Oil Prices - What President Obama Doesn't Understand

This is simply what your president and all the little brained liberal minions need to understand about economics and psychology. But he being an asshat and they believing that everyhting a liberal thinks is a golden thought will never understood the simple principles contained in this blog post.

by InvestorPolitics | Apr 25th 2012

If you think gasoline prices are volatile now, stay tuned. President Obama's plan to clamp down on oil speculators is going to make things worse.

I'm sure you've seen the news by now.

The president wants to clamp down on so-called "oil price manipulation" and has proposed a $52 billion plan to increase federal supervision of oil markets.

What the president doesn't understand is that the oil markets already have this function built in.

Speaking from the Rose Garden last week, President Obama noted specifically that we can't afford to have "speculators artificially manipulating markets buy buying up oil, creating the perception of a shortage and driving prices higher – only to flip the oil for a quick profit."

Evidently, the president hasn't passed Econ 101.

If he had he would know that prices on everything from eggs to houses are by their very definition self regulating.

Speculation, as opposed to manipulation, is a vital part of the markets – they are not the same thing despite the fact that the president is interchanging the terms.

If prices are too high, people stop buying. If prices are too low, they stop selling. By authorizing $52 billion in oversight, he's chasing a ghost that he'll never catch.

The Real Problem with Oil Prices

The real problem is that the United States consumes 20% of the world's crude but only produces 2%. It comes a time when oil demand is expected to rise more than 25% (to 105 million barrels a day) by 2015, according to a new report titled Oil and Gas: A Global Outlook by Global Industry Analysts, Inc.

If you want the biggest piece of the pie from the deli, you have to pay a premium.

There is no hocus pocus and there's no additional oversight necessary. Rather, we need to enforce the laws we already have on the books.

Sure the $10 million fines he's jawboning about (up from $1 million) sound great but they're really a non-starter. In fact, given that Exxon alone generated an average of $1.33 billion a day in 2011, they're little more than an acceptable cost of doing business. Nice try.

Take gasoline, for example.

Prices have jumped 78.2% since the president took office and that doesn't sit well with the party faithful who are convinced that evil oil price speculators are responsible.

They are distraught that traders put hundreds of billions of dollars into energy every month because that may cause prices to rise.

This is not complicated. Any time there are more buyers than sellers, prices go up. Any time there is more demand than supply, prices go up.

Contrast what's going on in the oil markets with what's happening in natural gas.

Prices for natural gas are at ten- year lows. Demand has risen but supply has risen faster. There are more suppliers than buyers. So natural gas prices drop.

Natural gas, by the way, is traded by many of the same traders who trade oil.

Oil Price Manipulation, Gas Prices and the Free Market

Gasoline prices at the pump have never been proven to be a direct consequence of oil price manipulation. But it's widely conjectured.

Believe me, I hate paying more just as much as the next person, but get over it.

Geopolitical tensions, supply constrictions, war, tyrants with spigots and other buyers are the real factors at work and they always have been. When risks go up, so do prices – that's the way free markets work.

Apple didn't produce nearly 115 million iPhones and iPads in 2011 for kicks. It did it because there's huge demand for its products and it can make big bucks.

Things are just more critical now because we've failed to develop a comprehensive energy policy over the past 50 years at a time when global demand is increasing rapidly in absolute terms.

The president wants votes in an election year; this is pure political pandering.

For example, China's per capital oil consumption has increased by 350% since the early 1980s.

The International Energy Agency estimates that China alone will account for 42% of global oil demand by 2015. And it is one of the slow growers with consumption rising a mere 100% in the last 10 years.

Other countries like Malaysia have seen per capita usage quadruple since the 1960s. Brazil and Thailand have seen oil demand double to 5.7 barrels/year and 4.8 barrels/year per capita.

And don't forget the weak dollar. Because oil is generally priced in dollars, Bernanke's weak zero interest rate policies are helping drive prices higher. Producers have to compensate with higher prices to make up the reduction in margin being forced upon them by greenbacks that have diminished purchasing power.

Speaking of which, the Beltway Boys, in their infinite wisdom have got it in their heads that margined trading – meaning you can borrow money to control more of the underlying asset – gives too much power to financial investors aka the speculators.

What they don't realize is that:
•Even if you tighten up margin requirements, traders will shift to derivatives like options, swaps and other so-called exotics.
•Higher margin requirements lead to less liquidity which, in turn, actually exacerbates the speculative volatility they're trying to control.

Think about it.

Futures markets like those which drive oil and gas prices are a function of two groups of market participants – hedgers and speculators. Those, incidentally are the CFTC's terms so don't confuse them with the politically charged versions the p resident is using.

Hedgers are farmers, importers, exporters and manufacturers who depend on consistent pricing to make, sell or otherwise produce something using oil. They participate in the markets in order to keep prices stable to protect against pricing risk. But they can only buy or sell so much. They are actually interested in delivery of the oil or gas they need.

For example, McDonald's wants to hedge against rising potato costs that could affect the profitability of its world famous french fries. The farmer who sells them potatoes normally wants to hedge against falling potato prices so as to maximize crop prices and his profit margin.

The position is much the same for Starbucks and coffee just as it used to be for dentists and the silver they used for fillings, for example.

Speculators, on the other hand, are those who profit from the price changes against which hedgers are trying to protect themselves. They are not interested in taking delivery.

Speculators serve a very important function in that they bridge the gap between higher and lower prices often buying and selling when hedgers can't or won't.

If speculators are taken out of the picture, prices become less liquid and more jumpy.

Instead of moving smoothly from $100 to $120 a barrel, for instance, oil prices might simply gap higher because hedgers will be forced to trade directly with each other or through intermediaries who have effectively got their financial hands tied.

This would back all the way through the gasoline refinery process to the pump.

And investors who are dumfounded by the price increases we've seen so far, may be absolutely gob fobbed when things jump $1 or more at a time. Then there really would be a link.

Shutting down speculators would be like banning ice cream delivery trucks in July.

The President Is Chasing a Ghost He Can't Catch

To think that oil companies will not shift to other pricing mechanisms is naïve. If U.S. markets are restricted, traders will simply shift to London or Shanghai and conduct business as usual using new contracts structured specifically to avoid additional U.S. regulation.

They will also create trading entities that act as a proxy for the "speculators" the White House has targeted in this latest gambit.

This is exactly what many did with credit default swaps after the United States clamped down on them.

Why do you think funds shunted to London are at the heart of the MF Global fiasco or Goldman's most aggressive traders are located there? Because money goes where it's treated best. There are more accommodative regulations in the land of crumpets.

We don't need more regulation. We need to enforce what we have. This is another misguided political con job drawn from the well of bad ideas.

The president says he wants cheap gas, yet he kills the Keystone Pipeline, stymies drilling and allows the Fed to engineer a bailout of that put trillions into the system over the past four years – every dollar of which makes gas more expensive.

He says he wants to rein in speculators while not drawing a line between what constitutes legitimate speculation (as a function of free markets) and already illegal manipulation.
If anything, the federal government is the biggest manipulator in the history of manipulators.

Quantitative easing has done more damage to gas prices and the wallets of millions of consumers than a few speculators ever could. Frankly, it's a miracle prices aren't $10 a gallon at the pump by now.

I say let the markets work. Prosecute the true oil price manipulators but otherwise quit meddling. Piling on more regulation will only detract from economic activity, not create it.

Oh…and by the way, investors need to stay long energy especially in growing economies using more fuel.

Higher oil prices mean higher oil profits and there is a link between rising fuel consumption and GDP growth.

Obama Will Say and Do Anything

For holy crappin' crap! I have been saying this for years. Let's not forget he just continues to add lie on top of lie and yet still finds room to make up new ones. What douche we have as president.

April 9, 2012
Obama Will Say and Do Anything
By W.A. Beatty

Lying. Dissembling. Peddling half-truths. Redefining words. Taking credit for something in which he had no part. Those words/phrases describe what President Barack Hussein Obama has said or done and is now saying or doing.

Lying: "Big Oil" and Lobbying
"Big Oil" has become a favorite Obama target. On March 29, 2012, Obama said, "Congress up until this point has thought it was a good idea to send billions more of your tax dollars to the oil industry." Obama appealed to Congress to "stand with the American people" and vote to end subsidies to the oil and gas industry. But there is one problem: "Big Oil" receives tax incentives. In no sense can what "Big Oil" receives be called a subsidy -- the sending of "billions more of your tax dollars to the oil industry." Further, the incentives (sometimes referred to as tax breaks) are available to any US company.

On November 10, 2007, candidate Obama said, "I am in this race to tell the corporate lobbyists that their days of setting the agenda in Washington are over. They have not funded my campaign, they will not run my White House, and they will not drown out the voices of the American people when I am president."

The Obama administration recently hired former lobbyist Steve Ricchetti, a registered federal lobbyist for nearly a decade, to serve as counselor to Vice President Joe Biden.

Although Obama signed an executive order codifying this pledge on his first full day in office, the administration has made use of a loophole in the order that permits waivers for former lobbyists to serve. In some cases, the administration has hired former lobbyists without a waiver.

Dissembling: ObamaCare and Oil Reserves
The Obama administration's argument for ObamaCare had been that it will initially increase costs and deficits. But it pays for itself, the administration says, in the long run because it reduces costs in coming decades. However, the CBO says that in its second decade, ObamaCare significantly increases health care costs, increasing deficits even more than in the first decade.

Obama's own first-decade numbers were built on arithmetic trickery. New taxes to support the health care plan began in 2011, but the benefits part of the program doesn't begin until 2015. That excess revenue is one-time-only, making the first-decade numbers look artificially low, but once you pass 2015, the yearly deficits become larger and eternal.

Regarding oil, Obama has said numerous times, "With only 2% of the world's oil reserves, we can't just drill our way to lower gas prices, not when we consume 20% of the world's oil." It turns out President Obama's statement is not entirely accurate.

The 2% figure Obama uses refers to proved oil reserves and greatly undercounts how much oil the U.S. actually has. In fact, far from being oil-poor, the country has vast quantities of oil -- enough to meet all the country's oil needs for hundreds of years. The U.S. has 22.3 billion barrels of proven reserves, which is a little less than 2 percent of the entire world's proven reserves, but proven reserves are a small subset of recoverable resources because they count only the oil that companies are currently drilling for in existing fields.

When you look at the whole picture, it turns out that there are vast supplies of oil in the U.S. according to various government reports. The U.S. has 60 times more oil than Obama claims.

Peddling Half-Truths: Auto Industry Loan Repayment and Domestic Oil Production
While technically true, General Motors (GM) did, indeed, pay its government bailout loan early. How GM accomplished that feat had nothing to do with earnings, management, or sales. GM did it by taking Troubled Asset Relief Program (TARP) money to pay off the bailout loan, and now it must pay off the TARP money. Overall, GM's debt remained the same.

This is how GM and the Obama administration used a PR gimmick to fool the American public in hopes of winning some favor. All of these shenanigans were going on while Obama hailed auto industry's comeback.

Senator Charles Grassley (R-IA) wrote in April 2010: "The taxpayers are still on the hook, and whether TARP funds are ultimately recovered depends entirely on the government's ability to sell GM stock in the future. Treasury has merely exchanged a legal right to repayment for an uncertain hope of sharing in the future growth of GM. A debt-for-equity swap is not a repayment," Grassley wrote, referring to the $60-plus-billion loan which the Obama administration allowed GM to convert to an "unsecured" "security."

And here is a bit of news that you will not hear from Obama or the MSM. The Detroit News reported in February 2012 that the U.S. Treasury now says it has lost an extra $170 million in the auto industry bailout because the price of GM stock has fallen 35% from its high.

And, by the way, while Obama, his administration, and the MSM hail TARP money payback, how it was done is, at best, a half-truth.

On March 22, 2012, in Boulder City, NV, Obama said, "We're going to continue to produce oil and gas at a record pace." In another speech, he said, "Under my administration, America is producing more oil today than at any time in the last eight years."

Again, what he said is technically true, but while domestic oil production may have increased under Obama, it has absolutely nothing to do with his policies. Again, Obama is telling a half-truth. Approximately 96% of the total increase in domestic oil production between 2007 and 2011 occurred on non-federal land, which Obama does not control. Not only did almost all of the production take place on land beyond the Obama administration's control, but it decreased on land within his control.

So, yes, he was truthful, but not completely truthful. Are we being generous to credit him with half the truth?

Redefining Words: "Subsidy" and "Fair"
One of the favorite words Obama likes to throw around is "subsidy." A bill, the Close Big Oil Tax Loopholes Act, introduced by Senators Robert Menendez (D-NJ), Sherrod Brown (D-OH), and Claire McCaskill (D-MO) -- a bill that Obama favored -- purports to "put an end to the unfair tax subsidies that only benefit Big Oil's bottom line[.]" Further, they say the bill "will put an end to taxpayer handouts to the 5 largest oil companies making record profits."

Obama, while in Boulder City, NV, said, "The current members of the Flat Earth Society in Congress, they would rather see us continue to provide $4 billion in tax subsidies, tax giveaways to the oil companies." Isn't it rather ironic that the word "subsidy" is being redefined in view of Solyndra, Beacon Power, and Ener1? It appears that, in light of Obama's failed "green energy" policy, he is trying to hide behind his redefinition of the word.

Another of Obama's favorite words to redefine is "fair" (adjective)." While speaking at Osawatomie, KS, in December, 2011, he called for rich to "pay their fair share." If we are supposed to be fair, to play by the same set of rules, why do we need 30-plus "czars" to exercise powers over Americans who have committed no crimes? If we're all going to be fair, to play by the same rules now, does that mean that Obama's buddies are going to return their ObamaCare waivers?

The central concept of liberal and socialist thought, the progressive tax system, is founded on the concept of treating people "unfairly." Obama didn't speak of the huge number of "unfair" rules designed to penalize activities of which the government disapproves, or about subsidies received by activities of which the government does approve.

I guess "fair" depends entirely upon how Obama defines, or redefines, it.

Taking credit for something in which he had no part: Keystone XL Pipeline, Fracking, Killing Osama bin Laden
Obama was in Cushing, OK on Thursday, March 22, 2012, to "fast-track" the southern portion of the Keystone XL pipeline. TransCanada, the company behind the Keystone XL Pipeline, announced that it will build the southern half of the pipeline and does not need Obama's approval.

So what Obama did was make a photo-op of a private company's project that was going to be built anyway. You will remember that in January 2012, Obama blocked the northern portion of the pipeline -- the part that does need his approval. Obama's attempt to take credit for a pipeline he blocked and against which he personally lobbied Congress is staggering in its disingenuousness.

In his State of the Union speech on January 24, 2012, Obama said, "And by the way, it was public research dollars, over the course of 30 years, that helped develop the technologies to extract all this natural gas out of shale rock - reminding us that government support is critical in helping businesses get new energy ideas off the ground."

Rep. Darrell Issa (R-CA), when questioning Department of Energy (DOE) Secretary Steven Chu, asked, "The president took two pieces of credit in his State of the Union that I wanted to just question you on factually. First of all, he said the Department of Energy created fracking. He took credit for that in the State of the Union. My understanding is fracking was created 60 years ago." Chu replied, "It's absolutely true that there were earlier ventures in the fracking [technology]." He said DOE invested in the technology from 1978 until about 1992, but then "got out."

Regarding the killing of Osama bin Laden, Obama said, "[s]hortly after taking office, I directed Leon Panetta, the director of the CIA, to make the killing or capture of bin Laden the top priority of our war against al-Qaeda[.]" That statement was followed by a bunch of "I" sentences. "I was briefed ... I met repeatedly ... I determined today ... at my direction, the United States launched..." Former President George W. Bush is not mentioned until Obama noted that Bush had made clear that this was not a war against Islam.

Obama never said anything about the CIA, the Navy SEALs, or the efforts of the Bush administration. Obama clearly built on efforts initiated during the Bush administration. It is true that ultimately Obama had to make the final decision on whether to proceed, but he may have given a bit more public credit to his predecessor.

I have highlighted just a few of Obama's words/sayings/tactics. I'm quite sure you can easily expand on my effort.

Obama's actions will only intensify as November 2012 draws near. The most disheartening part is that the MSM rarely, if ever, says anything about what comes from Obama's mouth or what he does.

Dr. Beatty earned a Ph.D. in quantitative management and statistics from Florida State University. He was a (very conservative) professor of quantitative management specializing in using statistics to assist/support decision making. He has been a consultant to many small businesses and is now retired. Dr. Beatty is a veteran who served in the U.S. Army for 22 years. He blogs at: rwno.limewebs.com.



Read more: http://www.americanthinker.com/2012/04/obama_will_say_and_do_anything.html#ixzz1rakV35HK