Saturday, June 13, 2009

Washington Sleeps for creeps.... As Oil Prices Stir

Washington Sleeps As Oil Prices Stir...

Energy: Will oil hit $250 a barrel? The Russians think so, as crude prices climb to an eight-month high. Meantime, House Republicans advance a plan to help the administration keep a domestic energy promise....

The cost of July deliveries of crude bounced over $73 Thursday as the American Petroleum Institute reported shrinking U.S. inventories as the dollar weakens against the euro.

Alexei Miller, chairman of the Russian energy giant Gazprom, is repeating his prediction of a year ago that oil may eventually reach the $250 mark. That may be wishful thinking on his part, seeing how the Russian economy and military are dependent on oil revenues.

But one thing is certain — a recovering global economy is going to need ever more energy, and it can't wait for switch grass. A wobbly U.S. economy overburdened by current and future debt is likely to face ever-rising energy prices.

House Republicans hope to lower those prices and make a change in our listless domestic energy policy with the American Energy Act. The measure provides incentives for increased oil and gas production on public and private lands and authorizes drilling in a tiny portion of the frozen tundra of the Arctic National Wildlife Refuge.

Rather than planting trees in a Third World backwater, the plan's "carbon offsets" involve building 100 new nuclear power plants over the next 20 years.

With 31 announced reactor applications already in the pipeline, this is a doable goal. It will lower domestic energy prices and clean the air more effectively than an administration cap-and-tax plan that would cause electricity prices to "necessarily skyrocket."

Reprocessing of spent fuel rods, already done by France and other countries, makes nuclear power a renewable resource, one that emits no greenhouse gases. The administration gives nuclear energy lip service while stopping a storage depository for these rods in Yucca Mountain, Nev.

The House GOP is actually trying to help President Obama keep a promise. "In the short term," he said in April, "as we transition to renewable energy we can and should increase our domestic production of oil . . . We still need more oil, and we still need more gas." The House GOP wants to help him do just that.

But in a classic case of the doubletalk we've all become familiar with, the administration is moving in exactly the opposite direction. Its cap-and-trade plan punishes those who produce and use domestic energy. It has proposed eliminating all tax incentives to produce oil and gas, and has slapped a 13% excise tax on all energy coming from the Gulf of Mexico.

Interior Secretary Ken Salazar has canceled 77 oil and gas leases that were assigned to Utah. He stopped plans to lease oil shale rights in five Western states estimated to hold between 1 trillion and 2 trillion (with a "t") barrels of recoverable oil. The Obama administration has decided not to issue leases for gas well drilling on the Roan Plateau in Colorado.

Exploration in the Chukchi Sea off Alaska has been impeded by such developments as the listing of the yellow-billed loon as an endangered species.

Science magazine reports that the U.S. Geological Survey now finds it holds more than anyone thought — 1.6 trillion cubic feet of undiscovered gas, or 30% of the world's supply and 83 billion barrels of undiscovered oil, 4% of the global conventional resources.

We are being denied this by a bunch of loons.

"It's a very nonsensical position we're in right now," Alaska Gov. Sarah Palin told IBD in an interview. "(We) ask the Saudis to ramp up production of crude oil so that hungry markets in America can be fed, (and) your sister state in Alaska has those resources."

The really sad part is that in a nation starved for energy and jobs, we continue to keep our heads in the sand and our energy in the ground....

Mulling Over Why Oil Prices Have More Than Doubled

We return to the matter of oil prices, the questions being: Why have they more than doubled over the last four months; and are they headed still higher in the short term?

Oil today closed above $70 a barrel for the first time in seven months. As a memory-jogger, they were at $33 just in February. But unlike the last explosion in prices -- to $147 a barrel 11 months ago -- no one seems to be ruling out a role on the part of speculation.

Indeed, as the Wall Street Journal’s Ben Casselman has noted, there appears to be a broad consensus that billions of dollars in speculative money has settled in oil, thus driving up the price. The reason is that traders and investors are buying crude, among other commodities like copper, as protection because they don’t want to hold dollars whose value has been weak and volatile.

There is much said about “fundamentals.” That is, more than 2.6 billion barrels of oil is in storage around the world – including some 130 million barrels just on ships that are trolling global waters until prices go up -- and demand shows no sign of recovering. This thinking goes that the speculators have canceled out these fundamental truths.

But, isn’t it possible that the collapse in oil prices to $32 was in itself an overshoot, and that oil is at a truer balance in the $60- to $70-a-barrel range?

That seems as rational a view as any I have heard. Yet, at Alaron Energy, Phil Flynn attributes much of the price runup to Ben Bernanke over at the Federal Reserve. Flynn, normally among the clearest communicators among observers of the market, has been resorting to economic gobbledy gook for weeks about an obscure economic practice called quantitative easing.

we are talking simply about the Fed buying federal assets like treasury bonds. By taking the Fed’s money, the sellers of these assets now have oodles of cash burning a hole in their collective pockets, Flynn argues. And what are they doing with it? Among other things, according to Flynn, buying oil.

John Authers at the Financial Times argues – probably rightly -- that the Fed may keep its current policy in place for some time. But Flynn says that the futures market suggests that the Fed may move quicker than some expect.

Of course, the longer-term trend is clear. Oil prices seem likely to spike again sooner or later because oil companies have halted so many exploration and drilling projects that, when the global economy recovers, there is probably going to be an oil shortage. And we all know what happens in oil shortages....

Don't leave it to the bank executives who will naturally take care of themselves first, maybe the country later.

Obama rejected that option. He was most reluctant to nationalize banks or to assert full control of those zombies that government has had to keep on life support. His political logic was obvious--maintain the appearance of temporary interventions to assist private enterprise and avoid any accusations of left-wing activism. The right called him a socialist anyway.

What are the odds Obama will win his bet? Not so hot right now, despite frequent pep talks from his economic advisers. If you think back to where this crisis began last year and what the authorities described then as their emergency response, big pieces are still missing in action.

Bush's treasury secretary, Hank Paulson, stampeded the Democratic Congress into providing $750 billion to soak up the rotten assets burdening the balance sheets of the largest banks. That plan was not pursued. The rotten assets are still largely there.

Obama's treasury secretary, Timothy Geithner, came up with an alternative approach--a complicated Monopoly game in which government would underwrite private investors to buy up the bad financial paper. That didn't happen either. The bankers let it be known they would not sell the stuff--not at discounted prices, not if it meant admitting the depths of their true losses.

Meanwhile, the government has also ducked the explosive question of derivatives--the casino-like "credit default swaps" that were very, very profitable for banks like JP Morgan Chase but became the time bomb threatening to blow up the entire system. The time bomb is still ticking. The bankers don't want give up that lucrative business. The Obama officials have not yet found the nerve to go against the bankers' desires....because the Siamese twins CIA/MOSSAD still rule the day and have much different agendas.... for the world..... together with the FED.....

Finally, there is the real economy where most Americans dwell. Obama's team is counting on a recovery in the second half of this year and his advisors keep predicting it with increasing confidence. The president is betting on that too. If his optimism is not confirmed by events, his problems multiply. The stock-market restoration celebrated by the bankers will begin to look like another financial bubble, driven by false hopes. Banking problems will worsen and they will he back for still more bailouts. And President Obama will have to take a second look at his happy assumptions. He might start by replacing some of the cheerleaders....

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