By Fester:
One of the amusements that we 'Hoggers share via e-mails to each other is guessing what the next dumb thing American politicians will propose to do to 'deal' with high fuel prices. So far we have seen some doozies:
- Suspend the gas tax while ignoring elasticity of short run supply
- Drill in ANWR which will knock about a dollar per barrel off the price of oil according to the CRS
- Sue OPEC with an interesting application of universal jurisdiction
And then there is the minimally productive but non-harmful step of not topping off the Strategic Oil Reserve when demand is at its seasonal peak. As we have another five months of campaigning left and swing states are seeing $3.95/gallon gasoline I expect to see a lot more stupidity to emerge.
Part of the reason why these dumb proposals are going forward is the perception of a loss of control and power in a market that previously was very manipulable. Congress has memories of its pressure at least appearing to work, and most of Congress came to power when Saudi Arabia could effectively be a swing producer. Right now that ability is in severe doubt.
So instead of 535 people thinking that they have some control and power, more effective positive pricing power has devolved to several dozen guys with some speed boats and semtex:
Crude oil rose, trading near $133 a
barrel in New York, after a militant attack in Nigeria disrupted
supplies from Africa's largest producer.
The Movement for the Emancipation of the Niger Delta,
Nigeria's main militant group, said it attacked a crude-oil
pumping station yesterday operated by Royal Dutch Shell Plc...Crude oil for July delivery rose as much as $1.46 a barrel,
or 1.1 percent, to $133.65 a barrel on the New York Mercantile
Exchange from the May 23 close.
And this disorientation at the highest level will continue to lead to dumb policy proposals as this is a different world when a small guerrilla band has more pricing power than any realistic policy proposal the US Congress can come up with much less pass. Someone's OODA loop is corrupted and they are in charge.
Currently, the oil futures market is very manipulable -- and is being manipulated -- but the ability to manipulate these markets has fallen to Wall Street, with Congress itself handing them that ability. Saudi Arabia has repeatedly rebuffed requests for production boost, rightly claiming that market pricing has been decoupled from supply/demand equilibrium.
ReplyDeleteThe fact that it is Wall Street that has been the recent and primary force behind oil pricing has been practically ignored by the media. Not all the media; business news admits this openly, though it is usually framed in a positive light. Commodities speculation and rising prices in those markets are seen as a "buying opportunity" and that Wall Street is "bullish" on commodities right now. Indeed, every new attack on oil facilities and every disruption appears to send shivers of glee through Wall Street.
Ed Wallace had a great piece in the Dallas Star-Telegram a few days ago that neatly summarized the situation as it now stands and how we got to this point. Interestingly, Ken Lay was in on the ground floor, as well as the Gramms, the DeLays and, he's there too! Jack Abramoff's Alexander Strategies lobbying firm, for which Tom DeLay's wife worked.
Well worth reading
ICE, ICE, Baby, conclusion
F. William Engdahl also has an article discussing the deregulation regime, although Wallace's article has a few more interesting bits on the deep history of the deregulation, the ICE and Commodities Futures Trading Commission(CFTC).