April 14, 2011

$4 per gallon gasoline in WI, contango and Koch

Filed under: Uncategorized — Greg in cheeseland @ 5:59 am

Author’s note:
And the rape of third world states like Wisconsin continues…

Gasoline prices in Madison and around the country have increased to nearly $4.00 per gallon – the highest price for consumers since the summer of 2008. So-called analysts in corporate media blame the increase on free market fundamentals relating to supply and demand, such as OPEC policies, the unrest in Libya and increased demand in China and India.

The truth is that market fundamentals are not driving gasoline prices up. Libya produces about 2 percent of the world’s oil and only 5 percent of that goes to U.S. companies. Furthermore, oil production is at a record high, with an adequate supply of crude to meet global demands.

Commodity Futures Trading Commission (CFTC) commissioner Bart Chilton recently explained that rampant oil speculation, which is at its highest level in 2011, is to blame for current prices.

A commodity market is said to be in “contango” when demand is expected to outstrip supply and future prices are expected to rise. Big banks and companies like Koch employ a contango strategy by buying up oil and storing it in massive containers both on land and offshore to lock in the oil for sale later at a set price. Sort of like the Wal-Mart of Wall Street.

What most people do not know, however, is that Koch Industries occupies a unique role in manipulating the oil market and is one of the top five largest distributors of gasoline and oil that engages in the practice. Koch Industries, unlike well-known oil companies, has little involvement in the extraction process of procuring crude oil. Instead, the conglomerate focuses on shipping crude oil, refining it, speculating on the future price, and then distributing it to retailers.

In 2008, David Chang from Koch Industries drew attention among clients by bragging that falling crude prices in 2008 provided an opportunity to remove oil from the market for future delivery. He said:

The drop in crude oil prices from more than US $145 per barrel in July 2008 to less than US $35 per barrel in December 2008 has presented opportunities for companies such as ours. In the physical business, purchases of crude oil from producers and storing offshore in tankers allow us to benefit from the contango market where crude prices are higher for future delivery than for prompt delivery.

In December of 2008, Koch Industries leased “four supertankers to hold oil in the U.S. Gulf Coast to take advantage of rising prices in the months ahead.” Writing about Koch’s contango efforts to artificially drive down supply back then, Fortune magazine writer John Birger noted they could be raising “gasoline prices by anywhere from 20 to 40 cents a gallon” at the time. Prices have increased far more than that in recent months.

Koch Industries, like Enron, created a number of derivatives in order to leverage its privileged position in the energy industry. With control of every part of the market, the Koch brothers are not only able to bet on future oil and gasoline prices with privelaged information, but also are able to procure and withhold enough supply from the market to influence the future price.  

A recent presentation from Koch Supply & Trading, the Koch unit devoted to selling financial products, confirms that Koch has taken advantage of a lax regulatory environment to aggressively trade on future oil prices. “The return of speculators to Oil, the ‘macro trade’ is alive and well,” reads slide 36. The entire presentation can be viewed on slide share here: Koch Supply & Trading Risk Management.

Are the Koch brothers again buying up supply in expectation of higher crude prices during the summer or beyond, as many analysts have predicted?  Based on their history, the answer is probably “yes.” With little regulation and oversight of the oil speculation and trading industry, however, and virtually no information made public, Americans have no way of knowing the extent to which such practices affect monthly, weekly and even daily fluctuations of gasoline prices at the pump.

With the energy industry, speculation and trading industry currently operating with virtually no regulation and energy corporations posting record profits, one may think reasonable gasoline prices would be a small concession to make for consumers. Apparently that is not the case for corporations like Koch Industries.

That is, of course, not even taking into consideration the costs to consumers of disasters like the financial meltdown, the BP oil disaster in the Gulf, or the GE reactor meltdowns in Japan.

How about trusting the Koch brothers to run a nuclear power plant in Wisconsin with little or no regulation? Apparently Scott Walker thinks that is a good idea.

Read more, get links here: Madison Independent Examiner – Contago and Koch

No Comments

No comments yet.

RSS feed for comments on this post.

Sorry, the comment form is closed at this time.

Powered by WordPress