As detailed in an earlier
article, a conservative calculation is that at least 60 percent of today�s
$128 per barrel price of crude oil comes from unregulated futures speculation
by hedge funds, banks and financial groups using the London ICE Futures and New
York NYMEX futures exchanges and uncontrolled inter-bank or Over-The-Counter
trading to avoid scrutiny.
US margin rules of the government�s Commodity Futures
Trading Commission allow speculators to buy a crude oil futures contract on the
NYMEX by having to pay only 6 percent of the value of the contract. At today's price
of $128 per barrel, that means a futures trader only has to put up about $8 for
every barrel. He borrows the other $120. This extreme �leverage� of 16 to 1
helps drive prices to wildly unrealistic levels and offset bank losses in
sub-prime and other disasters at the expense of the overall population.
The hoax of
Peak Oil -- namely the argument that the oil production has hit the point where
more than half all reserves have been used and the world is on the downslope of
oil at a cheap price and abundant quantity -- has enabled this costly fraud to
continue since the invasion of Iraq in 2003 with the help of key banks, oil
traders and big oil majors. Washington is trying to shift blame, as always, to
Arab OPEC producers. The problem is not a lack of crude oil supply. In fact the
world is in oversupply now. Yet the price climbs relentlessly higher. Why? The
answer lies in what are clearly deliberate US government policies that permit
the unbridled oil price manipulations.
oil demand flat,
prices boom . . .
market strategist for one of the world�s leading oil industry banks, David
Kelly of J.P. Morgan Funds, recently admitted something telling to the
Washington Post, �One of the things I think is very important to realize is
that the growth in the world oil consumption is not that strong."
One of the
stories used to support the oil futures speculators is the allegation that
China�s oil import thirst is exploding out of control, driving shortages in the
supply-demand equilibrium. The facts do not support the China demand thesis
government�s Energy Information Administration (EIA) in its most recent monthly
Short Term Energy Outlook report concluded that US oil demand is expected to
decline by 190,000 b/d in 2008. That is mainly owing to the deepening economic
recession. Chinese consumption, the EIA says, far from exploding, is expected
to rise this year by only 400,000 barrels a day. That is hardly the
"surging oil demand" blamed on China in the media. Last year, China
imported 3.2 million barrels per day, and its estimated usage was around 7
million b/d total. The US, by contrast, consumes around 20.7 million b/d.
the key oil consuming nation, the USA, is experiencing a significant drop in
demand. China, which consumes only a third of the oil the US does, will see a
minor rise in import demand compared with the total daily world oil output of
some 84 million barrels, less than half of a percent of the total demand.
Organization of the Petroleum Exporting Countries (OPEC) has its 2008 global
oil demand growth forecast unchanged at 1.2 mm bpd, as slowing economic growth
in the industrialised world is offset by slightly growing consumption in
developing nations. OPEC predicts global oil demand in 2008 will average 87
million bpd -- largely unchanged from its previous estimate. Demand from China,
the Middle East, India, and Latin America is forecast to be stronger but the EU
and North American demand will be lower.
world�s largest oil consumer faces a sharp decline in consumption, a decline
that will worsen as the housing and related economic effects of the US
securitization crisis in finance de-leverages. The price in normal open or
transparent markets would presumably be falling not rising. No supply crisis
justifies the way the world's oil is being priced today.
oil fields coming
Not only is
there no supply crisis to justify such a price bubble. There are several giant
new oil fields due to begin production over the course of 2008 to further add
single largest oil producer, Saudi Arabia is finalizing plans to boost drilling
activity by a third and increase investments by 40 percent. Saudi Aramco's
plan, which runs from 2009 to 2013, is expected to be approved by the company's
board and the Oil Ministry this month. The Kingdom is in the midst of a $50
billion oil production expansion plan to meet growing demand in Asia and other
emerging markets. The Kingdom is expected to boost its pumping capacity to a
total of 12.5 mm bpd by next year, up about 11 percent from current capacity of
11.3 mm bpd.
this year, Saudi Arabia's Khursaniyah oilfield began pumping and will soon add
another 500,000 bpd to world oil supply of high grade Arabian Light crude. As
well, another Saudi expansion project, the Khurais oilfield development, is the
largest of Saudi Aramco projects that will boost the production capacity of
Saudi oilfields from 11.3 million bpd to 12.5 million bpd by 2009. Khurais is
planned to add another 1.2 million bpd of high quality Arabian light
crude to Saudi Arabia's export capacity.
Brazil�s Petrobras is in the early phase of exploiting what
it estimates are newly confirmed oil reserves offshore in its Tupi field that
could be as great or greater than the North Sea. Petrobras says the new
ultra-deep Tupi field could hold as much as 8 billion barrels of recoverable
light crude. When online in a few years, it is expected to put Brazil among the
world's "top 10" oil producers, between those of Nigeria and those of
In the United States, aside from rumors that the big oil
companies have been deliberately sitting on vast new reserves in Alaska for
fear that the prices of recent years would plunge on oversupply, the US
Geological Survey (USGS) recently issued a report that confirmed major new oil
reserves in an area called the
Bakken, which stretches across North Dakota, Montana and south-eastern
Saskatchewan. The USGS estimates up to 3.65 billion barrels of oil in the
just several confirmations of large new oil reserves to be exploited. Iraq,
where the Anglo-American Big Four oil majors are salivating to get their hands
on the unexplored fields, is believed to hold oil reserves second only to Saudi
Arabia. Much of the world has yet to be explored for oil. At prices above $60 a
barrel, huge new potentials become economic. The major problem faced by Big Oil
is not finding replacement oil but keeping the lid on world oil finds in order
to maintain present exorbitant prices. Here they have some help from Wall
Street banks and the two major oil trade exchanges -- NYMEX and
London-Atlanta�s ICE and ICE Futures.
do prices still
growing evidence that the recent speculative bubble in oil, which has gone
asymptotic since January, is about to pop.
month in Dallas Texas, according to one participant, the American Association
of Petroleum Geologists held its annual conference where all the major oil
executives and geologists were present. According to one participant,
knowledgeable oil industry CEOs reached the consensus that "oil prices
will likely soon drop dramatically and the long-term price increases will be in
Just a few
days earlier, Lehman Brothers, a Wall Street investment bank had said that the
current oil price bubble was coming to an end. Michael Waldron, the bank's
chief oil strategist, was quoted in Britain's Daily Telegraph on Apr. 24
saying, "Oil supply is outpacing demand growth. Inventories have been
building since the beginning of the year.�
In the US,
stockpiles of oil climbed by almost 12 million barrels in April according to
the May 7 EIA monthly report on inventory, up by nearly 33 million barrels
since January. At the same time, MasterCard's May 7 US gasoline report showed
that gas demand has fallen by 5.8 percent. And refiners are reducing their
refining rates dramatically to adjust to the falling gasoline demand. They are
now running at 85 percent of capacity, down from 89 percent a year ago, in a
season when production is normally 95 percent. The refiners today are clearly
trying to draw down gasoline inventories to bid gasoline prices up. �It�s the
economy, stupid,� to paraphrase Bill Clinton�s infamous 1992 election quip to
Daddy Bush. It�s called economic recession.
The May 8
report from Oil Movements, a British company that tracks oil shipments
worldwide, shows that oil in transit on the high seas is also quite strong.
Almost every category of shipment is running higher than it was a year ago. The
report notes, "In the West, a big share of any oil stock building done
this year has happened offshore, out of sight." Some industry insiders say
the global oil industry from the activities and stocks of the Big Four to the
true state of tanker and storage and liftings, is the most secretive industry
in the world with the possible exception of the narcotics trade.
Sachs again in
price today, unlike 20 years ago, is determined behind closed doors in the
trading rooms of giant financial institutions like Goldman Sachs, Morgan
Stanley, JP Morgan Chase, Citigroup, Deutsche Bank or UBS. The key exchange in
the game is the London ICE Futures Exchange (formerly the International
Petroleum Exchange). ICE Futures is a wholly-owned subsidiary of the Atlanta
Georgia International Commodities Exchange. ICE in Atlanta was founded in part
by Goldman Sachs which also happens to run the world�s most widely used
commodity price index, the GSCI, which is over-weighted to oil prices.
As I noted
in my earlier article, (Perhaps 60
percent of today�s oil price is pure speculation), ICE was focus of a
recent congressional investigation. It was named both in the Senate's Permanent
Subcommittee on Investigations' June 27, 2006, Staff Report and in the House
Committee on Energy & Commerce's hearing in December 2007 which looked into
unregulated trading in energy futures. Both studies concluded that energy
prices' climb to $128 and perhaps beyond is driven by billions of dollars'
worth of oil and natural gas futures contracts being placed on the ICE. Through
a convenient regulation exception granted by the Bush administration in January
2006, the ICE Futures trading of US energy futures is not regulated by the Commodities
Futures Trading Commission, even though the ICE Futures US oil contracts are
traded in ICE affiliates in the USA. And at Enron�s request, the CFTC exempted
the Over-the-Counter oil futures trades in 2000.
So it is no
surprise to see in a May 6 report from Reuters that Goldman Sachs announces oil
could in fact be on the verge of another "super spike," possibly
taking oil as high as $200 a barrel within the next six to 24 months. That
headline, "$200 a barrel!" became the major news story on oil for the
next two days. How many gullible lemmings followed behind with their money
Murti, Goldman Sachs' energy strategist, blamed what he called
"blistering" [sic] demand from China and the Middle East, combined
with his assertion that the Middle East is nearing its maximum ability to
produce more oil. Peak Oil mythology again helps Wall Street. The degree of
unfounded hype reminds of the kind of self-serving Wall Street hype in
1999-2000 around dot-com stocks or Enron.
just before the dot-com crash in the NASDAQ, some Wall Street firms were
pushing sale to the gullible public of stocks that their companies were quietly
dumping. Or they were pushing dubious stocks for companies where their
affiliated banks had a financial interest. In short, as later came out in
Congressional investigations, companies with a vested interest in a certain
financial outcome used the media to line their pockets and that of their
companies, leaving the public investor holding the bag. It would be interesting
for Congress to subpoena the records of the futures positions of Goldman Sachs
and a handful of other major energy futures players to see if they are invested
to gain from a further rise in oil to $200 or not.
rules feed the
added turbo-charger to present speculation in oil prices is the margin rule
governing what percent of cash a buyer of a futures contract in oil has to put
up to bet on a rising oil price (or falling for that matter). The current NYMEX
regulation allows a speculator to put up only 6 percent of the total value of
his oil futures contract. That means a risk-taking hedge fund or bank can buy
oil futures with a leverage of 16 to 1.
We are hit
with an endless series of plausible arguments for the high price of oil: A "terrorism
risk premium;" �blistering� rise in demand of China and India; unrest in
the Nigerian oil region; oil pipelines' blown up in Iraq; possible war with
Iran . . . And above all the hype about Peak Oil. Oil speculator T. Boone
Pickens has reportedly raked in a huge profit on oil futures and argues,
conveniently, that the world is on the cusp of Peak Oil. So does the Houston
investment banker and friend of Dick Cheney, Matt Simmons.
As the June
2006 US Senate report, The Role of Market
Speculation in Rising Oil and Gas Prices, noted, "There's a few hedge
fund managers out there who are masters at knowing how to exploit the peak oil
theories and hot buttons of supply and demand, and by making bold predictions
of shocking price advancements to come, they only add more fuel to the bullish
fire in a sort of self-fulfilling prophecy."
Democratic Congress act to change the carefully crafted opaque oil futures
markets in an election year and risk bursting the bubble? On May 12, the House
Energy & Commerce Committee stated it will look at this issue in June. The
world will be watching.
F. William Engdahl is author of "A Century of War: Anglo-American Oil
Politics and the New World Order" (PlutoPress), and "Seeds of Destruction: The Hidden Agenda of
Genetic Manipulation" (Global
Research). He may be reached at email@example.com.