Why Gas Prices Are High When There’s Plenty of Oil

Believe it or not, but there’s no shortage of oil. The Guardian explains: 

Gasoline prices at the pump have surged, reaching a US national average of $4.34 on 21 March, and remain more than 70% greater than at this time last year. At the same time, global supplies of oil have actually increased, including from Russia, even amid the war in Ukraine.

So if high prices are not being driven by scarcity, what’s going on?

Experts are warning that little-publicized energy traders, most of whom work for the world’s largest oil companies, banks and privately held trading houses, are partly to blame.

The amount of trades – and the profits associated with them – have been skyrocketing, reaching record highs in 2021 and 2022. This inadequately regulated activity is hitting Americans’ pockets and represents a “market emergency”, according to Michael Greenberger, a former US government trading regulator.

“My instinct tells me that a very careful analysis of this market would show that the price is not reflective of supply chain problems, that there’s just too much leeway for the big banks and the big producers to manipulate if no one is looking and watching what they’re doing,” says Greenberger, the former division director of the Commodity Futures Trading Commission (CFTC), the main regulator of US energy markets.

Veteran oil analyst Philip K Verleger has warned that supply and demand “fundamentals have been rendered almost irrelevant” for oil prices, a key determinant of the price of gasoline at the pump.

He has pointed to a dramatic rise in speculation driven by artificial intelligence rapidly buying and selling massive energy bets based on minor or even nonexistent changes to real-world supplies. “Under these circumstances, a change in [supply and demand] fundamentals that might have moved prices by 50¢ or $1” will cause a change of as much as $10 a barrel of oil, he has written.

Overall, global oil production is nearly 5m more barrels a day greater in 2022 than in 2021, yet US politicians on both sides of the aisle have called for even more drilling. Oil exports from Russia into the global market have not been slowed by either the war or sanctions. Instead, they’re rising and are expected to end April higher than at any time since before the Covid pandemic, according to research firm Kpler. . . .

There are certainly other factors putting upward pressure on prices, including fears that Russian supply could decline in the future. But the price of oil, natural gas, and other vital fossil fuel commodities are today primarily set by energy traders, whose actions are stoking rising prices and volatility.

Little physical oil actually changes hands with such trades, which take place on two main exchanges in the US, CME Group and the Intercontinental Exchange. Instead the trade is in futures contracts, a commitment to purchase a set amount of oil in the future for a price agreed in the present. But because the virtual trading has come to dwarf the physical trade, it now determines the price of oil.

Greenberger estimates that “something like 13 times the physical amount of oil is traded” via these purely financial contracts. And commercial trades – those based on the actual use of oil – have been pushed out, he says, replaced almost entirely by speculators looking to make a quick buck, which is in turn increasing excessive speculation and volatility.

According to data provided to the Guardian by CME Group, the amount of crude oil futures contracts traded daily on its platform rose in 2022 over 2021, and is nearly double that of a decade ago.

Rising prices and volatility have been on display since the day before Russian troops went to war against Ukraine, when the price of a barrel of oil was $90. Since the invasion, despite no change in supply, it has vaulted to a $124, fallen to $95, shot back up to $114, before sliding down to $103 a barrel today – over 60% higher than the price one year ago.

All the major oil companies, leading US banks, and lesser known private trading houses led by Vitol, Trafigura, Mercuria, and Glencore, are involved in speculative energy trading. Some have been found guilty of illegal trading over the years. But determining their exact level of involvement is not easy, as there are few reporting requirements allowing the public into this largely opaque world.

In a 2020 earnings call with analysts, Shell CEO Ben van Beurden called Shell’s trading “core to the success of our company, it actually makes the magic in many cases”. Shell typically earns as much as $4bn annually from this trading.

“We’re seeing just massive volatility, in terms of trading activity, in terms of pricing, where you’ve got big bounces between prices, and so something is wrong,” says Tyson Slocum, director of Public Citizen’s Energy Program, a non-profit consumer advocacy organization. Slocum, who also serves on the Energy and Environmental Markets Advisory Committee to the CFTC, calls for greater regulation and transparency into a broken system where “speculators are allowed to reign free”. . . .

Slocum argues that the federal government has ceded too much authority to the futures exchanges. With profits based on volume of trades, they have little incentive to reign in traders, including excessive speculation, he alleges.

Asked to respond to these allegations, both CME Group and Intercontinental Exchange declined to comment. . . .

Exxon, Chevron, Shell – They’re Not America’s Friends. Neither Are Republican Politicians.

Biden isn’t to blame for rising oil prices. Or gas prices: “Energy analysts say other factors — which predate the Biden administration — are responsible”. Charles Pierce of Esquire uses colorful language to say we should look elsewhere:

Since it seems that the elite political media is going to define everything except the upcoming NCAA basketball tournament through the price of gasoline—CNN should open a bureau at that one gas station that is clearly overcharging people . . .

When did the consensus among us common folk break down that the oil companies are a miserable flock of price-gouging harpies interested only in lining their own pockets, despoiling land and sea and contributing to the planet’s self-immolation? I mean, Deepwater Horizon wasn’t that long ago. . . .

So now, as Ukraine fights to remain an independent nation, and as the economic recovery from a worldwide pandemic rolls on largely unacknowledged by much of the elite political press, the oil company executives, who currently hold a plethora of oil leases, are shoveling the money they’re gouging out of the rest of us to their shareholders rather than plowing it into developing the leases they already own. From the New York Times:

In his broad Oklahoma twang and in language that will be heard repeatedly in the next few months, [former Democratic senator Fred Harris] . . .  said that Congress should “break up” the major oil companies, which he contends illegally control both production and marketing of petroleum products.

Where have you gone, Fred Harris? Your party turns its lonely eyes to you.

Unquote.

Some facts from Dana Milbank of The Washington Post:

A cynic is rarely disappointed by this Republican Party. Yet even by that standard, the current attempt to blame President Biden — and absolve Vladimir Putin — for the spike in gas prices is a special case. . . .

It’s not only that the charge is bogus — the current price of gas has virtually nothing to do with Biden’s energy policies — but that the Republican officials leveling it are sowing division at home and giving a rhetorical boost to the enemy at a perilous moment when national unity and sacrifice will be needed to prevail against Russia.

Announcing the ban on Tuesday, Biden said, accurately: “Since Putin began his military buildup on Ukrainian borders, just since then, the price of the gas at the pump in America went up 75 cents. And with this action, it’s going to go up further.” He dubbed it “Putin’s price hike” and said “Russia is responsible.”

Republicans leaped to Putin’s defense.

“These aren’t Putin prices. They’re President Biden’s prices,” House GOP leader Kevin McCarthy said on Wednesday. Via tweet, he claimed: “Gas prices started rising the day President Biden took office — when he canceled the Keystone Pipeline and halted new drilling on federal lands.”  

Rep. Elise Stefanik (N.Y.), head of the House Republican Conference, added: “Joe Biden blames Russia for skyrocketing gas prices. But make no mistake — Biden’s war on American energy is to blame.”

Scores of Republicans piled on. The GOP side of the House Energy and Commerce Committee tweeted: “Russia isn’t ‘responsible’. Biden’s shutdown of American energy is.”

That’s just a gusher of mendacity.

Gas prices “started rising the day President Biden took office”? Wrong. They’ve been on an upward trend since bottoming out in April 2020 at the start of the coronavirus pandemic. This is because of booming demand during the recovery — not because of Biden’s policies . . .

Canceling the Keystone XL pipeline caused gas prices to rise? Wrong. It was only 10 percent done when Biden canceled it, and its owners didn’t expect to open it until 2023 at the earliest.

Biden “halted new drilling on federal lands”? Wrong. After a temporary halt in new leases, Biden has outpaced Trump in new drilling permits for public lands, The Post reported.

As for Biden’s “shutdown of American energy,” U.S. production has increased under Biden from 9.7 million barrels a day to 11.6 million barrels. The number of oil rigs operating was at 172 in July 2020, E&E News reports. Now, 519 are in operation. U.S. production is forecast to set a record next year.

What’s holding back oil production isn’t government policy. U.S. producers still have 4,400 wells already approved and drilled that are not yet producing. They aren’t drilling more because of a shortage of workers and equipment and, particularly, [Big Oil]. As The Post reported, major U.S. oil companies say they would rather use their profits “to boost payouts to shareholders” than “rush to drill new wells.”

Blaming Biden for the spike in prices around Russia’s Ukraine invasion isn’t just false — it’s an assist to Putin . . .

[That’s not surprising]. Fox News’s Tucker Carlson, after parroting Kremlin talking points justifying its invasion of Ukraine, has pivoted to blaming the United States for provoking Putin. “Why in the world would the United States intentionally seek war with Russia?” he asked on Monday night.

T____ himself has praised Putin’s acuity, Sen. Josh Hawley (R-Mo.) has called for the United States to appease Russia by abandoning its support for Ukrainian membership in NATO, and Rep. Marjorie Taylor Greene (R-Ga.) [supports impeaching] Biden for “threatening war” with Russia . . .

Unquote.

Meanwhile, the creepy intruder from Upside Down World speaks:

T____ says the U.S. should not have been buying Russian oil, but imports increased 39% during his four years, after dropping 22% over Obama’s two terms.