You’re paying way more for than common sense would suggest, and you might be surprised by who’s to blame….. I WAS! Take a guess.

It’s not the Organization of Petroleum Exporting Countries (OPEC), AS it lost control of the markets 20 years ago. It’s not Big Oil as it contributes only a sliver of global oil supply. And it’s not the government as the U.S. investment in oil is relatively small, comparatively speaking. 

Each of these former powerhouses influences the market infrequently and only to a small degree. What’s driving prices higher more recently is a rush of new investors from professional fund managers with no real interest in actually owning oil….just regular people trying to make a buck?

These investors are banking on fears that it will become much more difficult and expensive to produce and process oil, eventually leading to a shortage. In all actuality, their fears have no basis in reality; however it is the perception of reality that carries the real weight in moving markets.

Oil industry insiders scoff at those fears. They accuse traders of a frenzy of irrational buying, creating a bubble that’s sure to burst. Isn’t this the kind of thing that passes for standard operating procedure in an all stock and commodity markets?

While current supply data doesn’t offer reason to panic, no one knows for sure how much oil is left in the ground because with so much profit at stake it’s impossible to know if shortages loom, and investors are acting rationally or it’s all a bunch of hype and spin. Everyone is  looking at the same data but interpreting it differently, each according to their own agenda or wishful thinking..

If you think that’s complicated, it gets worse. Oil may be overpriced for Americans, but not so much for the rest of the world. The collapse in the value of the U.S. dollar means it takes more dollars to buy a barrel of oil. Some analysts say the dollar’s decline accounts for as much as a third of oil’s price.

WAIT….THE PLOT THICKENS!

Then there’s the ravenous and seemingly insatiable demand for oil in developing countries such as India and China. Experts forecast an explosion of demand in the next few decades, assuming people there can afford it. I have a feeling that’s not going to be issue. 

Oil prices have doubled in the last year, hitting all-time highs along the way and pushing U.S. gasoline prices to record levels. Oil futures closed at $132.19 a barrel Friday, and the average cost of gasoline in the U.S. was $3.88 a gallon with projections of $5–7.00 a gallon in the next two years. 

But get this; supplies are tight, (which is another manipulation), but there’s more oil available now than there was in four of the last five years. How you ask? Read on…..

Many oil industry leaders agree that prices are higher than supply and demand would suggest, and oil executives are saying they can produce plenty of oil to meet the world’s needs, so long as politicians don’t stand in the way. But investors don’t seem to listen.

Recently, President Bush asked Saudi Arabia to boost production. Typically, such a move by the world’s largest oil-producing country would signal a rush of new supply that would depress markets. Not this time.

The Saudis increased production slightly to meet the requests of buyers, but not as much as the president had hoped. Rather than bidding markets lower, oil investors worried that the Saudis were being stubborn, and oil prices rose.

Maybe it’s time for President Bush to go on another hand-holding stroll with Prince Abdullah, heh?

Big oil companies won’t say what they think a fair price for oil might be. But many major producers budget conservatively for new drilling projects in case oil prices dive.

Many major oil companies won’t invest in projects unless they are profitable with oil selling for $35 a barrel. Exxon Mobil Corp. has shied away from some of the most expensive oil projects, such as some deepwater drilling in the Gulf of Mexico not because it would not be profitable but because it might not be profitable enough.

Let’s remember that Exxon Mobil made history by reporting the highest quarterly and annual profits ever for a U.S. company, boosted in large part by soaring crude prices. Exxon, the world’s largest publicly traded oil company, said fourth-quarter net income rose 14% to $11.66 billion, or $2.13 per share. The company earned $10.25 billion, or $1.76 per share, in the year-ago period. 

In February, Mark Albers, senior vice president for Exxon Mobil stated, "The supply challenge is really not one of scarcity as some believe,"

Let me repeat that in plain words; There is more than enough oil to fulfill demand and then some which in turn negates the reasons the American public have been given for the steady rise at the gas pumps.

The fact has always been that the truth and the soothing statements from Big Oil are no match for the perceptions created by the market’s movers and shakers as they haven’t been able to calm and stabilize the markets. And therein lies the crux of the entire  “so-called” problem, which most Americans would construe, and rightly so, as a national crisis.  

Financial Investors  

Rather than rely on assurances that suggest supply can meet demand, some investors point to data that shows the opposite. Those folks are investing billions of dollars in the commodities markets, anticipating that prices will rise, but also pushing prices higher. Almost like a run-away train!

Dallas hedge fund operator T. Boone Pickens says the world’s oil supply will soon wane as humans use up most of the attainable oil.

Pay attention to those words, attainable oil. What exactly does that mean? The oil companies already know where the oil is, how much there is and what it would take to get it out of the ground. So what is the problem you ask?

It takes approximately two years to bring an oil well to fruition which means that they need to plan ahead which they have not, Or have they? Maybe they are producing EXACTLY the amount of oil they want to thereby keeping the supply low while the demand rises, hence higher prices at the pump.

"There are only 85 million barrels of oil produced globally every day. I don’t think you can increase that 85 million," Pickens said recently. "By the third quarter of this year, demand will probably be 87 million. Eighty-five won’t cover 87."

I wonder which belief Mr. Pickens stands to benefit the most from? 

Speculation has been part of the commodities markets for a long time, but mostly by companies that need physical oil or fuel. About four years ago, the market changed.

Bankers and academics began urging conservative fund managers to diversify their portfolios by adding commodities (oil) and hawking the same to the investors they represent. Years ago, these investors would have simply purchased Exxon shares when oil markets surged. Now they’re investing in oil itself, even though they never see the oil or fuel they trade. Their only concern is the profits their investment realizes.

Banks also started to offer index funds that include various commodities. The index funds make it easier for investors who had previously stayed out of commodities to invest in the markets.

Cambridge Energy Research Associates, a Cambridge, Mass., energy analysis firm, estimates that crude oil trading is up 350 percent since 2002. And the daily average trading volume in energy futures contracts on the New York Mercantile Exchange rose 53 percent for 2008 from last year.  

So what do you think that kind of investing does to the price at the gas pump?

A study by oil analyst Philip Verleger shows that investments in energy commodity index funds have doubled in the last year to more than $210 billion which translate into nearly $4.00 per gallon….and rising! 

The University of Texas Investment Management Co. manages billions of dollars for the University of Texas and Texas A&M systems. The company, known as UTIMCO, will boost the amount it invests in commodities during the next few years from about $1 billion to $2.5 billion, or around 10 percent of its assets.

This type of buying frenzy tends to create self-fulfilled prophetic profits for the investors and the oil companies paid for by you and I at the gas pump.

So, the frenzy continues, as the individual and institutional investors drive the markets bringing them record returns  

Government Actions  

The U.S. government’s usual tools to calm energy markets aren’t working. Even the president’s appeal to the Saudis to boost production can’t outweigh the damage of a devalued dollar.

As the Federal Reserve cut interest rates again and again, the dollar’s value declined. This caused oil prices to balloon and pushed investors to shift money into commodities to protect their assets against inflation.

"The collapse in the dollar has not only driven the oil price up but a whole host of other prices as well. Everything can’t be in short supply at the same time," said Daniel Yergin, an oil analyst and chairman of CERA.

Mr. Verleger urged Congress to stop the Department of Energy from buying oil last December, arguing that the purchases were boosting global oil prices by diverting low-sulfur crude oil from refineries to strategic storage caverns along the Gulf Coast. That relatively small amount of oil – less than 40,000 barrels a day – would normally send a big signal to markets.

"If I am right, it could make the difference between seeing $60-per-barrel prices next summer and $120-per-barrel prices," he said on Dec. 11.

But when Congress recently agreed to stop buying oil, traders simply yawned – and bid prices even higher as their wallets swelled. 

Now Congress is considering expanding federal oversight of the commodities markets to electronic trading by U.S. investors on overseas exchanges. But unless traders are doing something nefarious by trading overseas – which some experts doubt – the expanded oversight isn’t likely to slow down oil trading.

It is The Lang Report’s position is that, once again, the Oil Lobby is getting exactly what they’ve paid for and that is to keep their system as is and that any gesture to affect change is a mere band-aid.

It is our position that Congress is not powerless to stop this growing crisis. .All that is needed is for those commodities, such as gas and food that directly impact the welfare and security of the United States, shoud to be made exempt and free from government interference and market conditions. 

But some governments, such as China, India and OPEC countries, use controls to keep gasoline prices low. That eliminates any signal to consumers to use less, at a time when China and India are hungry for oil to feed their growing economies.

The greatest demand increase is coming from China. But the Chinese government’s efforts to control prices (Chinese motorists are paying about $2.40 a gallon) are resulting in gasoline and diesel shortages across the country.

Raising fuel prices might ease the shortages but would also add to China’s inflation woes. Prices are up an average of 8.5 percent this year, well above government targets.

Most oil experts agree that only a collapse in demand, brought on, perhaps, by a Chinese or global recession, could deflate oil prices. Mr. Pickens doubts China will allow itself to stumble before the Summer Olympics.

 

SUMMARY

It seems to me that we, the American public, are slaves to the either:

1.  the fluctuations in the commodity markets which is swayed more by emotion and greed than by real market conditions
2. oil company timetables for processing crude and breaking ground for drilling of new wells
3. the voracious appetite of the exploding economies of India and China and other third word countries
4. and if course the “less than honest” manipulations by those that have much to gain

So we urge all Americans to overwhelm your representatives in Congress, pressuring them to take serious, massive and immediate action on this matter. We also suugest that instead of just voicing your anger and frustration which we concede is valid and justified; we should strongly urge our Representatives to remove oil and food from the clutches of those with agendas other than that which is the very best for the American people.