Sunday, August 21, 2011

Fretting Fuelishly

I take it that by now everyone knows gas prices are a joke. A butterfly fluttering its wings in Chongzhou will cause volatility in light crude futures in Chicago. A cellphone call to a buddy who owns a gas pump kitty-corner from you, and who forgot to adjust his price sign this morning will instantly remedy the anomaly in the market. Only make sure that you do not say what the market price is, because that would be participation in price-fixing cartel, subject in Canada to 14 years of jail and a fine up to $25 million. So to stay on the right side of the Competition Act, do not say fuelish things on your cellphone or leave paper trail. It is not an offence under the act to consult price boards of competition and make your own deduction of what the fair market price of gasoline in your neck of the woods should be at 7 am this lovely morning. I am not making this up, friends, this is the cuckoo-conomy you and I live in these days.

So what is new in all of this hullabaloo ? Actually, it is kind of getting even weirder than useless laws designed to catch a dozen idiots among thousands of petro pickpockets. President Obama created an Oil and Gas Price Fraud Working Group headed by the Attorney General to investigate the ever more brazen robberies at the gas pump. The administration designated hound dog is Eric Holder, the man having trouble identifying the Fort Hood shooter who describes himself as Soldier of Allah as a terrorist inspired by radical islam. Of course it produced nothing of newsmaking note in four months. But we know there are some really interesting data out there. A couple of days ago, the US Senator Bernie Sanders released the names of major traders with their share of oil futures in the summer of 2008, i.e. the names of people who drove the price of oil through the roof at the time. The data comes directly from the Commodity Futures Trading Commission. "This report clearly shows that in the summer of 2008 when gas prices spiked to more than $4 a gallon, Goldman Sachs, Morgan Stanley, and other speculators on Wall Street dominated the crude oil futures market causing tremendous damage to the entire economy,"Sanders said in a statement. "The CFTC has kept this information hidden from the American public for nearly three years. That is an outrage."

The effect of the disclosure was predictable. The president of the Futures Industry Association John Damgard denounced the outing of this information, as threatening “derivatives trading” (oh Lord !) and jeopardizing the Commission's ability to gather such information in the future. But he does not seem to understand the basic thing: Energy commodities speculation which directly causes rapid cost escalations across the whole economy, cannot be good…..for the economy. And indeed, where the governments of the booming economies of the world protect the stability of energy supply by regulation (and subsidies), the US and Canada suffers volatility which now all but assures their GDP will continue to stagnate or tank. So it would be good - as a first thing - to separate concepts like market and criminal conspiracy.

Oh No, not ANother Hurricane..(Aug 27.)

Predictably, the news of Irene drove up the gasoline price by 10 cents yesterday. Usually, this kind of a jump in the past was occasioned by a spike in the spot price of crude, but noone seems to care about this sort of protocol these days. The price of crude may be the only truly variable cost in the production and distribution of gasoline, but the oil companies don't care. The will not be hogtied to the price of crude because in times of high prices the demand for gas is falling, and with it the total revenue. So to protect the aggregate revenues of big oil the price of gasoline will need to be re-adjusted until you pay $1.30 a liter on a $85/barrel, where you paid the same amount for $135/barrel just a little while back. The The graph showing the price relationship between crude oil and wholesale price in Canada in the last six months graphically illustrates the new pricing paradigm. (click on the graph to enlarge). The trend is closely parallel to the US which gives lie to the assertion that the fluctuations in wholesale prices (outside of crude oil) are to regional issues of distribution, currency exchange, quality of crude(!), different refinery maintenance standards and whatever other nonsense industry advocates can dream up. There is a marked push upwards for the gasoline price which faithfully follows peaks and valleys of the US development. The price of gas, in the disintegration of any semblance of market is now simply dictated by the oil and gas cartels. Unlike the rapidly developing economies of the world, Canada does not show political will to do the things necessary to counter the effects of this push to higher production costs and inflation across the board - i.e. tax the windfall profits and/or fix the allowed profit in the pricing of gasoline.

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