Is There an Oil Shortage? Supplies and Speculators

[Better Believe It]

Weekend Edition
July 12 / 13, 2008

Supplies and Speculators
Is There an Oil Shortage?
By ISMAEL HOSSEIN-ZADEH
Ismael Hossein-zadeh, author of the recently published The Political Economy of U.S. Militarism (Palgrave-Macmillan 2007), teaches economics at Drake University, Des Moines, Iowa.

.... claims of an oil shortage are not supported by facts. Evidence shows that, in reality, there is no discrepancy between production and consumption of oil on a global level. Citing statistical evidence of parity between production and consumption of oil, OPEC President Chakib Khelil recently emphasized that there was no shortage of oil: "As far as fundamentals are concerned I think we have equilibrium between supply and demand. . . . In fact right now we have more supply than demand."<2>

Facts of abundant oil supplies in global markets are now also being acknowledged and reported by mainstream media. For example, Ed Wallace of Business Week recently reported that “that worldwide production of oil has risen 2.5% in the first quarter, while worldwide demand has grown by only 2%.

Production is expected to increase by 3.3% in the second quarter, and by as much as 4.1% by the third quarter. The net result is that the U.S. daily buffer for oil production against demand, which was a paltry 1.5 million barrels as recently as 2005, is now up to 3 million barrels in excess capacity today.”

Wallace then asks, “So what is going on here? Why would our Energy Secretary say there's a supply and demand problem when none exists? Why would he say that speculators have little or nothing to do with the incredibly high price of oil and gasoline, when it's clear they do? President Bush—a former oilman—gives the ever-growing demand for gasoline as the primary reason prices are so high, yet that notion can be dispelled with one minute of research.”<3>

So, if indeed there is no imbalance between production and consumption of oil in global markets, how do we then explain the skyrocketing oil prices?

Please read the entire article at:
http://www.counterpunch.org/zadeh07122008.html

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No oil shortage in markets: OPEC chief
Reuters
June 24, 2008

OPEC President Chakib Khelil reiterated on Tuesday that there was no shortage of oil available on markets and the recent record prices of petroleum were due to other factors.

"Our view from a producers' point of view ... is that as far as fundamentals are concerned I think we have equilibrium between supply and demand," Khelil said. "In fact right now we have more supply than demand."

Factors behind the surge in oil prices included the slump in the value of the US dollar in the wake of the subprime crisis and an influx of funds seeking new areas for investment, he said after a meeting with European Union officials.

Asked about the outlook for oil prices, Khelil said he believed markets were watching for how the dollar performed in July and the situation involving Iran, which is in a stand-off with the United States over its nuclear programme.

http://www.financialexpress.com/news/No-oil-shortage-in-markets-OPEC-chief/326935/

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PERHAPS 60% OF TODAY'S OIL
PRICE IS PURE SPECULATION
by F. William Engdahl
Financial Sense
Editorial
May 2, 2008

In the most recent sustained run-up in energy prices, large financial institutions, hedge funds, pension funds, and other investors have been pouring billions of dollars into the energy commodities markets to try to take advantage of price changes or hedge against them. Most of this additional investment has not come from producers or consumers of these commodities, but from speculators seeking to take advantage of these price changes. The CFTC defines a speculator as a person who “does not produce or use the commodity, but risks his or her own capital trading futures in that commodity in hopes of making a profit on price changes.”

That would mean today that at least $50 to $60 or more of today’s $115 a barrel price is due to pure hedge fund and financial institution speculation. However, given the unchanged equilibrium in global oil supply and demand over recent months amid the explosive rise in oil futures prices traded on Nymex and ICE exchanges in New York and London it is more likely that as much as 60% of the today oil price is pure speculation. No one knows officially except the tiny handful of energy trading banks in New York and London and they certainly aren’t talking.

By purchasing large numbers of futures contracts, and thereby pushing up futures prices to even higher levels than current prices, speculators have provided a financial incentive for oil companies to buy even more oil and place it in storage. A refiner will purchase extra oil today, even if it costs $115 per barrel, if the futures price is even higher.

As a result, over the past two years crude oil inventories have been steadily growing, resulting in US crude oil inventories that are now higher than at any time in the previous eight years. The large influx of speculative investment into oil futures has led to a situation where we have both high supplies of crude oil and high crude oil prices.


Please read the entire article at:

http://www.financialsense.com/editorials/engdahl/2008/0502.html

[liberal N proud]

1. If there were an oil shortage...

We would see rationing and long lines at gas stations. Stations would run out of fuel. Has any of that happened recently?

I saw a gas line earlier this week, but it had nothing to do with supply or demand. The station had lowered it's price from $4.09 to $3.76. People were sitting for up to an hour waiting to get gas.

Pure bull shit speculation driving the prices higher

[Muttocracy]

3. you're right - and while crude has gone up, gas here has been flat

for weeks - clearly they jacked up the price WAY up a couple of months ago, because the more expensive crude wasn't anywhere near the U.S. yet!

[joshcryer]

4. Pretty much. Also, troops would be on the ground in Saudi Arabia and so on.

Basically the environment would be drastically different than it is now. There is no shortage, peak oil isn't happening, etc etc.

[Better Believe It]

2. "Rampant Criminal Speculation"

http://www.youtube.com/watch?v=Xs6nT52aM_g

[Leopolds Ghost]

5. Ignorance, not speculation. Ignorance of Econ 101.

Oil is a limited resource. Price goes up until demand is killed. If you
weren't using less gas, you wouldn't be bitching about the price. If you
STILL aren't driving less, then oil is UNDER priced.

You do realize Americans drive too much -- like, EVERYWHERE OUTSIDE THEIR HOUSE, right?

Gas prices have always been the environmentally and economically sound option for penalizing induced consumption of oil by affluent bitchers and whiners.

[Leopolds Ghost]

6. Shortages only happen with price controls or demand inflexibility. Again: Econ 101.

Learn it, instead of trusting some Arab oil sheik.

[Better Believe It]

8. Zenophobia With A Hint of Racism?

I hope not.

However, you seem to be letting the oil companies and oil speculators off the hook while you scapegoat Arabs and car drivers!

I think the case has been made against the oil speculators in the three articles linked in the first post.

Didn't you read them?

If you did read them, provide some evidence to back up your claim that "Arab oil sheiks" are responsible for the the run-up in oil prices and that oil speculators have nothing to do with it.

So far the supply and demand siders haven't presented any credible evidence to back up their attacks on consumers and Arabs.

And they sure sound an awful lot like the oil companies and Bush government which claims we need to let the oil companies drill wherever the hell they damn please!

[joshcryer]

10. Speculation is basically hoarding on a microeconomic scale, imo.

Wouldn't you agree with that generalization?

[joshcryer]

7. Show me the supply slump.

Oil supplies are not dropping. While reserves *are* dropping, the produced supply is *not*. Thus your comments are completely non-sensical.

Build more refineries.

[Better Believe It]

9. The Oil Companies Haven't Buillt A New Refinery In 30 Years!

They just are not making enough money to cover the costs of building refineries .... so they say.

[joshcryer]

11. A sad irony of environmentalist positions benefiting the corporations and hurting the little guy.

Note that the worst of the worst pricing started when Katrina hit, coincidence? Nah, speculators found their "in" and started hedging on prices going up. Of course the raw oil supplies were fine and dandy!

[Better Believe It]

12. For The Sunday Crew