Yes, we need to significantly diminish our consumption of oil imported or otherwise for reasons of global warming, self reliance, security and economic rationality. Important points all touched upon in the president's energy address, together with a vision to steer the economy away from fossil fuels to alternatives ranging from biomass, electric cars and safe nuclear power. Well and good, combined with the recognition this will all take time. 2025 was set as the goal toward reducing the nation's imports of oil by one third from the 11 million barrels a day at the beginning of the Obama presidency.
However, we are living in the here and now, dealing with $105 barrel oil for West Texas Intermediate Crude (WTI), the benchmark grade traded on the New York Mercantile Exchange. At $105/bbl the price is near three times the $33/bbl in February 2009, one month into the Obama presidency. Explaining this enormous differential is where President Obama went seriously off track repeating the rote oil patch argumentation that it is all about supply and demand, as though with oil inventories touching all time highs and filled to overflowing a differential of more than $70/bbl between February 2008 and March 2011 is a rational divergence that can be explained citing the oil industry drivel of 'it's the market.'
Yes, as President Obama explained when more oil is consumed the price goes up. But not to this extent and not to the extent of the explosion in oil prices over the past ten years whereby it has increased by a factor of more than seven. Clearly something else is afoot.
What is afoot is the manipulation of supply and prices by the Organization of Petroleum Exporting Countries (OPEC). When the president says oil can not be pumped fast enough to keep up with demand and that is why so many American families are suffering when paying for high gas prices, no mention is made that the OPEC cartel producers are willfully holding back some 6 million barrels of production a day, of which Saudi Arabia alone has shut in 4.5 million barrels.
Not enough oil to meet demand? Hardly. Certainly not if your interest is curtailing needed supply, in order to hype prices. The cartel's function is to assure that the market has no bearing to supply and demand by artificially creating a shortage of available crude. One need only sight yesterday's Financial Times' front page headline which speaks volumes, "Opec Set For Export Revenue of $1000 bn." That the President of the United States doesn't know better is sad indeed.
The perverseness of the OPEC cartel's manipulated oil market is accentuated by the lax oversight of our regulatory agencies, such as the Commodity Futures Trading Commission, who have done little or less to rein in the rampant speculation by the Hedge Funds, the Wall Street Bank Holding Companies such as J.P. Morgan Chase, Morgan Stanley, Goldman Sachs,and for all we know by the oil producers themselves.
Remember in determining the price of oil through the exchanges the market is not dealing with real (wet) barrels of oil, but rather with virtual barrels. (please see "The Trade That Brought Us $100 Barrel Oil Teaches Us To Be Afraid, Very Afraid") What is to keep the oil producers, or OPEC members themselves for that matter, given the enormous cash reserves held in their sovereign wealth funds, from manipulatively trading oil on the exchanges in order to push prices ever higher. As has been observed by Sen. Levin (D-Mich) when it comes to oil trading, "Right now there is no U.S. cop on the beat overseeing energy trades on over-the-counter, electronic exchanges or foreign exchanges" (please see "The Enron Loophole Helps OPEC Serve Up a Hefty Helping of Oil Price Baloney"). That was nearly five years ago and nothing has substantively changed since.
After making reference to the significant potential of domestic shale gas reserves the president then indulges us with one of the oil industry's' favorite rationalizations for extortionately high prices now, and higher prices to come. He regales us with one of the oil patch's favorite axioms, the 'peak oil' anthem -- we are running out of oil, higher prices are needed to find more oil. He thereby inadvertently is giving the likes of the American Petroleum Institute and their allies in the oil game the cover they need to lull us into being acquiescent marks whose pockets are being fleeced. This while a hapless government and Department of Energy seems unaware of the game that is being played.
The president's lament is an embarrassment in the face of the recent huge new oil discoveries offshore Brazil and West Africa and the new drilling techniques permitting potential cost effective access to the vast shale oil reserves in the United States such as the Bakken Formation extending from North Dakota, parts of South Dakota, and Montana which combined with the Green River Basin Formation has the potential of shale oil reserves of 1.5 trillion barrels -- more than five times the 'stated' reserves of Saudi Arabia. Shale oil has already begun to flow from the Bakken field in North Dakota. And that is only the beginning.
In the meanwhile the transfer of billions upon billions from American and world consumers to oil interests both domestic and foreign continues on and will continue in spite of the programs enunciated by the president if we heedlessly permit OPEC to continue controlling supply and continue to let the speculators and manipulators to turn the commodity exchanges into Frankenstein casinos.