Glenn Beck, Congress and Big Oil

MonsterMark

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May 21, 2008 - 13:02 ET From his show.


Stu: This blog paid for by big oil
STU: Ladies and gentlemen, we now recognize from the great state of really stupid people or voter fraud or something.

GLENN: I don't think that's necessary.

STU: Mr. Representative Glenn Beck.

GLENN: Representative?

STU: Representative senator, the representative senator Glenn Beck.

GLENN: Can't we get this right?

STU: Here's the pudgy guy.

GLENN: Enough. We brought together the heads of big oil. See that big head over there? Yeah, he runs Shell. That one? That runs ExxonMobil. Mr. Big oil, we're here to talk about the high price of gasoline. How could it have possibly gotten this high?

Let me tell you what we've done here in congress. We told you that drilling in ANWR is off limits. We told you that drilling off the coast of Florida and California is off limits. We told you, Mr. Big oil, that there wouldn't be any new leases for drilling in the Gulf while China and Venezuela and even Cuba pursued these leases and have just signed 100-year leases on the oil in the Gulf of Mexico. We here in congress have promised, as all three presidential candidates have also promised, to introduce and pass in the next term a cap and trade legislation bill that will increase the price of gasoline according to the EPA by an additional $1.50. Some people say it could be as high as $5 additional per gallon. Order, order. We have said that we're shutting down oil fields in Colorado. We won't let you develop shale oil fields in several Western states. And yesterday we passed legislation that would let us sue OPEC with the full understanding that they'll never retaliate. Yes. We have allowed environmental attorneys to sue you big oil fiends for future possible destruction of Alaskan Eskimo village which legal experts believe is the same strategy used to bring down big tobacco. We're especially proud of our recent action to protect the polar bear and their habitat which just happens to be where the future oil deposits happen to be located. We told you that you're making too much money and that we're looking at seizing any money that we consider windfall profits. Yes. We have allowed you to drill in some very small areas in Alaska while simultaneously creating very generous environmental laws which have tied up the very production we authorize through years of litigation after you spent the money on buying and setting up equipment. We told you through our policies that we would not allow you to build a new refinery in over 30 years. In fact, this great country, under our tutelage, has even reduced the number of operational refineries by half since 1982. Order, order, order. We have even told your potential competitors in the nuclear and hydroelectric industries that we would send the environmental lawyers after them if they even dared think about building a new plant or a new dam. We've refused to fund or allow the deployment of coal-to-oil technology which has been around since the 1930s. We've told you that you have to make different blends of gasoline, let states like California dictate what unique gasoline blends you have to make for them. We will not reduce our federal gasoline tax. We won't even consider reducing it for the summer months. So Mr. Big oil, tell me why exactly are gas prices so high? Order, order!


Stop. That's what should be said. Thank you. That's what should be said. Instead congress is going to bring big oil in front of them today and say, "Oh, oh, are you price gouging?"
 
Excellent post, Bryan. Glenn nailed it.

From now on, anytime somebody bitches about the price of gas on this forum, link this thread.
 
Once again the stupid American public will blame Republicans for Democrats policies and philosophies with the MSMs help.

This is not, however, all supply and demand issues.

Might want to read this:

http://www.financialsense.com/editorials/engdahl/2008/0502.html

Alright, I have no comment on your first post, but THIS link is absolutely astounding! I'll admit that many esoteric economic concepts just baffle me, but if what this guy says is true, then we've all been taken for a ride, and heads---LOTS OF HEADS---need to roll. I'm talking bodies in the streets!

Why isn't this being more widely reported? My God, the implications of this are unbelievable!

A follow up article by the same author suggests one reason:

US margin rules of the government’s Commodity Futures Trading Commission allow speculators to buy a crude oil futures contract on the Nymex, by having to pay only 6% of the value of the contract. At today's price of $128 per barrel, that means a futures trader only has to put up about $8 for every barrel. He borrows the other $120. This extreme “leverage” of 16 to 1 helps drive prices to wildly unrealistic levels and offset bank losses in sub-prime and other disasters at the expense of the overall population.

Are people (politicians) sitting on this in order to protect the banking industry from total collapse?

If even half of this is true, then this is a the best argument in favor of tighter oversight over, and transparency, of financial markets as I've seen. The housing bubble was a direct result of the same sort of unregulated speculation. Free markets can ONLY function properly when all of the participants operate in an open and transparent manner. The kind of secret deals that this article suggests are going on are incredibly harmful to the economy as a whole.

This needs major attention.
 
The speculation inflation is exactly why it's so important to open up Anwr. To demonstrate that we ARE going to pursue oil aggressively.
 
The speculation inflation is exactly why it's so important to open up Anwr. To demonstrate that we ARE going to pursue oil aggressively.
Did you actually read the article? According the article (and several other's I've been reading), supply is currently running ahead of demand. So this isn't a case of speculators simply making the market work for them; they are manipulating the market itself through a completely unregulated and opaque system. Even the most ardent free-marketer has to know that you can't have free markets without a free flow of information.

BTW, here's yet another article, this time from Businessweek (which it seems the author of the article I posted earlier plagiarized heavily from) that says many of the same things:

http://www.businessweek.com/print/lifestyle/content/may2008/bw20080513_720178.htm
 
Did you actually read the article? According the article (and several other's I've been reading), supply is currently running ahead of demand. So this isn't a case of speculators simply making the market work for them; they are manipulating the market itself through a completely unregulated and opaque system. Even the most ardent free-marketer has to know that you can't have free markets without a free flow of information.

BTW, here's yet another article, this time from Businessweek (which it seems the author of the article I posted earlier plagiarized heavily from) that says many of the same things:

http://www.businessweek.com/print/lifestyle/content/may2008/bw20080513_720178.htm


And the aggressive pursuit of oil would have a psychological effect on the market and result in a reduction in futures prices- before even the first barrel was drawn. Not because of an increase in supply, simply because of what it would project and represent to investors.
 
And the aggressive pursuit of oil would have a psychological effect on the market and result in a reduction in futures prices- before even the first barrel was drawn. Not because of an increase in supply, simply because of what it would project and represent to investors.
Fine, but investigate and address the potential artificial inflation of the market first. If the market is being manipulated, I certainly think that would have a much more profound psychological effect on investors, don't you?

The solution is easy: Put ICE under the same rules as Nymex. No draconian legislation needs to be passed, no price caps need to be imposed, no temporary fixes like gas tax holidays. All the faulty "solutions" proposed by the presidential candidates would instantly become unnecessary. Just make them follow the same basic rules that every other market has to follow.

There is absolutely no valid reason--not one--why we should allow a secret market to continue to run unhindered, especially one based on such a vital national interest. Remember, these are the same institutions who brought us the housing bubble. And now it appears that we have an oil bubble. And when it bursts, which it no doubt will, it'll do even more damage to an already shaky economy. Meanwhile, people are struggling with the effects of it right now.

This is not a partisan issue. It's not about class envy or attacking Big Money and capitalism. If anything, it's about preserving capitalism.
 
...they are manipulating the market itself through a completely unregulated and opaque system.

Yes, but are is the oil market being intentionally manipulated, or is it an unintended consequence [like the housing market fiasco]? From a "heads roling" perspective, that would seem to be a very important distinction.
 
Fine, but investigate and address the potential artificial inflation of the market first...Remember, these are the same institutions who brought us the housing bubble.

It seems more and more like the oil market may be in a bubble, like the housing market has been. That bubble would have to eventually collapse (like the housing market). The market self-correcting?
 
Yes, but are is the oil market being intentionally manipulated, or is it an unintended consequence [like the housing market fiasco]? From a "heads roling" perspective, that would seem to be a very important distinction.
Well Goldman Sachs is predicting $200 a bbl prices, and if enough investors buy that story, the futures market goes goes up accordingly. Goldman Sachs is part owner of that market. So it seems pretty obvious.
 
Well Goldman Sachs is predicting $200 a bbl prices, and if enough investors buy that story, the futures market goes goes up accordingly. Goldman Sachs is part owner of that market. So it seems pretty obvious.

Still, is that an intentional manipulation of the market [Goldman Sachs intentionally inflating their prediction to drive the market up], or merely an honest prediction given the current market and the way that market works?

Making an honest prediction based on an understanding of the market that ends up effecting the market is different from an intentional manipulation of the market. When the market is so volatile that it jumps on the rhetoric of Bin Laden alone and is dictated by futures speculation, it seems that it is simply the way that the market is set up that is creating the inflated prices, not so much an intentional manipulation on the part of investors to inflate the price of oil.

When it is claimed that heads need to role, the burden of proof is gonna fall on the person claiming that; "innocent until proven guilty" and all that stuff.

Right now, it seems to me that certain people are playing the market and benefiting from the current setup of the market, so they don't want the system to change, even working to protect that system. I don't see any indication that it is anything more then that, yet; basically, no indication of intentional manipulation of the market.

Setting yourself up to benefit from the way the market is set up is one thing; manipulation of the market is another. One is honest and above board, and one is dishonest and underhanded.
 
..and the other question is, even if the government even had the authority to intervene itself into the international oil market, would it do any good?

The unintended consequences of government interference almost always negative. While the free market will correct itself in due course. Sometimes it's not immediate or rapid as we'd like. But historically speaking, it always seems like the biggest economic problems we run into aren't because of the market, but because of the knee jerk response the government has.
 
You guys are missing the point. The question isn't about government intervention, it's about making the market transparent so that everyone knows what's going on. The fact that this particular market is completely opaque means that, if the prices are being manipulated, we have no way of knowing! None!

I say again: there is absolutely no reason for this market to be hidden from us, especially when it deals with a commodity that is so critical to our national interests.
 
You guys are missing the point. The question isn't about government intervention, it's about making the market transparent so that everyone knows what's going on. The fact that this particular market is completely opaque means that, if the prices are being manipulated, we have no way of knowing! None!

Again, where is the burden of proof in your argument here? It seems assumed (weather you realize it or not) that prices are being manipulated, and those that are accused need to prove otherwise. Just because you don't have absolute certainty that prices aren't being manipulated doesn't mean it is likely that they are. The burden of proof is not on the speculators to prove that they aren't manipulating; to prove a negative, effectively.

I see no evidence to suggest that the market is being intentionally manipulated in all the articles posted so far in this thread. It seems likely to me that people are cleverly playing the stifled oil market (using loopholes in current regulations, playing off the unique market conditions, etc) to make a profit. While this is causing an artificial bubble in the oil market, it isn't from any dishonest manipulations, IMO.

Remember, these are private speculators engaging in markets in the private sector. While transparency in the government is one thing, when you start saying that the markets need to be transparent, you are opening a whole new can of worms...

I say again: there is absolutely no reason for this market to be hidden from us, especially when it deals with a commodity that is so critical to our national interests.

Agreed! However, it doesn't seem that the investors are trying to hide anything; they are simply working to make a profit. what is interesting is that many in the government and the media don't wanna talk about this much, it seems. If there is anyone doing any "hiding" of this info, I would say it is them, given the info in the articles posted here.

From the 1st article linked:
A June 2006 US Senate Permanent Subcommittee on Investigations report on “The Role of Market Speculation in rising oil and gas prices,” noted, “…there is substantial evidence supporting the conclusion that the large amount of speculation in the current market has significantly increased prices.”

What the Senate committee staff documented in the report was a gaping loophole in US Government regulation of oil derivatives trading so huge a herd of elephants could walk through it. That seems precisely what they have been doing in ramping oil prices through the roof in recent months.

The Senate report was ignored in the media and in the Congress.

The report pointed out that the Commodity Futures Trading Commission, a financial futures regulator, had been mandated by Congress to ensure that prices on the futures market reflect the laws of supply and demand rather than manipulative practices or excessive speculation. The US Commodity Exchange Act (CEA) states, “Excessive speculation in any commodity under contracts of sale of such commodity for future delivery . . . causing sudden or unreasonable fluctuations or unwarranted changes in the price of such commodity, is an undue and unnecessary burden on interstate commerce in such commodity.”

Further, the CEA directs the CFTC to establish such trading limits “as the Commission finds are necessary to diminish, eliminate, or prevent such burden.” Where is the CFTC now that we need such limits?

they seem to have deliberately walked away from their mandated oversight responsibilities in the world’s most important traded commodity, oil.

It seems that it is the government not doing their job, specifically the CFTC. according to the article:

The trading of energy commodities by large firms on OTC electronic exchanges was exempted from CFTC oversight by a provision inserted at the behest of Enron and other large energy traders into the Commodity Futures Modernization Act of 2000 in the waning hours of the 106th Congress.

It seems that Congress may very well be the ones who screwed the pooch on this one, opening the door for excessive speculation to artificially inflate prices. If there is anyone to point a finger at, it would seem to be them.
 
And the aggressive pursuit of oil would have a psychological effect on the market and result in a reduction in futures prices- before even the first barrel was drawn. Not because of an increase in supply, simply because of what it would project and represent to investors.



I agree - we should explore for oil anywhere we can, aggressively. Not only because of gas prices and the effect on the economy, but also because of the profits we are giving countries like Iran and people like Chavez.
 
I agree - we should explore for oil anywhere we can, aggressively. Not only because of gas prices and the effect on the economy, but also because of the profits we are giving countries like Iran and people like Chavez.

Most of the international threats we face as a country are the result of high oil prices. Chavez, the middle east, Russia... these are all have tyrant regimes that are getting rich off of oil right now.
 
It is interesting what is buried at the end of this article....

http://news.sky.com/skynews/article/0,,91211-1317363,00.html

Gordon Brown has pledged to review a planned increase in fuel tax amid soaring oil prices. Chancellor Alistair Darling said he would revisit a 2p increase in fuel tax set to be introduced in October. But gas-guzzling 4x4s could still be clobbered as the Prime Minister warned that the fuel crisis was something the world had to deal with, not just Britain. The Government also announced plans to help improve fuel supplies by increasing North Sea oil production. Ministers said the extra 70,000 barrels a day would help but acknowledged it was only part of a global equation. Speaking in Scotland after a meeting with oil executives, Mr Brown said: "Of course in the current situation we are trying to do things that will help those families who are hardest hit. "This is not just a national problem. It is a global problem of supply and demand, not just in the short-term but the medium-term and the long-term." He added: "All of you know the impact that is having on household bills, prices at the petrol station, prices of gas and electricity, and the follow through for prices of consumer goods like food." Two new North Sea developments, West Don and Don South West, are due to start production in the first half of next year, producing up to 50,000 barrels a day at their peak. However, the maximum increase would still only be a tiny fraction of the 1.8 million barrels consumed daily by the UK. Meanwhile, the world's leading producers say oil is too expensive and they plan to increase supplies. A source at Opec said its 13 members were uncomfortable with the current price of crude, which last week hit a record $135 a barrel. Based on present supply and demand, he said it should be fetching $60-$70 a barrel. Saudi Arabia said it would increase production.
 
From Hotair.com

Don’t blame Big Oil or Arabs for high gas prices

posted at 10:00 am on May 29, 2008
by Ed Morrissey

If any one entity should take the blame for high gas prices in the US, Mackubin Thomas Owens writes in today’s Wall Street Journal, it should be Congress. Instead of loosening restrictions on domestic supplies when increased future demand from Asia was easily predicted, Congress tightened them instead. They also increased the tax burden on producers at a time when prices had already begun to rise, amplifying the increase and adding to its inflationary effect:

Gasoline prices are through the roof and Americans are angry. Someone must be to blame and the obvious villain is “Big Oil” with its alleged ability to gouge consumers and achieve unconscionable, “windfall” profits. Congress is in a vile mood, and has dragged oil industry executives before its committees for show trials, issuing predictable threats of punishment, e.g. a “windfall profits tax.”

But if there is a villain in all of this, it is Congress itself. That venerable body has made it impossible for U.S. producers of crude oil to tap significant domestic reserves of oil and gas, and it has foreclosed economically viable alternative sources of energy in favor of unfeasible alternatives such as wind and solar. In addition, Congress has slapped substantial taxes on gasoline. Indeed, as oil industry executives reiterated in their appearance before the Senate Judiciary Committee on May 21, 15% of the cost of gasoline at the pump goes for taxes, while only 4% represents oil company profits.

To understand the depth of congressional complicity in the high price of gasoline, one must understand that crude oil prices explain 97% of the variation in the pretax price of gasoline. That price, which has risen to record levels, is set by the intersection of supply and demand. On the one hand, world-wide demand has accelerated mainly due to the rapid growth of China and India.

On the other hand, supply has been curtailed by the cartel-like behavior of foreign national oil companies, which control nearly 80% of world petroleum reserves. Faced with little competition in the production of crude oil, the members of this cartel benefit from keeping the commodity in the ground, confident that increasing demand will make it more valuable in the future. Despite its pious denunciations of the behavior of U.S. investor-owned oil companies (IOCs), Congress by its actions over the years has ensured the economic viability of the national oil company cartel.

We’ve talked about this many times at Hot Air, but basic economics applies. If demand increases and supply doesn’t, then prices go up. In this case, demand has increased tremendously over the last few years as India and China accelerate their industrialization. The Bush administration’s treaty with India on nuclear power wasn’t a coincidence; the White House wants India more reliant on non-petroleum energy to both cut emissions and to relieve pressure on crude markets worldwide.

Congress can act in several ways to alleviate the price increases, but not by blaming everyone else but themselves. The shameful performance by Maxine Waters last week may have momentarily taken the steam out of Congress’ blameshifting, but that won’t last long. Voter outrage over fuel prices and inflation will eventually force Congress to take some kind of action. The question will be what policies they will enact, and whether they will solve the problem or increase the damage.

If Congress follows Barack Obama and Hillary Clinton, get ready for more damage. The Jimmy Carter policy of windfall-profits taxation will only pass along the burden to consumers while forcing domestic oil producers to cut investments in new production. Instead, just as in the Carter era, oil companies will grow even more reliant on imports, and we can all await the next round of rationing at the pump.

Instead, Owens urges Congress to learn from history and follow the example of Ronald Reagan. Deregulation led to an economic boom and low energy prices for a generation. But we need to go farther than that. Congress needs to promote a shift to nuclear power for domestic electricity, along with a boost for coal solutions. We need to stop being hypocrites and demanding that foreign nations pump more of their oil while we sit on ours to suit our tender sensitivities on the environment. This nation needs to grow up and take responsibility for its energy needs. Congress needs to lead the way.
Drill now. Build nuclear plants. Invest in alternatives for the future, but start taking care of the needs of the present. It’s really not brain surgery or rocket science. Even Maxine Waters should be able to understand it, even if she willfully ignores the reality.
 
This nation needs to grow up and take responsibility for its energy needs. Congress needs to lead the way.
Drill now. Build nuclear plants. Invest in alternatives for the future, but start taking care of the needs of the present. It’s really not brain surgery or rocket science. Even Maxine Waters should be able to understand it, even if she willfully ignores the reality.

X2
 
It seems we are getting it at both ends. On one end we have the speculators effectively inflating the price of gas, thanks to the Commodity Futures Modernization Act, and on the other end, supply is being bottle necked by regulation and policy.
Thank you Congress.
 
Here is an article that explains the futures market rather well:

http://www.townhall.com/columnists/WalterEWilliams/2008/05/28/futures_markets

In searching for villains for rising food and oil prices, some commentators have turned to speculators, namely people trading on the Chicago Mercantile Exchange and similar exchanges around the world. A sample of the claims: "Biofuels and droughts can't fully explain the recent food crisis -- hedge funds and small investors bear some responsibility for global hunger." "The global food crisis is likely to persist if speculative investment by the corporate world is not reined in soon, warned a top expert responsible for reporting to the United Nations on human rights violations." "Financial speculators reap profits from global hunger."

Instead of condemning commodity speculation, we ought to recognize the vital function it serves. Let's look at it with a simplified example that captures the essence of speculation in commodity futures markets.

Say that today's price of corn is $6 a bushel. I have a hunch that because of future supply and demand conditions, such as drought, war and increased other uses for corn, that in May 2009 corn will sell for $12 a bushel. I stand to make a lot of money if I buy corn now for $6 a bushel, hold it, and in May 2009 sell it for $12 a bushel. Sure, I've made a bundle of money for myself but is my speculative activity deserving of condemnation? The answer is no; I've served a valuable social function.

Supposing my guess is correct about future supply and demand conditions and corn will be scarcer in the future, what is the socially wise thing to do now so that more will be available in the future? The answer is to use less corn now. How do you get people to voluntarily use less corn now? If you said, "Let the price rise," go to the head of the class. That is exactly what happens as other speculators and I buy corn now. Today's price of corn will be bided up. The result is people will use less corn now and more corn will be available in May 2009 than would be the case if the current price of corn remained at $6. The valuable function of futures markets is that of allocating goods over time. It is wise to take the future into account in decisions that one makes today.

The futures market is no bed of roses. My guess could be wrong. There could be a bumper crop of corn and its May 2009 price might be $3 a bushel. I'd have to sell corn that I bought today for $6 a bushel for $3 in May 2009 and suffer a big loss.

We all are speculators to one degree or another. Last August, my home heating oil company offered its customers a deal. I purchased 900 gallons of oil for a spot price of $2.64 a gallon. I made the purchase with the expectation that oil prices would rise over the winter months. The previous year, I purchased 900 gallons and lost because heating oil fell from the spot price at which it was purchased. Another example is when you expect gasoline prices to be higher next week; you fill up you tank this week.

The futures market, which takes into account both the present and the future availability of goods, is a vital part of a smoothly functioning economy. Unfortunately, that fact provides little comfort to people frustrated over the high prices of food and fuel. As such, it provides fodder for political demagogues, charlatans and quacks who rush in with blame and prepare "solutions" for the problems they themselves have created -- the high prices for food and fuel are directly linked to the policies of the White House and Congress.
 

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