Gary Weiss: "Oil Speculators: The Damage is Real"

Gary Weiss' op-ed piece on TheStreet.com (cross-posted on Sen. Bernie Sanders webpage as well) pinpoints recent studies by the Federal Reserve Bank of St. Louis and Goldman Sachs, which I pointed to last week, showing that oil speculation causing gas prices to rise is not merely an undocumented theory, but a fairly substantiated one.

"Just look at this study by the staff of the Federal Reserve Bank of St. Louis, which found that speculation "played a significant role in the oil price increase between 2004 and 2008 and its subsequent collapse." Last year, a Goldman Sachs study found that every 10 million contracts traded by speculators adds 10 cents to the price of a barrel of oil. That translates to as much as $23 a barrel, when you consider that speculative futures contracts have been the equivalent of 230 million barrels of oil."

Even though signs are pointing that oil may now have peaked, it seems these common-sense reforms to regulate and discourage rampant oil speculation for the future only makes sense. Too bad Republicans are so immured by the oil industry to try any legislative tactic besides opening up more useless oil fields.

You can read the whole article here.

Obama to Tap Strategic Petroleum Reserves?

President Barack Obama

With gas prices on the rise – some parts of the country are seeing $4 per gallon of gas – President Obama is going on the offensive in response to criticism of his handling of rising fuel costs. The President is sticking to his points that America “cannot drill our way out” of high fuel costs and foreign oil dependence. His opponents seem to think otherwise. Sadly, it’s another election year. So, what we get is a lot of rhetoric from both sides and very little action. As the President has fended off criticism of his handling so far, he’s gearing up to take action by releasing oil from the Strategic Petroleum Reserve (SPR). The question is: will this help, and if so, for how long?

The U.S. is the largest consumer of oil in the world. We consume about 19 million barrels of oil per day. In the SPR, the U.S. has about 750 million barrels of oil. Modest estimates say that opening the SPR will only provide relief for, at most, about 100 days. That’s enough to ease the pain at the pump for the summer, but what happens after that? Many do not see indications that the U.S. alone can help the price of oil. Most analysts do not predict costs of crude will be affected unless there is a coordinated effort by the U.S., Europe, and Japan to release oil reserves. And critics contend the SPR should only be used in emergency situations.

World's Top Oil Consumers

Opponents of the idea, notably Republicans (because a Democrat is in the White House; remember all the flack on GWB 4 years ago?), argue the SPR is our safety net for emergencies and should be left alone until absolutely necessary. The recent escalation of tensions with Iran is being used as a ploy to dissuade the President from tapping the reserves, arguing that if we were to go to war with Iran and the Strait of Hormuz were to be blocked, we would desperately need these reserves. Of course, it’s the President who is diplomatically easing tensions with Iran while the GOP, and almost every Republican candidate in the race for the nomination, who are calling for intervention in Iran.

Keystone XL Pipeline Map

Others are pointing to politics and policy decisions on the part of the administration for our fossil fuel woes. There is strong urging from the Right to approve the Keystone XL pipeline, even though the oil procured from the pipeline would be negligible in comparison to the global market, and the “job creation” aspect of the plan is widely disputed—industry estimates skyrocket as high as 20,000; more modest independent studies say a few thousand temporary jobs, and only about 200 permanent jobs created. Opponents also say the President isn’t being truthful when he talks about the U.S.’s oil cache, that we in fact have much more oil than he’s telling us. And this is true – to a point.

The President has been making the claim in his stump speeches that the U.S. has only 2% of the “proven” oil reserves in the world, yet we consume over 20% of the world’s oil. “We can’t just drill our way out,” is his famous slogan. But his opponents say our oil reserves are vastly superior to what the administration is telling us and that there are billions of gallons of oil in untapped wells in Wyoming, Alaska, and other parts of the country. But these areas are not “proven” oil reserves. We have no idea how much oil is there and we can’t accurately estimate until we drill. Yes, there have been times when the amount of oil in a well has far exceeded the original estimation. But for every one of those times, there is another time when our estimates were grossly overstated. And what if the U.S. opened up every inch of land today? It’d take 10-15 years before any of that oil was refined and ready for consumption. That’s hardly going to make an impact on prices today, tomorrow, or over the next decade.

Oil Rig

In reality, the President can do very little when it comes to setting oil prices. Overall, America is small potatoes in the oil market. U.S. oil consumption is at a 10-year low, but U.S. oil production is at an 8-year high. Reasonably speaking, current policy has little to do with the costs at the pump. Tapping the reserves could help – in fact, rumors of such already brought the price of oil down a little – but it’s not good policy to tap into your rainy-day fund when the sun is shining. So, what’s an administration to do?

To significantly, and quickly, affect the price of oil, the President should look to Wall Street, and a bill sponsored by the Independent Senator from Vermont, Bernie Sanders. As the good Senator highlights, a Goldman Sachs study shows excessive speculation on Wall Street raising the price of gas by as much as 56₵ a gallon. That’s almost 20% of what we’re paying at the pump. The bill would require the Commodity Futures Trading Commission to implement rules within 14 days to stop this excessive speculation. As everyone knows by now, Wall Street is essentially the only one at this point recovered from the Recession. Maybe it’s time policy decisions were put in place to help the rest of the country.

Solar Farm

Here's the broader point in all this: with oil consumption down, oil production up, and little in the way of immediate relief at the pump by drilling more, isn't it time we legitimately pursue alternative fuel sources to create an economy no longer dependent on fossil fuels, foreign oil, or ravaging our natural habitat? Opportunity is ripe. We have willing investors and innovators who want to change how the world is powered. We have ample evidence to support green technology and renewable resources will be the next economic boon. We are at a critical moment where we can once again lead in innovation. We can once again crumble the boundaries of what we think is possible, and once again inspire the world to look towards America as a leader and beacon of light shining beneath the gray dreary skies.

Paul Krugman: "Paranoia Strikes Deeper"

"Oil prices are set in a world market, and America, which accounts for only about a tenth of world production, can’t move those prices much. Indeed, the recent rise in gas prices has taken place despite rising U.S. oil production and falling imports..." continue reading here.

Energy Policy: "All of the Above Strategy"

Joe Scarborough: "We all know at this table the Keystone Pipeline is not going to lower gas prices at the pump."

Push the Keystone XL Pipeline

Republicans in Congress are stalwart in their push for President Obama to approve the Keystone XL Pipeline, a pipeline originating in Alberta, Canada to transport oil to Gulf Coast refineries. They have tried numerous times to tie the approval of the pipeline to various bills in Congress, but have thus far failed at this end-run game, or convinced the administration that the pros in support of the pipeline outweigh the cons. In truth, the pros in conjunction with the pipeline seem to be overall beneficial to the country. Estimates show there will be thousands of temporary construction jobs added over the next two years, both directly in constructing the pipeline and indirectly through the various steel mills and other manufacturing sectors needed in constructing the pipeline. Though these estimates vary, I do not think it’s relevant for those opposed to the pipeline to diminish the importance of adding temporary jobs in a recessed economy. I do, however, take exception with the many overstated estimates of permanent jobs that will be created from those in the media and Congress. Once the pipeline is finished, most estimates put the number of permanent jobs from as low as 20, to as many as 200. That’s not going to put a great dent in the unemployment numbers. The number of temporary jobs estimated range anywhere from about 4,000 to 20,000. 20,000 people back to work, at least temporarily, is rather significant. And when we have record-high unemployment, especially when employment in construction and home-building is so slow, I can’t disregard these numbers as ineffectual.

All of this skips around what is most important here, however: the U.S. consumes too much oil, and adding one more transnational pipeline does nothing to reduce the U.S.’s oil dependence both domestically and abroad. As a nation, the U.S. produces fewer than 5% of the total petroleum mined per year, yet we consume nearly 25% of the world’s oil. That’s a staggering number, but the numbers are improving. We are for the first time since the 70’s exporting more oil than we import, and due to increased fuel-efficiency standards put in place by the Obama administration, we are consuming less oil. Also, I have to think that as alternative fuel sources become more abundant and less costly our dependence on this finite resource will diminish. Finite here is the key word.

Having one more pipeline will not address our countries exorbitant necessity for oil and other natural resources. It is apparent that America overuses, yet with each new pipeline dug and well mined we come no closer to solving ours or our planet’s peril in depleting the natural resources that history has so generously provided. Perhaps instead of scarring the planet, and more importantly our nation, with yet another oil pipeline, why don’t we and our leaders seek alternative fuels to reduce our oil and natural gas dependency and lead the world in a new global economy?