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As I am writing this piece, headlines are already in breaking news across the world – President Obama and David Cameron have had talks of possibly tapping the national petroleum reserves to battle rising gas prices.
To most, that tantamount to eating seed corn – you pay later with hungry stomachs when there’s no more crop or harvest. But things seem inevitable that the U.S. SPR, which could amount to the equivalent of a month of U.S. daily consumption of oil, and held back as an emergency provision for the nation, is going to be tapped. After all, it’s election year, and it’s Barry’s bad luck that he happens to be on the hot seat right now.
But why are the prices of oil so high? Iraq, Iran, Israel, Afghanistan, greedy Arabs and all things foreign of course.
But no, it’s actually U.S taxpayers who are to blame for rising oil prices. The causation chain is pretty simple:
People pay tax – Feds get money – Feds use the money to bailout big business and buddy banks – the happy banks use the money to buy warehouses and oil fleets and control the major distribution of energy and oil within U.S. with the legal protection that they can hold back stuff and refuse to release stuff as long as they want – they sell the oil they purchase and also add undue storage charges and transportation charges on to the oil at will, funded by feds, and legally protected – oil prices rise – people see red – Obama eats seed corn and the nation’s emergency oil reserves in the election year – prices come down temporarily – reelection gets assured – the taxpayers are to blame. Ultimately democracy assures people get the government they deserve.
I have nothing against Obama or Democrats – as I said it’s Barry’s bad luck to be on the hot seat at this time, he has too few options at hand.
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Why? Why are the hands of the President of U.S. tied down so badly that he needs the seed corn?
Okay let’s add some quotes from a Reuter’s report apparently unrelated to the oil story named “Wall Street, Fed face off over physical commodities” published on March 2.
“While the battle over proprietary trading and new derivatives regulations has taken place largely in public view since the 2008 financial crisis, the fight by JPMorgan Chase, Morgan Stanley and Goldman Sachs to retain or expand their prized physical commodity operations – most acquired in only the past six years – has remained hidden.”
What’s actually hidden?
“Should these banks lose the debate, the result may be the biggest shake-up in commodity markets since the early 1980s, when Wall Street first discovered the potential profits to be made by wading deep into the murky world of crude oil cargoes, copper stockpiles and power plants.”
The debate is over the legality of federally financed companies and big banks holding undue threat over citizens by doing things with their network of physical commodities like warehouses and transport fleets, that would be illegal to do had these been investments in equities.
Jason Schneker, President and Chief Economist at Prestige Economics, Austin is quoted by Reuters as saying: “The truth of it is that having access to the physical markets is about optimization and knowledge – it gives you the visibility of the market to make far more successful proprietary trading decisions in both physical and financial markets … That’s why for many years the most successful traders had access to both markets, and why we’ve seen little sign they’re moving quickly to divest these assets now. It’s trading with material non-public information – the difference compared with equity markets is that it’s perfectly legal.”
Still don’t get it? Let’s have some more quotes from the same details:
“Between 2003 and 2008, the Federal Reserve granted permission for nearly a dozen banks to engage in such trading, which it deemed “complementary” to financial operations within certain limits. Citigroup was the first in, seeking approval on behalf of its aggressive trading unit Phibro.”
So, you’re still stumped, what’s the relation to oil?
Let’s quote a little bit more:
“In the early 1990s, Morgan Stanley oil trader Olav Refvik earned the moniker ‘King of New York Harbor’ by securing a host of leases on storage tanks at the key import hub, giving the company an enviable position in the market. Refvik left Morgan in 2008 and now works for commodity trader Noble.
Morgan Stanley bought terminal and logistics firm TransMontaigne and tanker operator Heidmar in 2006. Heidmar would grow to ship almost 750 million barrels of oil last year, the equivalent of roughly 8 days of global demand.
Last year, using TransMontaigne’s own tanker truck fleet to haul oil, Morgan was one of the only traders able to take advantage of an unprecedented $25 a barrel gap between oil prices at the U.S. storage hub at Cushing, Oklahoma, and prices 500 miles south on the Gulf coast. Many other traders failed to find transport firms willing to lease them trucks.”
And here’s some more on energy:
“Goldman bought a fleet of power plants at bargain prices in the aftermath of the Enron meltdown; it sold many of them in 2007, though its Cogentrix unit still has 17 plants with 1,437 megawatts of capacity, according to IIR Energy. That’s enough to power the city of San Diego. Its private equity unit bought into the Coffeyville oil refinery in Kansas in 2005 – a deal swiftly followed by an exclusive crude oil supply pact with J Aron. It has since sold that stake.
Its biggest gambit came quietly in early 2010, when commodities chief Isabelle Ealet outbid rival merchants to buy Metro from its two founders and private equity firm Monitor Clipper Partners. Trade sources say Goldman paid around $550 million for the firm.
The bank has stressed from the start that Metro would continue to run independently, though a Goldman source said the firm is owned by the bank’s commodity trading arm.”
Nick Madden, vice president and chief procurement officer at Novelis, the world’s largest manufacturers of rolled-aluminum for drink cans expressed his concerns over this issue hidden largely to the public:
“The last thing we want is to see is manufacturing jobs threatened by artificial market shortages and price squeezes resulting from short-term trading plays by the investment banks.”
That’s the cat out of the bag.
The same investment bankers who had brought the nation to its knees with the mortgage crisis, get bailouts on taxpayer money, and then use that money to buy up and control oil distribution, transportation, and warehousing in a manner where they cannot be forced to release their hordes.
So, oil prices rise, and Obama is ready to eat the seed corn.
Ultimately, the taxpayer pays to see that s/he is roundly exploited by banksters.
