief that inflation is under control. … I joined others in arguing that our CPI numbers were not reflecting reality at the
checkout counter.
The U.S. seems to differ from the rest of the world in how it computes its inflation rate in three primary ways: 1) hedonic quality adjustments,
2) calculations of housing costs via owners’ equivalent
rent, and
3) geometric weighting/product substitution.
The changes in all three areas have favored lower U.S. inflation and have taken place over the past 25 years, the first occurring in 1983 with the BLS decision to modify the cost of housing. It was claimed that a measure based on what an owner might get for renting his house would more accurately reflect the real world, a dubious assumption belied by the experience of the past 10 years during which the average cost of homes has appreciated at 3x the annual pace of the substituted owners’ equivalent rent (OER), and which would have
raised the total CPI by approximately 1% annually if the switch had not been made.
In the 1990s the U.S. CPI was subjected to three additional changes that have not been adopted to the same degree (or at all) by other countries, each of which resulted in downward adjustments to our annual inflation rate. Product substitution and geometric weighting
both presumed that more expensive goods and services would be used less and substituted with their less costly alternatives: more hamburger/less filet mignon when beef prices were rising, for example. In turn, hedonic quality adjustments accelerated in the late
1990s paving the way for huge price declines in the cost of computers and other durables. As your new model MAC or PC was going up in price by a hundred bucks or so, it was actually going down according to CPI calculations because it was twice as powerful. Hmmmmm? Bet your wallet didn’t really feel as good as the BLS did.
In 2004, I claimed that these revised methodologies were understating CPI by perhaps 1% annually and therefore overstating real GDP growth by close to the same amount. Others have actually tracked the CPI that “would have been” based on the good old fashioned way of
calculation. The results are not pretty, but are undisclosed here because I cannot verify them.
…
In addition, Fed policy has for years focused on “core” as opposed to “headline” inflation, a concept actually initiated during the Nixon Administration to offset the sudden impact of OPEC and $12 a barrel oil prices! For a few decades the logic of inflation’s mean reversion drew a fairly tight fit between the two measures, but now …
the divergence is beginning to raise questions as to
whether “headline” will ever drop below “core” for a sufficiently long period of time to rebalance the two. Global commodity depletion and a tightening of excess labor … suggest otherwise
The correct measure of inflation matters in a number of areas, not the least of which are social security payments and wage bargaining adjustments. There is no doubt that an artificially low number favors
government and corporations as opposed to ordinary citizens. But the number is also critical in any estimation of bond yields, stock prices, and commercial real estate cap rates. If core inflation were
really 3% instead of 2%, then nominal bond yields might logically be 1% higher than they are today, because bond investors would require more compensation. And although the Gordon model for the valuation of stocks and real estate would stress “real” as opposed to nominal inflation additive yields, today’s acceptance of an artificially low
CPI in the calculation of nominal bond yields in effect means that real yields … are 1% lower than believed. If real yields move higher to compensate, with a constant equity risk premium, then U.S. P/E ratios would move lower. A readjustment of investor mentality in the valuation of all three of these investment categories bonds, stocks, and real estate would mean a downward adjustment of price of maybe 5% in bonds and perhaps 10% or more in U.S. stocks and commercial real estate.
A skeptic would wonder whether the U.S. asset-based economy can afford an appropriate repricing or the BLS was ever willing to entertain serious argument on the validity of CPI changes that differed from the rest of the world during the heyday of market-based capitalism
beginning in the early 1980s. It perhaps was better to be “entertained” with the notion of artificially low inflation than to be seriously “informed.” But just as many in the global economy are
refusing to mimic the American-style fixation with superficialities in favor of hard work and legitimate disclosure, investors might suddenly awake to the notion that U.S. inflation should be and in fact is
closer to worldwide levels than previously thought. Foreign holders of trillions of dollars of U.S. assets are increasingly becoming price makers not price takers and in this case the price may not be right.
But Paul Craig Roberts also has something to say on the same question, while discussing contributing factors to the recent upward surge in oil prices:
Possibly, the rise in the oil price was held down, prior to the recent jump, by expectations that Democrats would eventually end the conflict and restrain Israel in the interest of Middle East peace and justice for the Palestinians.
Now that Obama has pledged allegiance to AIPAC and adopted Bush’s position toward Iran, the high oil price could be a forecast that US/Israeli policy is likely to result in substantial supply disruptions. Still, the recent Israeli statements that an attack on
Iran was “inevitable” only jumped the oil price about $8.
Perhaps more difficult to understand than the high price of oil are the low US long-term interest rates. US interest rates are actually below the rate of inflation, to say nothing of the imperiled exchange value of the dollar. Economists who assume rational participants in
rational markets cannot explain why lenders would indefinitely accept interest rates below the rate of inflation.
Of course, Americans don’t get real inflation numbers from their government and have not since the Consumer Price Index was rigged during the Clinton administration to hold down Social Security payments by denying retirees their full cost of living adjustments. According to statistician John Williams, using the
pre-Clinton era measure of the CPI produces a current CPI of about 7.5%.
Understating inflation makes real GDP growth appear higher. If inflation were properly measured, the US has probably experienced no real GDP growth in the 21st century.
Williams reports that for decades political administrations have fiddled with the inflation and employment numbers to make themselves look slightly better. The cumulative effect has been to deprive these measurements of veracity. If I understand Williams, today both inflation and unemployment rates, as originally measured, are around 12 per cent.
I have added emphasis and slightly edited the original statements, and apologize for the lengthy, but I think,
useful, quotes. The common message of these two analyses
is that the statistics used as a base for “rational policy decisions” are unreliable and politically tainted. A small step in the right direction would be to allow the elves to
work undisturbed in their econometric cloisters.
Posted by: Hannah K. O’Luthon | Jun 17 2008 11:22 utc | 19
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