Are Rising Oil and Food Prices a Scam?

[marmar]

from Consortium News:




Are Rising Oil and Food Prices a Scam?

By Danny Schechter
April 19, 2011


Editor’s Note: International crises – from the earthquake/tsunami in Japan to the war in Libya – may be subjects for sympathy and concern among most people, but for financial speculators, they are opportunities to make money.

Yet, while investing in commodity futures also may have some broader economic value – by spreading risk – the question at a time of volatility is where does that purpose end and crass exploitation begin, as Danny Schechter asks in this guest essay:


The global economy and its recovery, and the living standards of millions of plain folks, are now at risk from the sudden rise in oil and commodity prices.

Gas at the pump is up, and going higher. Food prices are following. The consequences are catastrophic for the global poor as their costs go up while their income doesn’t.

It’s menacing American workers too, who in large part have not seen a meaningful raise since the days of Reagan (keeping it this way is clearly behind the current flurry of attacks on unions).

Already, unrest in the Middle East and many African countries is being blamed for these dramatic increases. It seems as if this threat to global stability is being largely ignored in our media, one that treats the oil business as just another mystical world of free market trading. ....................(more)

The complete piece is at: http://www.consortiumnews.com/2011/041911a.html

[lilbethm]

1. I'm no financial Wizard

But how can Inflation be high when incomes are low? Is it all greed? Or a win-win situation for the elite? They are sending us quickly into poverty so they can rule. The inflation of Oil, food, and other necessities helps profit, and gets rid of the "weaker" among us without a shot being fired. IMO

[dkf]

2. There are 1.3 billion people in China where income growth is 9.7%

"While China's gross domestic product (GDP) grew at an average annual rate of 11.2 percent to reach 39.8 trillion yuan ($6 trillion), the per capita disposable income of urban residents rose by an annual average of 9.7 percent and the per capita net income of rural residents by 8.9 percent in real terms between 2006 and 2010."

http://www2.chinadaily.com.cn/bizchina/2011-03/18/content_12193560.htm

[dkf]

3. China Crops in Shortest Supply as Vanishing Farms Spur Rising Food Futures

Across the road from Zhao Yuanyi’s wheat field in China’s Shandong province, Chonche Group is expanding a rail-car factory on what used to be 227 hectares of farms. Nearby, Geely Automobile Holdings Ltd. (175) makes sedans on an 87 hectare site that four years ago was covered by crops.

The factories sprawling from Jinan city, 350 kilometers (220 miles) south of Beijing, put Zhao on the front line of a clash between a policy of food self-sufficiency and industrial growth that made China the world’s second-biggest economy. Industrialization is winning, signaling prices for crops like wheat and corn will rise as China is increasingly unable to feed itself and vies for supplies on global markets.

China’s farmland shrank by 8.33 million hectares (20.6 million acres) in the past 12 years, Premier Wen Jiabao’s top agriculture adviser Chen Xiwen told reporters March 24. Land under cultivation has already fallen almost to the government’s 120 million hectare limit after being consumed by apartments, factories, desertification and a forestation campaign. Drought has also hit the country’s main wheat-growing region.

“China’s increased demand for agricultural commodities will mean an increase in prices for the entire world market,” said David Stroud, chief executive officer of New York-based hedge fund TS Capital Partners. “China can outlast any other bidders for the commodities it desires.”

http://www.bloomberg.com/news/2011-04-18/china-crops-in-short-supply-as-fewer-farms-spur-food-futures.html

[fasttense]

4. It's a bubble.

Ravi Batra predicted this bubble when the recession 1st hit. Since we have rescued the uber rich, they have to find a place to park all their unnecessary money. (They don't need to spend it, they have everything they need or want) Since the CDOs and other mortgage backed crap is known to be worthless, they need something solid and real. So, speculators are buying up gold, oil and other commodities. Simply put, with the help of the bailout, they are re-inflating the bubble.

This is the best part of your post:

"“That’s how we have developed a massive glut of 677 million barrels worth of contracts in the front four months on the NYMEX and, come rollover day – that will be the amount of barrels ‘on order’ for the front 3 months, unless a lot barrels get dumped at market prices fast.

“Keep in mind that the entire United States uses ‘just’ 18M barrels of oil a day, so 677M barrels is a 37-day supply of oil. But, we also make 9M barrels of our own oil and import ‘just’ 9M barrels per day, and 5M barrels of that is from Canada and Mexico who, last I heard, aren’t even having revolutions.

“So, ignoring North Sea oil, Brazil and Venezuela, and lumping Africa in with OPEC, we are importing 3Mbd from unreliable sources and there is a 225-day supply under contract for delivery at the current price, or cheaper, plus we have a Strategic Petroleum Reserve that holds another 727 million barrels (full) plus 370M barrels of commercial storage in the U.S. (also full) which is another 365.6 days of marginal oil already here in storage in addition to the 225 days under contract for delivery.“

These contracts for oil outnumber their actual delivery, a sign of speculation and market manipulation, as oil companies win government authorizations for wells but then don’t open them for exploration or exploitation.

It’s all a game of manipulating oil supply to keep prices up. And no one seems to be regulating it."

There is so much oil out there, they can no longer store it in the US.

But Obama says he can't do anything about it except to drill baby, drill.

[Demeter]

5. Obama and the Fed Could Tax (Soak Up) All That Liquidty

but since Obama is a fiscal passivist, we are just gonna get beaten up by the dollars Bernanke printed.

[crickets]

7. +1 ...There's no excuse for people to have so much money

that they don't know where to "park" it.

[abelenkpe]

6. They are a reality

Caused by two things mainly: a bubble in China and speculative in the west using cheap bailout money to profit from the instability and make up for their losses from 2008 on the backs of the people.

There is no wage inflation or cheap easy credit for the average consumer in the west driving the increase in prices. Is that stagflation?

[Forrest Greene]

8. Of Course They're A Scam

The powers that be could run the human world for free for every man, woman, & child on Earth, if they wanted to.

[elleng]

9. No doubt.

'Dan Gilligan, president of the Petroleum Marketers Association, representing 8,000 retail and wholesale suppliers has spoken out. He argues:

“Approximately 60 to 70 percent of the oil contracts in the futures markets are now held by speculative entities. Not by companies that need oil, not by the airlines, not by the oil companies. But by investors who profit money from their speculative positions.”...

“There is nothing that the conga-line of tankers between here and OPEC would like to do more than unload an extra 277 Million barrels of crude at $112.79 per barrel (Friday’s close on open contracts and price).

“But, unfortunately, as I mentioned last week, Cushing, Oklahoma (where oil is stored) is already packed to the gills with oil and can only handle 45M barrels if it started out empty so it is, very simply, physically impossible for those barrels to be delivered.

“This did not, however, stop 287M barrels worth of May contracts from trading on Friday and GAINING $2.49 on the day. “

He asks, “Who is buying 287,494 contracts (1,000 barrels per contract) for May delivery that can’t possibly be delivered for $2.49 more than they were priced the day before? These are the kind of questions that you would think regulators would be asking – if we had any.”

The TV news magazine “60 Minutes” spoke with Dan Gilligan, who noted that investors don't actually take delivery of the oil: "All they do is buy the paper, and hope that they can sell it for more than they paid for it. Before they have to take delivery."

He says they make their fortunes “on the volatility that exists in the market. They make it going up and down."'

[bhikkhu]

10. Simple supply and demand

from the article:

"Princeton University economist Paul Krugman pooh-poohs the impact of speculation, counter-posing the traditional argument that oil prices are set by supply and demand.

The Economist magazine agrees, summing up its views with a pithy phrase, “Speculation does not drive the oil price. Driving does.”

Others, like oil industry analyst Michael Klare of Hampshire College, see demand outdistancing supply:

“Consider the recent rise in the price of oil just a faint and early tremor heralding the oilquake to come. Oil won’t disappear from international markets, but in the coming decades it will never reach the volumes needed to satisfy projected world demand, which means that, sooner rather than later, scarcity will become the dominant market condition.”

...anyone following the industry for the past few years could summarize: conventional oil production hit a plateau in 2005, while the world's economies kept growing. By 2008 price pressures and the threat of scarcity and unrest in the ME led to a price spike, which contributed to a global recession (reducing demand). After about 6 months most of the world's economies began to grow again, especially the oil-hungry China and India. By the end of 2010 demand was again bumping up against supply, prices began to rise, more unrest, and we're back at the threat of a price spike and recession.

Odds are this will happen over and over again...people might be advised to consider a lifestyle less dependent on a diminishing resource, as a lifestyle of finger-pointing ("over and over again" as well) has proven to be far from productive or sustainable.

[indimuse]

11. yes!

and it will continue...

I think people should start paying attention to our crop shortage.(due to various flooding,etc..).and of course WATER! That will be an issue.

[Bill USA]

12. speculation in food commodities - more speculative contracts than those held by producers & users.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=115x286098

[GliderGuider]

13. Three Graphs

1. We hit Peak Oil six years ago:



2. Net oil exports - the oil available on the world market - are declining as the plateau of production meets rising consumption in oil producing nations (ignore the projections, they're not predictive):



3. The cost of food is very (I mean VERY) closely tied to the price of oil:



I prepared these graphs in February of this year. You can see them on my web site at:

Connecting the Dots: Food, Fossil Fuel and Population
The Oil-Fired, Grain-Fed Global Food Crisis
Is Peak Population Almost Here?