Category Archives: oil prices

Oil and Gas Politics: Just The Nonpartisan Facts

I’ve been writing a series for Fortune in recent weeks tackling questions like, if the U.S. is now selling more petroleum products than it is buying for the first time in more than six decades, why is most of the country paying around $4 a gallon for gas? And if 30% of U.S. oil is drilled from federally owned lands and territories (read: areas owned by us, the taxpayers) why are we not being paid competitive rates for them by the oil companies? 

With the Senate recently voting down a measure to eliminate billions of subsidies for Big Oil, for those not looking to attack either Republicans or Democrats, the 1% or the 99% – just those operating on common sense – it should raise some questions.

Between 2007 and 2010, more than 70% of the increase in U.S. oil drilling took place on federal territories, representing 3.5 million barrels a day, according to the nonpartisan Congressional Research Service. Since then, oil drilling in the U.S. has climbed higher, topping 6 million barrels a day  this spring for the first time since 1999.

The appeal of drilling in the U.S. has grown in recent years, as oil companies develop new technologies to capture energy resources locked in North America that were previously seen as out of reach. Big Oil also has grown wary of the legal and financial uncertainties that often plague their drilling activities in more exotic and restive regions, such as Venezuela and Nigeria, North Africa and the Persian Gulf.

Bottom line: drillers see America as the promised land compared with the dreary alternatives, because the U.S. is by far a safer and stabler place to do business.

Oil Still Fetches 1987 Rates

Yet Americans might be shocked to learn how much the oil companies are actually paying for the privilege to drill on taxpayer-owned territories. As of this writing, the starting bid for leases on parcels of land that allow an oil company to drill for 10 years is $2 an acre. Yes, the prices can get up into the thousands during the bidding process, but more often the land is sold for next to nothing.

And it’s been that way since 1987.

It is as though oil hasn’t budged from $20, the price per barrel the same year Bon Jovi released “Slippery When Wet” (no pun intended regarding the use of ‘slippery,’ however apropos.) Continue reading Oil and Gas Politics: Just The Nonpartisan Facts

Q&A With The Global Journal: Oil Trading And The Casino Syndrome

Happy National Pancake/Leap Year/Week before Super Tuesday Day, all. It has been a turbulent past few months and not just in the oil market. I will get into why very shortly but, for now, let’s just say that after a long and dark winter, I am once again available for dancing in the streets. Without any further cryptic remarks, I’d like to share an interview I just did with The Global Journal, based in Geneva, which rang me up to discuss ‘The Asylum’ and what the future holds for the energy market and gas prices during this, our illustrious Election Year.

(Q portions courtesy of Janine Huguenin-Virchaux, the magazine’s books and culture editor.)

Your book mentions that “the market is no longer reflecting supply and demand.” What is the use of a market that does not reflect the true price of oil? Do we need new hijackers?

That’s a great question – do we need new hijackers? If we could get some hijackers that could take back the market so that it does reflect supply and demand more clearly, then I would say yes, we do! However, I would also say that there is a serious debate going on about the extent to which price does reflect supply and demand. I think there is very good reason to believe that the price does not reflect it anymore. There is also a very technical reason for what has been going on that has not really been acknowledged or understood by many people. And that is the relationship between speculation and price discovery. A lot of the information that I get is from people who read the book and then they come to me and bring me stuff that nobody seems to really know about.

A lot of these guys are just regular traders who trade physical oil and feel that supply and demand is not reflected in the price correctly anymore. Whereas their entire lives – some of these men and women have been trading oil for thirty years or more – they feel the price did reflect it. So they believe there’s a huge difference in what they are seeing today in terms of the market fundamentals versus the price. And what they used to do was see price and fundamentals fit together better. They see a lot of distortion happening now. A lot of these people are concerned with that. I want to say, it’s not all about making money for these people: some of them look at this and say “Oh my God, it’s not acting the way it used to anymore and it doesn’t look like it’s headed anywhere good.” And that is aside from the fact that trading has become so ferocious that it is more about preserving a global casino than about supplying oil to people who need it.

That’s the problem. The casino aspect overshadows everything. Most of the people who play this game don’t want oil. They just want to play the game.

What is the alternative? I mean, these are the people who are speculating on the price of oil. Is there anything that can change to make it different? To make it less casino-like?

Yes, I think so. I am considering writing about this much more, the nature of speculation… Continue reading Q&A With The Global Journal: Oil Trading And The Casino Syndrome

Fortune Features ‘The Asylum’ As Weekly Read

Since publishing “The Asylum: The Renegades Who Hijacked The World’s Oil Market,”  I have received a great deal of response (most of it in private correspondence and some in public forums, such as the press and in the courts, where I spent the better part of my summer languishing in sunless quarters).

You would think it would be the very traders about whom I wrote who would have caused the most trouble. This has not been so. On the contrary, most of them have been supportive to an unwarranted degree, including a rare few who have had every reason to be furious about what I wrote, but instead were reasonable.

Many of them also expressed a sincere belief that the global oil market has run off the rails and that prices are no longer set by supply and demand.

Enter the “market fundamentalist” academics, think tanks, lobbyists and politicians. These folks have been some of the worst offenders. What I have had difficulty understanding, mainly, is what they are getting on about and why. They certainly do not get paid well enough by Wall Street to justify the damage they cause by promulgating misinformation. Any money tossed their way is literally kibble, compared with what is being made off their backs. How much does a senator or academic cost? Not very much, I’m afraid. Continue reading Fortune Features ‘The Asylum’ As Weekly Read

How Now, Gold Cow?

So, I wrote a book…but I have not been goodly enough to do much blogging about it. This was not intentional. This was mainly because of the furious pace of travel, lawsuits, the odd threat — and the fact that I was serving full time as a journalism fellow at the University of Colorado at Boulder, trying to do my best to live a quiet life. I have since made amends, and will be writing regularly about my continuing fascination with sins of affinity and cultures of corruption. Healthy stuff like that.

Let’s start today with Goldman Sachs letting us all know that oil supply is headed for levels that are “critically tight,” sending prices in the U.S. up to nearly $100 again and in Europe still higher. This contrasts somewhat with the bank’s remarks in April that “supply-demand fundamentals are significantly less tight,” made by the bank’s chief energy analyst David Greely. At the time, this prodded oil prices into a temporary swan dive that proved a good buying opportunity for — some would say — Goldman. Mind you, oil supplies in the U.S. have been near their upper limits for most of the year, so not sure what the rumpus is about.

By May, however, Goldman pulled an about-face with its global head of commodities strategy, Jeffrey Currie, predicting that the loss of oil production due to the conflict in Libya would cause oil prices to surge. On cue, they did. Never mind that the Libyan conflict began in February, raging throughout Goldman’s projection of a price crash. Or that Libyan oil production has been a tiny drop in the global bucket (1.6 million barrels a day to the 20 million-plus a day consumed by the U.S. alone).

All told, Goldman’s prediction came just a few weeks after the bank told its clients to dump their oil investments. It makes one wonder which bank doubling as the world’s largest commodities trader was buying oil during that time? Continue reading How Now, Gold Cow?

Interview on ‘Keiser Report’ – Russia Today

Many of you have written to ask for a good bit more on the shenanigans prevalent in today’s oil market. Check out this show, aired today, from minute 14 on…(Thankfully, you can scroll through to the juicy stuff.) More to come on DOJ, FTC, CFTC and FERC investigations into the price of oil and gas — and where the biggest challenges lie for those who seek to break the back of the corruption.

 

‘The Asylum,’ Or How Capitalism and the American Dream Met Their Deaths

June 2011  by Rogue Philosopher

The Asylum: The Renegades Who Hijacked the World’s Oil Market by Leah McGrath Goodman details how a handful of commodity traders on the New York Mercantile Exchange (NYMEX) manipulated the energy futures markets and thereby did more than their share to destroy to our economy.

A singular tragedy in this sordid tale is how the commodity markets finally succumbed to the unbridled greed and power lust that characterized the rest of Wall Street. The commodity futures markets were always the bad boys of the financial community. They didn’t play by the stuff-shirt, pinstriped rules of the banks and investment community. The players on the NYSE and AMEX were mostly dullards. By contrast, the boys and gals at the Commodity Exchange Center in the World Trade Center were a colorful, indeed, even charismatic lot.  The traders were outcasts, renegades, cowboys. They stood apart from the financial herd. They drank hard, partied hard, and womanized shamelessly.

In short, they were a lot of fun.

The commodity futures markets were also the one last place in the financial community where someone starting out from humble beginnings and without the advantages of social or political connections could, with some assistance from Lady Fortuna, make it big. Or at least make a real good living for himself and his family. Traders like these represented one of the few remaining symbols of the American Dream.

No more…

Continue reading ‘The Asylum,’ Or How Capitalism and the American Dream Met Their Deaths

How Fear, Greed Factor Into the Price of Gasoline

The price of oil is set not in Vienna at the headquarters of OPEC, but at the New York Mercantile Exchange.

Llewellyn King, PBS

Sunday, May 1, 2011

WASHINGTON — The fate of the Obama presidency hangs not on a birth certificate or the red ink on the federal budget but by the hose nozzle of your local gas station.

Electoral discontent is measured by the price of a gallon of gasoline. Heading past $4 toward $5, that is a lethal trajectory for President Obama.

Enter the demagogues, especially the clown-in-a-business-suit, Donald Trump. Unfettered by the gravity that goes with facts, Trump says that he would fix the oil price — now around $110 a barrel — by facing down the producers, particularly the Organization of the Petroleum Exporting Countries (OPEC). He told an interviewer on television that he would call OPEC and tell them to pump more or face the consequences. The latter, he did not specify. War? Against whom?

In a compelling book by Leah McGrath Goodman, The Asylum: The Renegades Who Hijacked the World’s Oil Market, the author lays out the ugly fact that often — in fact, more often as not — the price of oil is set not in Vienna at the headquarters of OPEC, but in downtown Manhattan at the New York Mercantile Exchange (NYMEX).

Tens of thousands of future contracts are traded in nanoseconds at the NYMEX, and the price of oil is set. This price affects not only the price that will be paid when these contracts expire and delivery takes place, but also, according to Goodman, the all-important over-the-counter market, where sellers trade more directly with buyers without government oversight.

Goodman contends that there is little oversight of the NYMEX because the agency charged with the role is the weak and ineffectual Commodities Futures Trading Commission (CFTC), where many staff and commissioners are busy burnishing their resumes so they can cash in later as market executives.

The over-the-counter market is not regulated at all because of a pernicious interference from Congress known as the “Enron Loophole.” How did it get into law? It is one of those pieces of special-interest protection that owes its existence to legislative immaculate conception. It was not in the committee version of the bill; it slipped in along the way without parenthood, but is largely believed to be the work of former Sen. Phil Graham, R-Texas, whose wife, Wendy, was chair of the CFTC.

In classic theory, a market is where a willing buyer and a willing seller strike a price. In the world of traders, it is something else: It is where volatility is rewarded and myths hold sway.

Today there is no actual shortage of crude oil. Supply and demand, according to those who monitor these things, is in balance. But fear stalks the trading floors because fear is good for traders; and fear is a critical part of the oil price. Continue reading How Fear, Greed Factor Into the Price of Gasoline

5 Shocking Gas Prices Around The Globe

Surprised by Gas Price of $4 a Gallon? Try $8.35 in Germany

By SUSANNA KIM

April 12, 2011

While American drivers are spooked by $4-per-gallon gasoline prices in the U.S., they may be shell-shocked on other continents like Europe. In London, gas was $8.17 per gallon in March, and in Istanbul, Turkey the price was $9.63, according to DailyFinance. 

Leah McGrath Goodman, author of “The Asylum: The Renegades Who Hijacked the World’s Oil Market,” said at least two factors contribute to the variance in global gas prices. First, countries that produce their own oil often have lower prices. Second, different governments choose to subsidize or tax citizens for purchasing gas.

“Every country is different, obviously,” Goodman said. “Some countries have amazing subsidies. In Libya, even with its conflict, its low price has a lot to do with the fact that the government can choose to charge people a lot less.”

Here are five national averages around the globe… Continue reading 5 Shocking Gas Prices Around The Globe

Same Oil, Same Palaver…

Another year of high oil prices, another endless conversation about the role of speculators. Call up anyone on Wall Street or in Washington to find out what’s really going on. Chances are, the answers you get will go a little something like an Abbott and Costello routine.

Abbott: Well, let’s see, we have almost $4 gas and $110 oil. Who’s trading it? What’s the reason it’s so high? I Don’t Know…

Costello: That’s what I want to find out.

Abbott: I say, Who’s trading it; What’s the reason it’s so high; I Don’t Know.

Costello: Are you the portfolio manager?

Abbott: Yes.

Costello: You gonna’ be the regulator too?

Abbott: Yes.

Costello: And you don’t know the fellows’ names?

Abbott: Well I should.

Costello: Well then who’s trading it?

Abbott: Yes.

Costello: I mean the fellow’s name.

Abbott: Who.

Costello: The guy trading it.

Abbott: Who.

Costello: The first one to trade it at $110.

Abbott: Who.

Costello: The guy trading…

Abbott: Who is the first!

Costello: I’m asking YOU who’s the first.

Abbott: That’s the man’s name. Continue reading Same Oil, Same Palaver…

New Book Reveals Who Controls Global Oil Prices

By Tim O’Shei

HOUSTON BUSINESS JOURNAL | Friday, Apr 8th 2011

Who controls the global oil prices?

Powerful banks? Massive hedge funds? Big Oil? OPEC?

There’s never been a straight answer to that question – until now.

Leah McGrath Goodman, a former special writer and editor for The Wall Street Journal and 1998 graduate of St. Bonaventure University, spent the last seven years writing a book that reveals where oil prices have been set for decades: the New York Mercantile Exchange. Or, as the title of Goodman’s book calls it, “The Asylum.”

Published this year by William Morrow/HarperCollins, “The Asylum” takes readers into the boardroom and onto the trading floor of Nymex. Goodman paints a warts-and-all portrait of the often rough-edged traders, for whom she claims making or losing millions in a day was as commonplace as fistfights, drugs and pornography.

By executing both their own deals for oil contracts and orders from big banks and hedge funds, the Nymex traders set the benchmark for global oil pricing. They still do, though Nymex is now part of a group that includes its former competitor, the Chicago Mercantile Exchange, and most of the trading action happens online rather than on the floor.

Business First Managing Editor Tim O’Shei, a classmate of Goodman’s at St. Bonaventure, recently talked to her about the book and about the oil market. Following is a truncated version of that conversation: Continue reading New Book Reveals Who Controls Global Oil Prices