Why have oil prices doubled? Big Oil wants it that way

Jimmydean55

I'm not sure if Mr. Berko is a syndicated columnist or not, but in our suburban Chicago paper he has a column that appears in the business section, usually dealing with stocks and bonds. He is a very sharp guy, and I enjoy reading his column. I found this one particularly interesting so I thought I would share.

Looking forward to some thoughts on this.


http://www.suburbanchicagonews.com/heraldnews/business/berko/1022928,4_3_JO25_BERKO_S1.article


June 25, 2008

Dear Mr. Berko: Why has the price of oil doubled in the past year? I would like to know if Big Oil (Chevron, BP, Exxon) are the culprits or if firms like Merrill Lynch, Citigroup, their traders and their hedge funds have fixed the market. And if they have, why doesn't Congress and the Commodities Futures Trading Commission step in? If it's supply and demand, which I doubt, than I can understand the increase in price. But if its manipulation by Big Oil and Wall Street's hedge funds, don't they understand they are hurting our country? And I don't think it's a shortage because our imports continue to increase a little bit each month. Please tell me what's going on, if you can.

P.S. Louisville, Ky.

Dear P.S.: ExxonMobile Corp. (XOM-$88.04) owns 29 billion barrels of proven reserves at an average cost of less than $5.50 a barrel. And at today's price of $130 a barrel, XOM's combined oil patches are worth a cool $3.8 trillion -- and that's trillion with a "T." Chevron has 9 billion barrels of reserves, Total SA owns 6 billion, Royal Dutch Shell has 3.5 billion, Conoco owns 4.1 billion and BP claims more than 10 billion barrels of oil. And at $130 a barrel that's a lot of trillions with a "T." For the first six months of 2008, the largest U.S. oil companies reported over $80 billion in net income.

America's failure to recognize that many in Congress have been tantalizingly enriched by those trillions exposes our epic gullibility. That sum of money owns a lot of votes in Congress and persuasively trumps most opposition. Wall Street is not without its consuming influences, either. Credit Suisse, Goldman Sachs, Lehman and J.P. Morgan are just more practiced and subtle than Big Oil lobbyists. And I believe it was Ronald Reagan who said, "When Big Oil, large banks and Wall Street inhale, the House and Senate exhale.

Sadly, most Americans don't trust Corporate America -- and for good reasons, too. I have no proof that oil prices are being manipulated but as James Whitcomb Riley said, "When I see a bird that walks like a duck and swims like a duck and quacks like a duck, I call that bird a duck."

Saudi Arabia insists that oil prices are manipulated by Wall Street traders and Henry Paulson (secretary of the treasury) says, "the rise in price is a consequence of supply and demand." Americans would really rather believe Washington than Saudi Arabia.

However a minor big shot at Exxon whom I've known for years told me that, "Mr. Paulson is a likeable guy but he's lying through his pearly whites." A trader at Goldman Sachs boasted several months ago that: "we move the price of oil when we want to move the price of oil." Mike Greenberg (a former big shot with the Commodity Futures Trading Commission) recently remarked that large banks and hedge funds control 80 percent of oil contract trading and are responsible for a 35 percent increase in the price of crude.

Greenberg said, "These speculators sell oil contracts back-and-forth to each other simply to inflate the price and reap windfalls."

I doubt there's a shortage of oil. I don't see lines of cars at the pumps, heating oil and diesel fuel seem plentiful, some United Arab Emirates countries are increasing production, Iraq's huge spigot is open again, Brazil announced a monumental discovery and world demand appears to be declining. So why did the price of oil double in the last 12 months then zoom $16 in less than 24 hours?

Well, money transcends friendship, loyalty and patriotism. Traders at Goldman, Morgan et al., firms that refuse to abide by trading limits, argue that "we're in the business of making money, not policy." The Commodity Futures Trading Commission created by Congress to "protect against fraud, manipulation and abusive trading practices," is a sham. Its five feckless commissioners are appointed by lobbyists and approved by the Senate to whom they owe their cushy sinecures. Now in the first week of June, these CFTC toadies announced a series of measures to "bring greater sunshine" and "improve oversight to the energy futures market." Well it doesn't make much sense to close the barn door after the horse has left. But its common knowledge that we have the best congressional appointees that money can buy.

Now I can tell you why a stock rises in price: Either revenues increase, earnings improve, its dividend is raised, it discovers a pill to grow hair, the company becomes a takeover target, etc., ad nauseum. Those reasons are logical, explanatory and acceptable. I cannot offer a single compelling reason why the price of oil doubled in the past 12 months.

But I can refer you to the still-very secret Energy Task Force meeting at the White House, hosted by Dick Cheney on Feb. 14, 2001, attended only by Big Oil's big executives.

DriftingByTheStorm

article wrote:

And I believe it was Ronald Reagan who said, "When Big Oil, large banks and Wall Street inhale, the House and Senate exhale.

At least Reagan was man enough to talk about things, even if he never did grow a pair big enough to do something.
:cool:

The cold hard truth is that oil is a game too big for free market economics.
Adam Smith understood this and observed that when such vast economies of scale exist in an industry, it is one that should be made in to a municipality (public utility).

Money is another such market where the economies of scale are too great. We have one source of "cash", and it is PRIVATE (The "Federal" Reserve).

The Congress should be printing money, not BANKERS.

But here is the real rub, and why Reagan was right on in his lumping together of Big Oil, banks, and Wall Street.

The private money supply is being manufactured (out of thin air) and circulated by the Federal Reserve, which is owned (it has shareholders) by the likes of JP Morgan Chase, Citibank, Bank of America, Lehman Brothers and so forth.

The private oil supply is being produced by Exxon Mobil, Chevron, BP, and the like. Exxon is the largest, and it is owned in large part by The Rockefeller family. It is a company which itself was the result of a BREAK UP of the former monopoly held by the Rockefeller family, Standard Oil. Since that break up, Exxon has clawed its way back to being a similar juggernaut.
The stories and ownership of many of the other oil firms is similar.

So follow me here.

Money.
Money printed by "The Bank".
"The Bank" which is owned entirely by the "banks".
Money printed by The Bank, lent back to the banks.
Money then used by the banks (or lent to their owners) to buy Oil Companies.
Oil Companies which then sell their oil on a market controlled\regulated by The Bank.
The Bank which makes money on both sides of the transaction
The Bank which charges a fee to exchange the money.
The Bank which charges a fee to trade the oil.
Banks which then buy\sell oil on the market, manipulating the price.
The price then affecting the profit of The Oil Companies.
Oil Companies making profits distributed both to the banks and their banker owners

The Article which Attempts to Answer the Absurd Dialectic: "The Oil Men or The Bankers?"

??? Does anyone understand the abusrdity of asking WHICH is to blame ???
They are one and the same!

:(

Commy

its very simple.


When oil companies like exxon have record profits (like the most profit by a company in the history of capitalism-$36 Billion, two years in a row) its very obvious why gas prices are so high. Companies like Exxon are simply raising prices.

searchlightsoul

Commy wrote:

its very simple.


When oil companies like exxon have record profits (like the most profit by a company in the history of capitalism-$36 Billion, two years in a row) its very obvious why gas prices are so high. Companies like Exxon are simply raising prices.

Your fixated on Exxon. They are the #14 biggest oil company in the world by reserve estimates. They are small fry by global standards.

If any company was going to have the biggest profit of course it was going to be an energy company. Every body uses energy, every body uses synthetic petroleum based products. What is so surpising about the huge resulting profits?

"State-owned monopolies, known as national oil companies (NOC), represent the top 10 oil reserve holders internationally. By comparison, ExxonMobil, BP, Chevron and Royal Dutch Shell are ranked 14th, 17th, 19th and 25th, respectively."

http://www.sciencedaily.com/releases/2007/11/071112140720.htm

Commy

searchlightsoul wrote:

Your fixated on Exxon. They are the #14 biggest oil company in the world by reserve estimates. They are small fry by global standards.

If any company was going to have the biggest profit of course it was going to be an energy company. Every body uses energy, every body uses synthetic petroleum based products. What is so surpising about the huge resulting profits?

"State-owned monopolies, known as national oil companies (NOC), represent the top 10 oil reserve holders internationally. By comparison, ExxonMobil, BP, Chevron and Royal Dutch Shell are ranked 14th, 17th, 19th and 25th, respectively."

http://www.sciencedaily.com/releases/2007/11/071112140720.htm

The 14th ranked energy company, what is that, international ranking? It has to be with BP up there. That's still a very influential company.

In the northwest they might as well be first. or second. doesn't matter. They charge a certain amount for gas, with very little competition, and we end up paying $4 a gallon for gas. and they end up with $36 billion in profit.

if Exxon asked $3 a gallon for gas, they would either force competitors to go out of business or force them to match their prices, either way we are still paying $3 a gallon for gas, and Exxon still makes a few billion.



What surprises me about Exxon record profits is that no one has attributed them to rising gas prices, which seems like a fairly obvious connection to me.

flywallyfly

Commy wrote:

The 14th ranked energy company, what is that, international ranking? It has to be with BP up there. That's still a very influential company.

In the northwest they might as well be first. or second. doesn't matter. They charge a certain amount for gas, with very little competition, and we end up paying $4 a gallon for gas. and they end up with $36 billion in profit.

if Exxon asked $3 a gallon for gas, they would either force competitors to go out of business or force them to match their prices, either way we are still paying $3 a gallon for gas, and Exxon still makes a few billion.



What surprises me about Exxon record profits is that no one has attributed them to rising gas prices, which seems like a fairly obvious connection to me.

Exxon actually makes most of their profits from oil and natural gas production, not selling gasoline. In fact, they are getting out of that side of the business because it is such a small part of their profit.

http://www.reuters.com/article/newsOne/idUSN1238193020080612

ajedigecko

great article and thank you for sharing.

while riding my bike a thought came to me;

do not mandate a federal speeding limit of 55...make it voluntary. it would work like this, when we register our vehicle we purchase a "55 tag" and recieve a tax break for the "55 tag". we would also understand that if we got caught speeding...we would pay a substantial amount more than the person who speeds and does not have a "55 tag"....this would keep the "get something for nothing drivers" away from buying such a tag.

also.....when i do need to drive on the highway, i drive 55.

Commy

flywallyfly wrote:

Exxon actually makes most of their profits from oil and natural gas production, not selling gasoline. In fact, they are getting out of that side of the business because it is such a small part of their profit.

http://www.reuters.com/article/newsOne/idUSN1238193020080612

So the $36 billion was a coincidence? They just happened to make a killing when gas prices went up? In fact the biggest killing in the history of capitalism?


It didn't all of a sudden cost more to produce gas. Demand didn't suddenly go up. Refineries weren't somehow less scarce. Companies-like EXXON-decided to charge more for gas and oil, which is why we see the huge profit margins.

OutOfBreath

I think that although companies like the ones mentioned surely try to bring the price up higher, they are not solely responsible for the doubling. World consumption of oil is increasing (particularly China and India) and reserves are looking more scarce. Production is way down in mature fields like the North Sea outside Norway, and in Saudi Arabia (one thinks that they are covering that up when they say they choose to reduce production). There is a higher demand that drives prices, and since it's priced in dollars, which are free-falling atm, it shouldn't be surprising that gas gets a lot more expensive in dollars. And the companies probably adds to it for an even better profit, but holding them responsible alone for the hike, seems unfair and unnecessarily conspiratorial.

That said, I dont like those companies, but then again there are few major multinational corporations that I do like.

Peace
Dan

flywallyfly

Commy wrote:

So the $36 billion was a coincidence? They just happened to make a killing when gas prices went up? In fact the biggest killing in the history of capitalism?


It didn't all of a sudden cost more to produce gas. Demand didn't suddenly go up. Refineries weren't somehow less scarce. Companies-like EXXON-decided to charge more for gas and oil, which is why we see the huge profit margins.

I just simply pointed out that Exxon isnt reaping huge profits from selling gasoline at stations like you said. They made their huge profits from the oil itself which has a miriad of factors (many dubious) for the skyrocketing barrel prices. I'm not defending Exxon btw.