Great post, Jonathan.

The unreported part of this is that China isn't paying the market price for oil. China made a very clever move through its state controlled companies -- it went into western and sub-Saharan Africa and agrteed to build or fund infrastructure in ezxchange for discounted oil. So all talk of China driving demand is nonsense. They are not paying $120 a barrel. They cut deals that were discounted to market price back when the market price was well below $80.

I agree with you wholeheartedly and for the past nine months I have written to my Senator,Chris Dodd Chair of the Senate Banking Committee and others on this very point. I have raised the point with staff at CNBC. No response from anyone. It's pretty common knowledge that there is little supply shortage in the oil market and that the price over $120 bbl is carrying both a speculative, financial premium and a security premium. You can not disregard the weak dollar as well in the global pricing of oil. Many believe the price would be $60-70 bbl without speculation, and to the extent that you raise margin requirements, now that money is getting tight, you will curtail speculation. Margin requirements are currently about 5% compared to margin requirements on equity transactions which are set by the Fed and are 50%. But one of the biggest players in the oil market is Goldman, Sachs and with former Goldman execs as Secy of Treasury and Bush's Chief of Staff, and functioning as a shadow government, you're not going to make any headway against the free marketeers. What's going on is a real tragedy. People blame Exxon but essentially they are a neutral player. Ben Stein has a great column in Everybody's Business" about this in the Sunday NY Times May 7th Business section.

http://www.nytimes.com/2008/05/11/business/11every.html?_r=1&scp=1&sq=Ben+Stein&st=nyt&oref=slogin

http://tpmcafe.talkingpointsmemo.com/talk/2008/05/are-commodities-the-new-techbu.php

My post here from May 13.

MyBlog: http://ProteanPerspectives.blogspot.com

I disagree with your analysis and conclusion. The world uses 87 million barrels of oil a day. The world has trouble processing heavy crude oil. The world needs light sweet but that has peaked.

The fact that Iran is trying to store a fraction of a day's oil, and poor quality heavy oil to boot, is not proof of anything.

It isn't and seems more like your conclusion is in search of proof and you've stumbled (or searched for) something to prove what you believe.

But as I said: a fraction of a day's use of oil. It's meaningless. Specifically given the fact that supply/demand gyrations in a market such as the current one would result in over production at times.

I'll reiterate: I think facts and respect for truth are extremely important. I've been following energy markets and the idea of peak oil for years, and this post--which attribute high oil prices to speculation based upon a fraction of a day's worth of heavy crude--is unsubstantiated data mining and cherry picking.

The world is approaching peak oil. The number of rigs and related equipment that can be mustered in short order is limited. Saudi Arabia is likely in decline or a plateau (e.g. Matthew Simmons). Russia is probably peaking.

This is not speculation. It's the market operating on sound information: energy is worth a lot more than we thought.

Bringing in anecdotes of hoarding does not address the sound analysis that, for example, the oildrum has been focusing on this issue for years now.

Unfortunately, this person, not unlike many other sheep in our country, hasn't the slightest clue about this. Oil prices are related to specuation but not as much as this writer says. Think about it. Would OPEC allow the US stock market, futures market or Wall St. in general to take control of the largest industry in the world, oil? Of course not. Here is some good info on how and why oil prices are up:

Unfortunately, this person, not unlike many other sheep in our country, hasn't the slightest clue about this. Oil prices are related to speculation but not as much as this writer says. Think about it. Would OPEC allow the US stock market, futures market or Wall St. in general to take control of the largest industry in the world, oil? Of course not. Here is some good info on how and why oil prices are up:

In response to "speculation" question(s), I've got a moment to explain the truth, the reality of the situation this morning. Here is my answer with more emphasis on the speculation part toward the bottom:

You know what makes me laugh? How Americans are completely oblivious about how to really lower the cost of oil. Look at what senators (LIBERAL FUCK NOSES) are doing. Did you see the hearing that senate had yesterday with the oil companies? Shame on them!!!! They disgust me! And people fall for it. Dick Durban says to Exxon/Mobile in their inquisition yesterday, "don't you feel ashamed of what you're doing to the American people? Don't you feel ashamed of the money you're taking out of the American people's pockets? Don't you feel ashamed to be paying the CEO of mobile/exxon 22 million a year salary?"

You know what I'd had said to them but most republicans are so weak they can't?

Senator DICK Durbin... don't YOU feel ashamed that YOU, YOUR government makes a 25% margin on every gallon of gas or $50 cents per gallon? Senator DICK Durbin, you weasly, smart ass know nothing communist, are YOU ashamed that YOUR government makes more per gallon with your TAXES than the actual oil company, the ones who are doing ALL THE WORK?!? So let me get this straight, YOU MR. DICK Durbin, make 4x what the oil company makes and you don't do anything for it. We spend money drilling, we pay your leftist environmentalists money which only raises the price of gas, ie, look at the ethanol in California and the extra 50 cents it costs per gallon to appease the nut ball leftist commmies Mr. DICK Durbin. We make 8.5 cents per gallon profit. What do you make Mr. Senator??? I'll tell you, 50 cents per gallon. Whose the thief now Mr. FAKE LYING DICK Durbin?

You want to talk about taking money out of the American people's pockets Mr. DICK Durbin? Let's do that. How about relying on the Saudis and other Middle Eastern sources? Talk about taking the money out of the American people's pockets. What do you think happens when we send $130 dollars a barrel over seas is? What is THAT Mr. DICK Durbin? You want to strengthen the dollar, let's start there Mr. FAKE Durbin. What do you think happens when we send billions over daily for oil? I'll tell you what happens Mr. FAKE Durbin, since everything you're doing is politically motivated and you're nothing but a shyster, let me tell you. Those pole smokers take OUR dollar and use it against us. They fund terrorism you IDIOT! If you want to stop taking money out of our pockets, then DRILL, DRILL, DRILL, DRILL! What will happen is this. First, when the Saudis, Iraqis, whomever sees that we don't need their stinking oil, they'll lower the price. Next, if we have more of it over here, the price will drop! You won't drill off the coast of Florida or California (while blaming it on Bush and the Oil companies, too funny.) but China and Venezuela can. So they're going to get the 100 year leases off the coast of OUR FUCKING COUNTRY because the libs are too scared to hurt the environment. Yeah, so let China do it, since they're such environmentalists... DUMB! The libs will bitch and claim that we're being ripped off by Bush and his oil cronies but it's THEM WHO WON'T LET US DRILL!!!!! They SUCK!

You talk about a 22 million dollar CEO salary? WHO CARES!!!! It's not for you to discuss, manage, allocate differently, it's NONE OF YOUR BUSINESS!!!! Let's talk about an average actor's salary for ONE FILM... shall we? That's 20 million per flick, right there. Should their salary be confiscated as well you socialist PIG! Here we have the CEO of the BIGGEST CONGLOMERATE organization, OIL and you think that 22 million is too much? The work of a year for a huge company with a ton of responsibility but 22 million is TOO MUCH???? Oh please! Even if it were 100 million a year, SO WHAT, it's NO ONES BUSINESS!!!! It's a private enterprise you socialist, communist fucko! So if 22 million is too much for a private industry's CEO's salary, then isn't Rush Limbaugh making too much at 100 million a year and isn't Brad Pitt making too much at 20 million a picture? Are you going to start confiscating their salaries as well you commie? Business is in business for a reason. PROFIT! It's NONE OF YOUR BUSINESS you jealous communist bastards. Leave them ALONE!!!!!! It makes me sick that these people are even on the stand. Talk about rights? This is how the left is slowly dismantling our constitution and our rights! It's a private industry! Leave it alone!

You know what's funny.... all the money markets, IRAs, FUNDS of sorts, whatever are loaded up with these gas stocks so if you really want to trash their names, if you really want to take away their profits, then what are you going to do when that artificial adjustments to gas prices (like your STUPID CAP AND REG on gas, the STUPIDEST IDEA EVER which ultimately leads to even HIGHER and HIGHER and HIGHER prices and less competition!) causes a negative effect on gas stocks and there is a sudden plunge in the stock market and people, regular every day Joes who own a few stocks here and there (the majority of the type of person who owns these BIG oil stocks that are supposedly owned by BIG OIL LORDS...). Are you going to jump into that arena next and try and regulate the stock market Mr. DICK Durbin? (These people think that they can just turn this entire country into a socialist Mecca, which is what is happening under the liberals! It's like how when the libs, Nancy Pelosi included claim that the Bush administration is hiding stuff when they don't allow the other branches of government look through certain stuff. You know why they don't let them look through it? I'll tell you why! The 3 branches of government are separate from each other, they work as a checks and balances on one another but are separate and have NO RIGHT to go through the others stuff. It's like your neighbor telling you that he wants to go through your house and look for something. Would you let him? Probably not and not just because you don't want them to for the sake of privacy but these democrats aren't looking for any one thing, they purposely set these searches up (which they'll NEVER be happy with until they find something) to find ANYTHING. They look for ANYTHING. They're not looking for one thing but ANYTHING. So if you tell me, as my neighbor, that you think I stole your dog and that you want to go through my house but not for the dog but to find ANYTHING at all to create problems for me or in this case for this administration, I wouldn't want you going through my stuff either. When the rights of people are on the line, it's a whole big thing but when it's the rights of this administration, there are no rights. Knowing that they're going to rummage until they find anything and then bring that anything into the light, even if it's nothing but it looks like something or looks like it may cause some new doubts or problems in this administration, you wouldn't want people going through your shit either!) If I could give you a good analogy on that one: You tell me I'm a drug dealer. I tell you I'm not. I know I'm not and you know I'm not but you're not telling me I'm a dealer to get my in trouble as a dealer but to get into other personal business. You know that by claiming I'm a drug dealer, it'll cause enough chaos to get others interested and get others knocking at my door, checking to see if I'm actually a dealer or not. You know that, in order to clear my name, I have to 1. allow them in or 2. prove some other way that I'm not a dealer. You know that if I let you in, you will not find any drugs implicating I'm a dealer but you may find a note that says, "Hey, meet me at 1st and Pine Ave if you want your stuff." Now this may mean a zillion and one things but once the media gets a hold of it, you're at their spinmeister mercy to make the claim of just about anything. That one note, one sentence can implicate you as being a million different things. For all you know, in the next day's paper, it could read, "(Your name here) meets mistress at 1st and Pine Ave on daily basis for years." Now do you see why we wouldn't want your neighbor or in this administration's case the other branches sneaking around, especially when their main MISSION is to slander, defame, destroy, create doubt in your life. This is one reason there are 3 branches of governement. True, to keep the checks and balances in line but some will use that to their advantage and not in a lawful manner.

I would then say this to that bastard:

You know how many countries that we buy oil from are crocked and evil? Do you know how many of these countries take OUR PROFIT and use it for bad things? Many and most of them. Venezuela, Iraq, Mexico, Canada (they're okay), Russia (Putin as evil as evil itself.). You so called democrats, liberals or whatever you call yourselves "we're for the little guy, we care about people who are oppressed" DICK DURBIN asswipe, you basically fund TERRORISM and EVIL and you have the gall to come down on Exxon/Mobile and the Bush administration for wanting to DRILL into our own natural resources, our own God given oil, ultimately weaning off the oil nipple and ultimately funding LESS evil and LESS terrorism! Oh, but that wouldn't make the Bush administration look bad anymore, would it? It's just like the war. The dems would rather lose the war to save face than win it and realize they were wrong, AGAIN! They're selfish nihilists and NOTHING MORE!

I don't know how people in this country are so stupid! Now, let's talk about something that you bring up quite often.... speculation. The media would like you to think that speculation is the dog and the stock is the tail and that the dog is wagging the tail or in this case, the speculation is controlling the price of the stock. Wrong. I don't care what you read and who says it, it does NOT work that way. The only speculation that is involved in gas prices is the prices of certain gas stocks and the futures of oil, crude to be exact. Now, think of it like this. You're a trader. You wake up in the morning. Grab the paper. You see that Venezuela is experiencing uprisings, that the president Chavez is being overthrown. You get to the floor and you do what? You buy short term oil futures or stocks (as long as the volatility isn't already priced into the equation but leaving that out and leaving it simple...) with the chaos in Venezuela in mind. What is going to happen to the price of that stock or future? Pretty obvious. It's going to go up. Now, as a trader, are you going to be on the other side of that stock? (not without a hedge in place, that's for sure.) No, you're going to get in on the trade, ride the wave until you hit the top and then sell. Well, guess what? Over the last few years, long term positions have not shown it to be sensible to sell. Until oil- supply, drilling, whatever is increased, oil will continue going up. As an inventor, you will NOT sell, unless you're a bad investor, trader, speculator. The speculation is the BOTTOM of the price of barrels of oil, the price is not the bottom of the speculation. Do you see?

Until we increase our refineries, increase drilling and stop focusing on oil in the middle east, we are going to continue paying high amounts, especially if we're purchasing a good portion of our oil in the international market, where other countries are willing to pay 4 bucks a gallon, which isn't too far off the mark for them, since they've been paying close to this for years. Until the left stops playing politics with our country, our people, our rights, we are going to be paying through the kazoo. You can blame the left, 100% for the price of oil today. You can't blame the war, because if we had alternate methods, the war wouldn't matter, would it? In fact, Bush even tried to introduce NUCLEAR power, the cleanest, best source out there. The facilities can be built soon and we'd have an alternate source soon enough. The left doesn't want it. Ask yourself why? Because it is there job to play politics, to make the other side look bad and unfortunately, the dems are as corrupt as ever, are willing to go to any length possible to make the Bush administration look bad, they're worse then ever. They're hatred for Bush is so high, they're willing to play politics with YOU, while tricking the average citizen into thinking that gas is higher for other reasons. They're SICK IN THE BRAIN! We can even come up with other sources but no matter what source we lean on, it's going to be another 10 to 20 years until that source is readily available and until then, we need to lean on oil, just oil in OUR OWN COUNTRY!!!!!

You want to know the reasons oil costs an arm and a leg right now???:

-No Anwar drilling because of the left.
-No coast drilling because of the left.
-No leases for America for gulf drilling off our coast while China, Cuba and Venezuela are drilling because of the left.
-Cap and trade regulation, which will apparently raise the cost of gas by $1.50 a gallon, again because of the left.
shutting down oil fields in Colorado because of the left and stupid environmentalists.
-2 days earlier, legislation was passed to allow America to sue OPEC, again, passed by the left. Yeah, let's sue OPEC, that's brilliant and will cheapen gas!
-Environmentalists can now sue oil companies as well, again, because of the left. Do you know that ALL oil spills are from the tankers that are bringing oil INTO THE STATES? Bet you didn't know that. The left doesn't want us drilling. We need to trucker it in from other countries. The tanker hits something and BAM! Oil spill. If we drilled here, don't you think that we'd have LESS oil spills? According to a sane person, yes.
-Because of the left, we're now thinking of taxing the oil companies even more... don't you think that this will raise the price of a gallon of oil? And doesn't the government already make ENOUGH???? See what dirty lying dogs they are? You know it's not Bush taxing the oil cause Bush is BIG OIL, isn't he?

Hope this is of some help guys!

Now that I'm done with IQ66, I will address the adults here.
Those who say there is no speculation attempt to equate the word with illegal activity - no illegality, no speculation. The fact, of course, is that speculation, no matter how detrimental to world economies, has been completely legalized. The same government insanity and the same big institutional players that gave us the mortgage bubble have apparently given us an oil spike, and possibly sharp increases in the prices of other commodities.
Regulations on commodity trading in place since 1922 were gutted by Congress in 2000, compliments of the Friedmanian morons who believe in the perfection of totally unfettered markets, at the request of Enron Corporation. A do-nothing nitwit non-entity was appointed head of the CFTC and proceeded to dismantle any remaining enforcement of rules. Enron was reportedly very pleased. Commodity trading now is done at 20:1 or greater leverage, in utter secrecy. If this is too onerous and you are big enough, the CFTC will obligingly allow you to trade in "equivalent" markets such as those in London and Dubai, whihc are interlocked with US exchanges. Goldman Sachs is now the biggest oil trader in the country, and they apparently have been long on the commodity. Is it any surprise when they announce that oil is going to $150 by July 4, no one can check what their current interest in seeing that happens is? The current Secretary of the Treasury was Goldman CEO when they helped establish their very own International Commodity Exchange in Atlanta as, get this, an international affiliated exchange largely exempt from US regulation. I don't know how much rampant speculation is occurring, but given the complete lack of regulation, it is just waiting to happen. The circumstantial evidence would lead one to believe it's more than is healthy for the world economies and has a lot to do with prices doubling in a year.
And hey, why tax oil at the pump? We know all taxes are evil. Such a policy would only capture some of the profits for the US Treasury to be plowed back into developing alternative fuels rather than where it really belongs - in the pockets of the poor speculators, the depressed oil companies and our friends in OPEC.

Madison believed that we should have separation of church and state throughout the land, federal and local. There was a fascinating moment during the congressional debate over what became the First Amendment. How could the beloved First Amendment be harmful to religion? Huntington feared that it would overturn or interfere with Connecticut’s approach, which was to have state-supported religion.
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