From a Friend

My post on speculation elicited this from a friend with close contacts to the intelligence community.

You can clearly trace the rise in oil prices with the creation of oil
middlemen and oil speculation. I talked to an oil broker at length and the rise in price is not related to supply demand but the perceived shortfall based on the perceived risk that an event might suddenly create a spike, delivering a massive profit to those holding contracts.

I was in Equatorial Guinea discussing oil futures and now country oil agencies are now learning to game the system (and getting kickbacks from brokers). The profit is staggering if you can find a spot in front of the firehose. It is quite similar to what Enron did by diverting power away from high demand areas and then selling back in at higher prices. Its something that Mr. Bush (the oil industry is the one thing he does know about!) says nothing about.

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0 Responses to From a Friend

  1. Morgan Warstler says:

    Jon, that’s just plain dumb. If there’s no demand you leave it in the ground. The REAL reason is much worse. From an email I got yesterday, and alluded to in your blog:

    “Purportedly the governments of the Islamic Republic of Iran and the Bolivarian Republic of Venezuela are engaged in a major covert effort to keep the world’s oil tanker fleets from carrying petroleum to the thirsty global markets that need it. This is according to reliable sources who monitor the tanker industry, and sources within the American law enforcement community. The Iranian government has leased and engaged the bulk of the available supertankers, and smaller vessels and is storing oil in ten of them in the Persian Gulf, and eeping others idle whilst under lease or charter. The government of enezuela is allegedly assisting Iran in this manipulative practice, which has resulted in the tripling of the daily charge for tanker use since April, because of a fifty per cent drop in vessel availability during the next thirty days, this is according to authoritative industry sources. Is this the functional equivalent of a declaration of economic war against the United States? What will the response be, and when will it occur?

    Here is what we know so far:

    * A large number of tankers lie at anchor in the Persian Gulf, and elsewhere, all leased by Iran and Venezuela, and all therefore unavailable to carry oil for other prospective charter clients.

    * Iran has also commenced to lease tankers in the spot, or single-trip, market, where it had previously used only its own vessels. This of course, is a deliberate act to tie up additional tankers. Its transparent claim, that it is storing grades of oil which have low global demand, cannot be taken seriously, as all levels of quality are urgently needed for the increased consumption rate.

    * Venezuela has a classified agreement with Iran that requires it to engage available tankers, in support of the Iranian objective, which is to delay, and ultimately, deny oil shippers transport to needy consumer markets, thus driving up oil prices to stratospheric levels, and benefitting both countries financially. Notwithstanding its own oil revenues, Venezuela’s economy is in a shambles, and its government has distributed both large amounts of dollars and free or discounted oil, all to fund radical political movements in Latin America. It is in desperate need of more money, and this dark maneuver could accomplish this, though at a high cost to the rest of the world.

    The Iranian scheme will not only disrupt global markets, it could cause serious economic distress in both North America and Europe.

    Since we know that the US government is aware of the scheme, it should also be assumed that they have planned an adequate response, whether it be major regulatory sanctions, universal economic sanctions, limited military action, or even general war.

    At this point, country risk evaluators must assume the worst, and create contingency plans to respond to any of these possibilities, no matter how remote the chance that they may occur.”

    Now that I have helped you analyze this situation, perhaps you’ll rescind your silly its all the speculators, YES we want to cut down speculators, but the OIL IS BEING WEAPONIZED BY OUR ENEMIES.

  2. Jon Taplin says:

    You double posted this instead of replying to my answer to this post. Please reply on the original string.

  3. Rick Turner says:

    It’s their oil, and they can do as they like with it. If it is “weaponized” it is so with our absolute cooperation. The only way to de-weaponize oil is to un-hook from wanting it. Is heroin “weaponized” by the dope dealers? We have the means and intelligence to de-weaponize oil. It’s just that our government has been coopted by the pushers…

  4. Zhirem says:

    Rick, that’s awesome. Perfect! Weaponized heroin. The shrapnel from the needles is immediately anesthetized. Brilliant!

    – Zhirem

  5. Jon Taplin says:

    Morgan- Another note from an energy analyst friend. Do you consider this “weaponizing oil”?

    In the real world, non-OPEC production of oil has been slipping. This is because 80% of the growth of non-Opec has come from Russia. Post the collapse of Communist Russia, the oil industry was in shambles so for the past seven years or so it was relatively easy to renew fields that had fallen into disrepair. That game is played out and while Russia has enormous reserves, vast capital will be needed to exploit the opportunity. That is not likely with the current tax structure and questions about the rule of law.

    The government levies a duty of 65% says The Economist magazine on prices over $25 per barrel. “Add to that various corporate, payroll,and production taxes….and the state creams off as much as 92% of profits” (The Economist, May 10.) When you figure that Putin and his gang of unholies are in charge, who would risk precious dollars for 8% of the profit. No relief likely from non-OPEC sources.

  6. Morgan Warstler says:

    I absolutely think Russia weaponizes oil:

    And the anti-capitalism aspects your friend notes will sooner or later force Putin to deal more favorably with capitalists, or for production to be nationalized. Which does your friend think is more likely?

    I absolutely think in the real world, non-OPEC oil production is slipping. I also know, in the real world, we are in Iraq precisely for that reason.

    Iraq can provide realistic relief to OPEC. Maliki is more than prepared to piss off OPEC, allowing Western companies to pump to their hearts content. The cheapest highest quality oil on the planet is right where we are setting up shop.

    Our interests are in Iraq. Imagining Obama is going to change that is ridiculous.

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