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Breaking News
Takes Two to Contango
As the man said: There is no shortage of oil.
Takes two and then some to contango — that is, to make the futures price higher than the current spot price of a commodity. But what the heck, what we care about is the tango thrust upon all who stop at the pump these days to fill ‘er up. With gasoline in the high three fifties and headed for what some see as five dollars a gallon, even the Saudi Arabian Oil Minister had a word about that yesterday. “There is no shortage of oil,” he declared. The high price, he went on to say, is due to speculators. In fact, hidden in the script of those on TV who decry the pump price is usually a line remarking that there is no shortage of oil. But this is no fun when enumerating the various station pump prices and the line is usually buried in the shrieking headlines.
What would it take for President Obama to declare also: There is no shortage of oil? The inflation is artificial, due to speculators. Not, probably, the guy hiding behind the cash register inside the station, but more probably farther up the line. The vendor is traditionally held blameless in these robberies. It’s the guy on up there somewhere.
But what if Obama declared his intention of tapping the vast reserves undergound, stored there in case of national emergency? He has slyly hinted at this and then hurried on in his address of the condition. What is an emergency requiring a little tap of the emergency supply? Perhaps an invasion by aliens?
OPEC, the Saudis included, makes noises about increasing their output. But we seem more concerned with ridding the world of Gaddafi than of five dollar a gallon gasoline, though Libya’s oil is destined for Europe, particularly Italy, and not the United States.
We in this country have been through this before and pledged not to let it happen again. But it is happening again, and we seem as helpless as before.
We shall continue to tango with the pump, and see the price of air transport increase along with the cost of driving.
I have ordered a T-shirt with the Saudi Minister’s declaration on it. I expect the CIA may want to confiscate it.
About the Author
Reid Collins is a former CBS and CNN news correspondent.
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MoeBlotz| 3.9.11 @ 7:05AM
Do you remember what happened the last time we tapped into the Strategic Petroleum Reserve? Slick Willy and Algore picked their buddies who "bid" on contracts to buy the oil from us. The market price they paid was equal to the price for the oil when our uncle bought it,much less than the price the contract winners received on the open market. By the time the oil began flowing from the reserve,supplies began to increase and prices were easing. Opening the taps on our strategic reserve will do little to alleviate the price spike we have just seen and will merely contribute to the bottom line of Barry's corporate cronies. Drill here,drill now,pay less.
JohnD| 3.9.11 @ 7:50AM
The psychological effect of an SPR release would exert some (some) downward pressure on prices. What we really need is to announce a very aggressive program of domestic oil exploration using tax incentives and an expedited leasing bidding and award process. Open ANWR, open the offshore east and west coasts, and encourage investment in recovering oil from oil shale and tar sands which virtually cover the states of Colorado, Utah, Wyoming, the Dakotas, etc.
The price of oil will collapse, and within about 5 years we would no longer have to rely on sources of oil outside North America.
Ret. Marine| 3.9.11 @ 8:01AM
What was it "dead fish Rahm" said about never letting a good crises go to waste. Yeah it would appear the "i won" messiah is about to pull another con on the gullible, Known as demonrat voters. And then there is that pesky saying obamas Bin Lyn said during his liars fest known to them as campaigning, " prices will necessarily sky rocket under my plan". Here is a good way to strangle both the liars and thieves all at the same time, National boycott, stop working, starve a politician and feed the "i won" to the lions all at the same time. Let them beg us to return to normalcy for once.
Larry| 3.9.11 @ 8:14AM
DRILL! DRILL! DRILL! YOU DUMB B*STARDS IN WASHINGTON.
The US has to be the dumbest country in the history of the world. We commit suicide by 1000 cuts in order to appease America hating environmentalist whackos and other hate groups.
The pols are so deep into the pockets of these groups just to stay in power. Never mind about what's good for country. I hate 'em all.
PolishKnight| 3.9.11 @ 1:07PM
Let's also add build nukes and clean coal fired plants and get as much natural gas as possible!
The crazy granola eaters want solar power or nothin'. Windmills are impractical when you add everything up plus Ted Kennedy's heirs don't want them spoiling their view.
Solar probably will be practical 20 years from now when they figure out how to make them out of non-silicone and decrease the cost/energy of manufacture. In the meantime, if we could stop burning our oil to make electricity, that would help a lot.
In other countries, it's common for people to drive around with CNG (compressed natural gas) which is cheaper than regular gasoline (for them at least.) Combined with a slow introduction of hybrids for long commuters, that should get us through the next 20 years.
Bob K.| 3.9.11 @ 2:12PM
Polish Knight,
I agree with you on Nukes and on Coal, but we still need all the Oil we can get.
I am from the Coal regions and there ain't no such thing as "clean" coal, but we should continue it's use anyway because it is cheap. It makes electricity and keeps you warm too, if you want to use it that way. Solar and Wind are never going to keep us warm and keep the lights on or run our machines.
Natural Gas's benefits are blown all out of proportion. It is expensive to develop, expensive to transport, and it as dangerous to the environment as coal is. It is more dangerous to heat homes than coal or electric is.
And it is hardly ever used near where it is pumped out of the ground. Why else does the gas industry need all those hundreds of several hundred mile long pipelines? Could it be because much of it is sold to Europe too?
Louis Jenkins| 3.9.11 @ 8:38AM
Larry, I cannot add to your great post. Drill you morons in DC, the nation will not take another 2008.
Larry| 3.9.11 @ 8:57AM
Another good reason not to drill: it would create thousands of job. Comrade Golfer would never stand for that.
Let's all go green: we can put little sails on top of our cars and let the wind push us from location to location. The annointed elite would exempt from this of course as they're SUCH important people. They'll still be able to fly around in their Lear jets, helicopters and limos. Such wonderful people, all of them.
TexasEngineer| 3.9.11 @ 8:59AM
What there is...is a shortage of value of the dollar. The exchange rates are in the tank (so to speak) and the "price" of oil is climbing.
This is what happens when an entire economy is devalued by socialism.
Aarradin| 3.9.11 @ 9:19AM
Using the Strategic Reserve is purely political. They're talking about it only to deflect attention from the moratorium/permitorium in the Gulf and the federal land grabs that have been done for the sole purpose of preventing exploitation of oil/gas/coal resources in various States.
Economically, its idiotic - you have to refill the reserve at some point, which leaves the government selling low and buying high. The effect on prices of tapping into the reserves is wildly overestimated.
Strategically, its idiotic - what happens if we drain the reserves and the mideast revolts spread to Saudi Arabia? Or, the Muslim Brotherhood comes to power in Egypt and goes to war with Israel, or starts putting mines in the Red Sea? What happens if the reserves are empty and another Katrina hits? Gaddafi has already threatened to set Libya's oil fields on fire (they're mostly in the eastern part of the country, currently under rebel control).
On the other hand, if they do tap the reserves, better that they do so now. People will see just how stupid the idea really is, and we won't have to hear about it next year during the election cycle.
Tenn Slim| 3.9.11 @ 10:43AM
Perfect storm. Rising oil per barrel prices. increasing debt at all levels of guvnmnt, an Ideologically driven Czar led DC guvmnt, a worried, concerned USA Electorate, a winter of huge snows, a violent spring, Islamic Rads lighting up the Mid East, China rising, Japan falling economicallly to third place,,,,,
The beat goes on. Anyone, anywhere, can see the abyss. The only question remaining, can the US Citizen, individually, as a family unit, survive.
If not, the we are indeed reaping what we have sown.
Semper Fi
end
Ken (Old Texican)| 3.9.11 @ 11:56AM
Slim, glenny,
Obama and crew................ KNOW exactly what they are doing.
They are doing it consciously and my only remaining questions are:
1. Are they Muslims leaning communist?
2. Or are they communists using Muslim rabid dogs for their foot-soldiers?
glenny| 3.9.11 @ 12:45PM
Ken, I concur w/ you that Zero knows exactly what he's doing. I truly believe that he wants to seriously harm this nation. I just can't wrap my head around most of the rest of DC, (including but not limited to Congress (Ds and Rs), Biden, Zero's cabinet, etc.) want that. To what end?
As much as I disagreed w/ Clinton, Carter and yes, Bushes 41 & 43, I never believed they wanted the utter destruction of this nation.
Zero is on schedule.
I'm a CPA. Financially, how can an individual, business or government continue to spend 78% MORE than they take in EVERY YEAR!!!!! Deficit $1.65 trillion / Fed Revenues $2.1 trillion = 78%
Bankruptcy is coming! I sorta wish the Chinese/Saudis/Japanese/etc would STOP buying our fed govt bonds. Cut us off, please!
glenny
Tim| 3.9.11 @ 4:04PM
If it were just stupidity, the law of averages would exert itself and about half the policy decisions would be in the best interests of this country even if only by accident.
When you keep insisting on the same failed methods that have resulted in misery and death all over the world, you can't claim "good intentions".
glenny| 3.9.11 @ 11:42AM
Why doesn't DC understand that if the price of oil drops b/c of our gaining energy independence, ALL of our problems will disappear. Iran will have NO MONEY to develop a nuclear program or to arm themselves, Venezuela becomes (is) a 3rd world nation again unable to purchase 100,000 AK47s or 8 used Soviet submarines, the Palestinian (Gaza) movement gets defunded, etc etc etc. It's so simple yet so complex for the pResident. glenny
glenny| 3.9.11 @ 12:31PM
Iran will have NO money to fund the Hezzies, Hamas, the Syrians, Taliban, Al Queda, etc. Saudi Arabia won't be able to fund the AQ (so that AQ can take their "anger" somewhere else; not S A) or the madrassas. Venezuela won't be able to fund FARC in its war w/ Colombia or make nice w/ the narco cartels, etc.
All of these Mooslim nations will go back to throwing rocks at their enemies. We'll still have the BIG guns!
Dagny Taggert| 3.9.11 @ 12:05PM
It 'takes two to tango' but as knowledgable readers point out, it's going to take drilling our own to become a 'backwardation nation.'
putra | 3.9.11 @ 1:00PM
yes, the elites and bureaucrats can still fly with a jet or driving limo 12-cylinder, but the people screaming and high-inflation rises.
Who Knows?| 3.9.11 @ 1:22PM
Facts are stubborn things.
Fact ONE, wrt fuel---the supply of ANY kind of it, solid, liquid or gas, is what it presently IS.
I just wonder how many people have ever read-----
“The Bottomless Well: The twilight of fuel, the virtue of waste, and why we will never run out of energy” by Peter W. Huber and Mark P. Mills, 2005?
Actually, pace cutting edge Realizations by physics geniuses, mass and energy are simply different appearing forms of mass-energy, the STUFF of the physical universe, of which we are each bodily composed.
So, merely BEING alive as this STUFF necessarily involves the continual transformation of mass-energy into mass-energy.
The only “crisis” of any time is a figment of one’s contracting imagination. Why? Because whatever the supply-demand conditions concerning ALL forms of energy, each individual requires enough to stay alive--- despite flaming rhetoric, ADJUSTMENTS are made.
Try to eat the food you WANT, when it doesn’t exist!
Just so, when it comes to mankind’s appetite for previous “foods”, as energy, represented by myriad graphs of barrels of oil used per capita, etc, over recent time.
Here’s a simple way I’ve lately been reminded of understanding how “oil” works---
Picture one of those hoary derricks, such as the one in the film, “Giant”, when the James Dean character strikes it rich, with oil shooting up and covering him with it.
Well, a more steady state image, from then on, might be one of those cranking wells, putting enough IN energy and pumping OUT oil--- around and around she goes. Clearly, more energy must come OUT than is spent to get it OUT!
It’s the ALREADY extracted oil that is burned to get out MORE of it that is key.
And, these rich days, due to socialism, mostly, and the greed of smarty pants people and the stupidity of too many fools, there exist way too many “WELLS” that take more to run than comes out---epitomized by the Obama Axis of Evil.
Fact two---too many people are suicidally STUPID!
cicero| 3.9.11 @ 1:34PM
We all know that we are not even remotely running out of oil - read the The Prize, that came out a few years ago. The price of a barrel of oil goes up and down, not on the supply of lack thereof, but on the game of speculation driven by world news. The simply solution is to boost the reserve requirement of those who are buying and selling the futures contracts. While I know that the U.S. cannot control this, now that the exchange has moved from New York to London, it seems that the western world can sit down and insist that if you want to speculate on the future price of oil, you have to put up 50% if your bid, rather than the paltry 5% (i believe) is required now. The public should not be the only ones nervous when the prices move up and down.
PattyMor| 3.9.11 @ 1:52PM
What we have is a shortage of politicans and bureaucrats who will do the right things. They refuse to drill for oil & gas or build nuclear power. They (both sides) refuse to seriously cut the budget, when any normal person can see we can't sustain this level of debt.
But, you can't say that Obama did not warn us that he was going to redistribute your wealth (plus your healthcare) and raise your electricity rates.
Rely on yourself and prepare for the crash. Store food. Prepare for higher gas prices. Its going to get rough.
George Soros must be so proud. I wonder how many Republicans he has bought, along with most of the Democrats?
David Thompson| 3.9.11 @ 2:04PM
There is, and never will be, a shortage of oil or gasoline if their prices are allowed to rise to market levels.
We must be prepared to fight price controls. With a President who is ignorant of economics and eager to do Good Things, expect a repeat of Nixon and Carter's monumental blunders.
Dixie Pixie| 3.9.11 @ 3:22PM
Gentleman, there is a direct relationship between the money supply and the price of crude oil.
When the Fed dumps dollars into the money supply to feed the Federal Governments overspending above income, the the money supply increases causing the value of the dollar to drop.
Once the value of the dollar drops then the value of goods such as crude oil will increase resulting in the rise of crude oil prices.
This is classic Inflationary Economics and its causes and cures are well known.
Added to the fact of Federal Governmental spending practices causing a crude oil price rise, the Obama administration is deliberately restricting the US production due to insane ideological reasons, so the price of gasoline will rise due to the Obama administration edicts.
The really stupid thing is the Keynesian economists on Obama's staff think the rise in gas prices are a good idea because in Keynesian beliefs a rise in prices induces increased economic activity due to the increased profit margins available per unit sold.
The Keynesians believe the true economic danger is when prices drop, economic activity is stifled due to decreased profit margins.
The fact that the Keynesians have been proven dead wrong in all their assumptions and beliefs has never stopped them from wreaking the economy in the past and are not doing so now.
In short the rise in energy prices will not stop until Obama and his Keynesian minions are removed from the Federal Government.
Dixie Pixie| 3.9.11 @ 4:13PM
Another thought, Has anyone considered that under Keynesian economics existing stocks of goods increase in value due to the rise in price over time.
For example if a merchant has bought a unit at 80 cents and that unit is selling at $1.00 at the time he bought it, then if the sale price rises to $1.20 then that merchant has doubled his profits.
Has anyone considered that by restricting the US production of crude oil and forcing a rise in crude oil prices, the value of oil in proven reserves will have to rise.
Consider that the Obama administration can control when and what oil reserves can come onto the market, so they can control the extrication of value of oil in proven reserves.
The Federal Government does not have to Nationalize the oil fields as the Federal Government has already deemed itself the "owner" in the name of the "Public".
It is therefor in the Federal Governments interest to increase the crude oil prices.
That may be why the Obama administration does not care if the oil producing countries in the Middle East burns to the ground.
Chaos in the Middle East certainly restricts oil production thus forcing a rise in crude oil prices world-wide, thus the increase of the value in US oil reserves.
I would not be surprised to learn that the Obama minions have traded away US oil reserves in exchange for US debt .
It would not be surprising for the Obama administration to quietly allow foreign governments to drill and export US oil reserves in exchange for buying more governmental debt, thereby allowing Obama to spend more money on his minions and supporters.
Alky| 3.9.11 @ 7:09PM
If America let it be known that it was going into "drill baby drill" mode... the price of oil would drop like a rock over night!
Ross Kaminsky | 3.9.11 @ 9:10PM
Reid,
You and others are right not to blame "speculators" for oil prices.
A quick note on commodity futures. Contango is the common structure for futures on hard commodities because there are no winter/summer crop issues and because they pay no dividends or interesting; instead there is a cost to carry/store them. Therefore, one would expect silver and gold to be more expensive in later months than near months. And the same would be true of oil or any other hard commodity outside of a time when there is a short-term supply fear.
The fact that there's still contango when there is a short-term supply fear implies that the fear may actually be longer-term than most people think.
Best regards,
Ross K
The refudiator| 3.9.11 @ 9:13PM
why did domestic oil production peak in 1970. Answer this honestly & you will understand why the drill baby drill arguement is weak.
Do not miss understand me, i am all for more drilling. but you guys needs to realize we are consuming 20 million barrells a day here. there is no scenario i have seen where we can produce anywhere near that much oil daily doesn't matter how much you drill or how much shale you cook. Production rates are your supply, not reserves.
Alky| 3.10.11 @ 3:54PM
"why did domestic oil production peak in 1970. Answer this honestly & you will understand why the drill baby drill arguement is weak."
They were storing oil in closed gas station tanks and in offshore ships waiting for the price to go up... I was around then!
There are studies that show north america has enough oil to be self-sustaining for over 100 years! ... drill baby drill.
The refudiator| 3.10.11 @ 10:48PM
so...you are saying that for the last 40 years "they" have been storing the oil waiting for a price increase instead of increasing domestic production? Maybe you should reconsider your answer. I would like to see your study about the 600 billion barrels of reserves that we have handy as well. Remember that shale requires a lot of water to extract & makes the Montana & Wyoming shale very challenging to get meaningful production out of. It's like having a million dollars in the bank but you can only get 10 dollars out a day. But you need 100 dollars a day. That's the domestic supply stituation.
Creative Recreation | 8.11.11 @ 2:10AM
is good
Creative Recreation | 8.11.11 @ 2:10AM
is good
Creative Recreation | 8.11.11 @ 2:15AM
is good