Gustav!!!!
We had fantastic economic news today but TROPICAL STORM Gustav rained on Haiti and that was enough to send oil prices flying up $1.88 in what we will call "focused" trading on the NYMEX as 105% of the October contracts turned over today as speculators placed their bets, settling the front-month contract at $118.15.
Interestingly, 570,000 barrels of May '09 crude were last traded lower at $117.93 and 90,000 barrels for October '09 delivery went off at $113.62 yet the front month action pumped the official "settlement" for the strip at around $119. Still no one has purchased a single barrel of May 2011 and many other long contracts since they were trading at $70, about this time last year.
The dollar was 5% stronger last year so that accounts for $3.50 of the rise in crude and US demand is 5% off from last year and that apparently counts for nothing in this manipulated joke of a market. There was a net build of 2,261,000 barrels of petroleum last week, which followed the 8,283,000 barrel build we had last week. Domestic oil production slipped down to 4.9Mbd so keep that in mind when CNBC screams that Gustav threatens to cut off 20% of US oil production – that's just a million barrels a day!
We're still EXPORTING 1.5Mbd of refined product, which means the US is now using just 18.6Mb of crude per day (less whatever build we have in inventories). Last year, at this time, 21.26Mbd of product was being produced each day by the US refining cartel. THIS IS THE KIND OF THING CONGRESS NEEDS TO INVESTIGATE – What catastrophe occurred that caused a 1.2Mbd drop in production that has doubled the price of oil in 12 months? This is not about drill, drill, drill – they're not even refining the oil they have. Refiners are still operating at just 87% of capacity – LOWER than their post Katrina/Rita levels. Do you know why? I'll tell you why – because after Katrina and Rita the refining cartel saw how easy it was to jack up the price of US fuel by cutting back production and it became a lifestyle.
In mid 2005 gasoline production was already being cut off by the refining cartel as they cut back from 9Mbd in July to 8.7Mbd BEFORE Katrina Struck on Aug 28th. Production ran down and down after that and, by the time Rita hit on Sept. 21st, daily gasoline production was down to just 8.2Mbd. This sent the crack spreads at the refiners (the difference between the crude they purchase and what they sell a refined barrel for) from $2 per barrel in March to $40 in September. Now, if your business model was that you can produce 9.2Mbd at $2 per barrel profit or 8.2Mbd at $40 per barrel profit – what would you do? What a business model these people have – perhaps if McCain gets elected he can put these guys in charge of fresh water and oxygen…
This is the kind of thing that windfall profit taxes are meant to address. Companies that provide vital resources should not be able to profit from the suffering of their customers. Because we don't believe in that concept in this country, it is possible for a refiner to charge you more money for less gasoline and it is possible for natural gas companies to play the same game along with the oil producers. No matter how much you are willing to cut back on your consumption, these guys can always produce less!
The US was very unlucky in 2005 and we got hit by two major hurricanes that did do a lot of damage less than a month apart. What was the actual effect on our petroleum supplies? On January 7th of 2005, the US had 1,635,836,000 barrels of petroleum in storage. On June 3rd of 2005, there were 1,692,491,000 and on August 26th, the last report before Katrina, US petroleum stocks were at 1,725,015,000 barrels. After two devastating hurricanes, the lowest level of petroleum product on hand in this country was 1,688,534,000 barrels on October 7th – 37M barrels (2.14%) lower than the pre-Katrina/Rita levels!
IT'S A SCAM! A hurricane is a passing event, we have 1.7Bn barrels of petroleum in storage as of yesterday's inventory report, that is, according to the EIA a 20.5-day supply (of oil, not including the SPR) and that is up from a 19.2 day supply as measured on July 18th due to RAPIDLY decreasing demand. Here's another hurricane secret – storms cut down on driving and flying, lowering demand as well.
Our consumption of gasoline today is no greater than it was pre-Katrina and Rita. The Iraq war had already pushed gasoline prices up from $1.40 a gallon in 2001 and 2002 to $2.33 a gallon in August of 2005. After Katrina, gas jumped to $3.11 per gallon on 9/5 and held $2.85 through Rita before falling back to $2.20 at Thanksgiving. What the refining cartel learned from the storm is that, by keeping our supplies low and keeping us in a constant state of terror (code yellow is the norm), they can charge pretty much whatever they want for gasoline and the supply and price have been relentlessly pushed up since then until we are now paying the highest levels ever charged for fuel in the US despite the fact that our consumption is down and there has not been a disruption in refining since the fall of 2005.
Meanwhile, VLO's profits went from $1.8Bn in 2004 to $3.5Bn in 2005 to $5.2Bn last year. TSO went from $328M in '04 to $566M last year, SUN from $605M to $891M, XOM from $25Bn to $40Bn, CVX from $13Bn to $18Bn etc… It's not even an effient form of robbery as the difference between $2.20 gasoline and $4 gasoline is costing US consumers $250Bn a year and the increase in the price of oil from $50 a barrel to $120 a barrel over the same time costs Americans an EXTRA $511Bn per year. Wouldn't it be easier for America to just hand Rex Tillerson (XOM) and Bill Klesse (VLO) $1Bn in small, unmarked bills and tell them to just leave us alone? Oh wait – that's exactly what John McCain's tax cuts for oil companies do, maybe he's onto something…
Americans are being held hostage by an evil cartel that controls our oil and it isn't OPEC. We are being bled dry by American corporations who have destroyed the free market and put a wall around US consumers that is protected by the politicians they have in their pockets ($761Bn a year in excess profits can buy you a lot of good government!) and unless YOU do something about it, they will continue to get away with it. It's not enough to be mad about this, you have to take action – write letters, get other people involved, vote… Do something or it will continue to be done to you!
