Why Oil Prices Are Falling

[Strelnikov_]

Michael Klare, Why Oil Prices Are Falling
http://www.tomdispatch.com/index.mhtml?emx=x&pid=124698

Is this the result of some hidden conspiracy between the White House and Big Oil to help the Republican cause in the elections, as some are already suggesting? How does a possible war with Iran fit into the gas-price equation? And what do falling gasoline prices tell us about "peak-oil" theory, which predicts that we have reached our energy limits on the planet?

Since gasoline prices began their sharp decline in mid-August, many pundits have attempted to account for the drop, but none have offered a completely convincing explanation, lending some plausibility to claims that the Bush administration and its long-term allies in the oil industry are manipulating prices behind the scenes. In my view, however, the most significant factor in the downturn in prices has simply been a sharp easing of the "fear factor" -- the worry that crude oil prices would rise to $100 or more a barrel due to spreading war in the Middle East, a Bush administration strike at Iranian nuclear facilities, and possible Katrina-scale hurricanes blowing through the Gulf of Mexico, severely damaging offshore oil rigs.

. . .

For all these reasons, immediate fears about a clash with Iran, a possible spreading of war to other oil regions in the Middle East, and Gulf of Mexico hurricanes have dissipated, and the price of crude has plummeted. On top of this, there appears to be a perceptible slowing of the world economy -- precipitated, in part, by the rising prices of raw materials -- leading to a drop in oil demand. The result? Retailers have abundant supplies of gasoline on hand and the laws of supply and demand dictate a decline in prices.

[WCGreen]

1. Don't forget the cessation of hostilities between Israel

and Hezbullah...

[Historic NY]

2. I still like blaming Bush & the Republicans for strangling us...

with high prices. It has been strange.

[MichiganVote]

3. Global republicans losing their grip

[Auggie]

4. It could be a combination of what you suggest AND conspiracy...

though frankly, I tend to believe the latter. I think gas prices tend to be as an emotional issue as gay marriage, abortion, gun control, etc. Removing that negative issue from the campaign is a HUGE benefit to republicans.

[Fovea]

5. Cough cough *bullshit* cough.

We are preparing to attack Iran. Pakistan and Afghanistan are
on the verge of war. No one has confidence in the Israeli/Palestinian peace.

Iraq is... burning. Afghanistan is burning.

Really, this is more about the collapse of speculative oil investments and political
double dealing by big oil to keep from facing draconian legislation come January.

[Rageneau]

6. The simplest answer to this question is the right one: GREED

It is stupid to speculate about why gas prices are dropping when so many of us could see, four months back, that they WOULD be dropping about this time.

We knew it would happen and we knew why: the oil companies would stop gouging us before the election so consumers wouldn't be steaming when they went to the polls. IOW, big oil has been sticking it to us with the happy cooperation of the BFEE, and now big oil is cooperating with the BFEE to do what it can to keep the cooperative BFEE in power.

Anybody who can't see this, or who stumbles into walls looking for a more logical, predictable reason, is dissembling or wasting his time.

[Strelnikov_]

9. Guess I Will Have To Continue Being Stupid, Dissembling Or Wasting My Time

as you suggest.

Then again, instead of crying 'Chimpy's To Blame' I would like to have a clear, concise theory as to how they are artificially lowering gas prices, so when I engage a Reich-Winger on the issue, I can present a well thought out portfolio on how they are pulling it off.

But, I guess I'm just wasting my time. Facts are so tiring.

(Hint: The article, if you read between the lines, contains most of the clues as to how they are reducing prices beyond the normal autumn drop in unleaded prices. The following article contains clues to the rest of the picture).

http://www.augustafreepress.com/stories/storyReader$40623

[classysassy]

12. Another

GOP plant.In the words of Dick Chaney,GFYS.

[Strelnikov_]

13. Are You Accusing Me Of Being A GOP Plant?

Simple yes or no.

[GliderGuider]

15. That's a seriously excellent article you linked.

While it doesn't have much to say about "how" prices may have been maipulated down, it has a lot to say about why the powers that be wanted to. It's also a very, very clear look at the current state of the Peak Oil "debate", with honest, data-driven realists on one side facing a ragtag group of administration/industry shills and flacks on the other. It kind of reminds me of another debate going on right now about yet another globally significant problem related to the burning of fossil fuels...

I especially like this bit:

If the public ever comes to accept that peak oil is coming soon, then Americans will realize that low gas prices are really very bad news.

If America is addicted to oil as President Bush has said, then to kick our addiction we'll need to cut our oil use. Instead of feverishly drilling so we can continue to drive with abandon, we should radically reduce our energy use while finding clean alternatives to oil for the energy we'll still need.

One thing that free-market types have correct is that high prices tend to decrease demand and cause businesses and consumers to seek alternatives. That's why gas at $10 a gallon may actually be the best news for America in the long-term. It will put us on a crash energy diet that we should've started a long time ago.

My best bet on how this latest down-blip in prices happened is the GSCI manipulation I describe in another post.

[Strelnikov_]

17. Another Good Article I Am Sure You Have Already Seen

Balanced, but for me still points to a combination of market fundamentals coupled with some serious manipulation that can be explained away as 'the market'.


Gas Is Down - Go Back To Sleep
http://www.energybulletin.net/20919.html

[Vinnie From Indy]

7. LOL! Yeah right!

I think that the thought that oil companies and producers are NOT artificially manipulating the price to aid the GOP in the run up to the November elections is much more far fetched than thinking they are doing just that. When one ponders the unprecedented, world record quarterly profits enjoyed by many energy companies during Smirky's reign, lowering the price for a few months using a variety of methods loses the oil companies NOTHING!!!! The oil companies are not just stealing billions by artificially raising the price of petroleum under Bush, they are receiving pretty much whatever they want in the areas of regulation and enforcement. Yeah, these guys are playing America as suckers. Any bets that oil will be close to $80. a barrel and gas back near $3.00 a gallon within THREE MONTHS after the election??? I am quite certain that the oil company TV spokespeople will come up with a reworked excuse for the rising prices after the election. I would not be surprised if they blame the locust in Cancun for a reduction in supply that justifies raising the price. LOL!

[Strelnikov_]

8. Another View

Cheap Gas Until The Election?
http://www.augustafreepress.com/stories/storyReader$40623

"The Republicans are in a bad situation, even soccer moms know this. The best chance they have now is lower gas prices," says Michael Kane, energy affairs editor at From the Wilderness Publications, which publishes a daily e-mail newsletter on world energy and political news.

"When it comes to heating oil and natural gas, your bill may go up, but you pay what you pay for it. The price is not on billboards around the country. But people shop comparatively for gasoline. It's a real billboard sticker. Cheap gas is about the only push that the Republicans have right now, given that their backs are against the wall in Iraq."

. . .

"Following what the storage numbers say, each week the amount of oil and gas reserves is going up," says Kane. "The people who are involved at the refineries know the market, they know the cycles and they know that they don't need that much gas. By flooding the market when you know that demand is low, and then on top of that when the economy is slow, you know that there's even less demand." Even though supplies are high and prices are falling, refineries have continued to run at higher than 90 percent capacity in recent weeks.

. . .

Most oil executives, Kane says, are Republicans, and they feel that the GOP will protect their interests on Capitol Hill better than Democrats would. Yet, Kane does not see an organized conspiracy to manipulate voters before the election. "I doubt there was even one phone call," he says. "We're seeing a coordinated campaign, but it's not a conspiracy. It's just everybody knowing what benefits them. It's a question of all the parts of the machine turning in the same direction at the same time."

[GliderGuider]

10. Here's the best explanation I've seen so far

IMO this explanation is good enough I decided to add it to this thread as well as the one about the discussion of gas prices on NPR.

The Goldman Sachs Commodity Index includes gasoline futures as one of its elements. On July 12 Goldman Sachs tweaked the composition of the GSCI. Prior to the revision of the index in July, unleaded gas accounted for 8.45% of the GSCI. Now unleaded gas is only 2.30%. What this means is that hedge funds and institutional money that track the index were FORCED TO SELL 75% of their gasoline futures to conform with the reconstituted GSCI.

You think that kind of selling might have affected the price?

And of course the kicker is that Treasury Secretary Henry M. Paulson Jr. is the former Goldman Sachs chairman. What a fortuitous coinkydink!

[Strelnikov_]

14. I Saw That The Other Day. And I Agree It Is Probably A Factor

Possibly a large one. One has to wonder who and when this change was plotted.

Since I have now been outed as a GOP plant (see post above), let me provide my theory on how we are gaming the system:

- Suspension of purchases for the SPR back in early summer.
- Timely dumping of futures contracts, as you present.
- Muting of the Iran war drum around mid-summer, somewhat reducing the fear factor in pricing.
- Promotion of a new big energy find every other week (not that they will amount to Jack).
- Continued peak production of unleaded beyond the end of the 'driving season', thus flooding the market.

Note that some of the above they have direct control over, others have to be initiated through their corporate supporters.

Of course, when suspicion's are raised, they can dimiss these as tinfoil because: 1) prices always go down in the fall; 2) we had a mild Hurricane season; 3) it is a free market; and 4) the GOP energy plan is working, look at all that supply about to come on line.

Thing you have to remember is that most commodity traders are not nearly as informed as you are (I've read your stuff). And that is the intended audience for most of the above measures since the traders ultimately set the price, in theory.

I say in theory, because this still does not explain why NYMEX UNL at $1.60/gal translates to $2.00/gal at the pump here, now, when $2.20/gal NYMEX resulted in $3.00/gal. at the pump mid-summer. Could it be that some of the 'base' are forgoing profits until November?

[GliderGuider]

16. I suspect what we're seeing is a happy convergence

of circumstance and timely manipulation. Any single factor wouldn't be enough to do it, but put together the calming of the fear factors, the time of year and "a little help from my friends", and you get a nice little swing just in time to send the sheeple back to sleeple before the election. It won't help the GOP much, but I guess it's all they have to counter that little NIE embarrassment.

[Strelnikov_]

18. Thats The Way I See It. 'A Thousand Points Of Light'

Lots of little pushes here and there.

Compartmentalization
Deniability
Plausibility

Same way they are gaming the elections. No one single factor. Lots of little pushes.

[beyond_the_pale]

11. Who recalls the gas crisis when Carter was President?

I worked for a large utility in late 70s when fuel rationing was instituted. My department had to document every gallon of gas our vehicles used. Frequently, when we called various gas and diesel suppliers we were only sent 1/2 a tanker of diesel because there were shortages. Plant managers were scared they wouldn't have enough diesel to keep pumps running if there were an electrical failure. After Reagan was elected the controls ended and fuel companies were calling us to advise that they had plenty of gas and diesel -- How much did we want? Naturally we stopped documenting our fuel consumption and vehicle efficiency. That department was eliminated and all the people working on that subject were reassigned. The records were all put boxes and probably trashed. The crazy thing was this happened overnight. One week there was no diesel. The following week, we could buy all the diesel we wanted from several different oil companies. I don't remember anything about prices. Everyone was so relieved that they had fuel again that price was inconsequential at that point.