Thursday, June 30, 2011

Change The Oil?

We open the emergency spigot a bit to sell our light sweet crude to bring Brent down. Hey, I get that. Brent's way too high versus the West Texas Intermediate that trades here.

But what we should be doing, what people like James Cramer have urged the government to do, is sell the Brent futures. That's the imperfect market. That's the market that's being manipulated despite claims from the exchanges that there aren't that many speculators playing in that market. Oil is flying because inventories are lower than we thought. I believe it's because Japan's in there buying. The issue that's killing us, though, is Brent because we price off of Brent here, even though that's not fair or right.

But here's the issue. Here's why Brent seems intractable. There's no incentive for the producers of oil anywhere to bring the price down there. And there is no incentive by the refiners here to take advantage of the high prices there by using tankers to ship it to the Brent buyers. That's because they can charge Brent prices at the pump. What's the point of shipping it when you can abuse the American consumer by pricing off of Brent and the U.S. government doesn't care?

A one-two-three punch of selling Brent futures against the Strategic Petroleum Reserve, raising margin rates to shake out the non-consumer hoarders and laying down the law regarding pricing of refined product at the pump would have the desired effect of bringing down oil to levels that are economically commonsensical.

When you consider we are awash in oil even without OPEC doing the right thing by the consumer -- as if we could ever trust this cartel to do that ----the absurdity of these high prices it astounding. The marketplace is rigged and the rigging is so beneficial to the treasuries of companies and governments alike that only government intervention in the rules of the game, not just the supply side, and a dramatic change of the rules that keeps financial buyers from being in control of something that affects the natural interest can make the changes we need.

We are basically financially suicidal and naïve as a country for this not to happen.

Of course, in the interim we need a policy that transfers a lot of our natural gas into vehicular fuel if we want to bust both the hedge-fund cartel and the OPEC cartel. But the New York Times has spoken and the lawmakers are listening. Somehow the agenda's been hijacked and the environmentalists have, de facto, thrown their weight in favor of coal, the default fuel for natural gas and imported oil.

I just don't know if this current regime, which is totally enthralled by the press and the press reports, can go against the Times and push for domestic natural gas as an alternative to foreign diesel (the real trade-off as 18-wheeler LNG engines are readily available for truck fleets to switch to).

The desire to have electric cars that plug into a coal based system -- there goes coal again -- is too great and it appeases too many constituencies to which President Obama is beholden.

So, we have no short-term way or will to bust the two cartels other than through the Rube Goldberg way of physical delivery when it is the financial "delivery" that is in control. And we won't use the cleaner domestic fuel of natural gas.

That's pathetic.