The blaming of speculators for the current price in oil is showing that many still have an utter lack of understanding how markets work. To blame speculators for the run-up in oil is like saying the Mona Lisa is a picture of a rather plain looking woman or that the Coliseum is an old wreck of a building. People who believe that the run up in the price of oil is all the fault of speculation fail to grasp the intricacies, history and the mastery of the free market place. Speculators are just a scapegoat for those who don’t want to face the fundamental truth of what the markets want to convey.
And if you don’t want to blame the speculators then why not blame the oil companies. The Obama administration is saying that oil companies that are making these kinds of profits need no “subsides”. API chief economist John Felmy was quick to respond telling Politico, “The federal government by no stretch of the imagination subsidizes the oil industry. The oil industry subsidizes the federal government at a rate of $95 million a day."
The assault on oil companies and their profits is about as helpful to the American people as a kick in the head. The Obama administration and now House Speaker John Boehner said that even he is considering taking away tax breaks or a so called subsidy used by oil and gas companies in an effort to cut the federal budget deficit. Boehner open the door by saying, “I don’t think the big oil companies need to have the oil depletion allowances,” he said. “But for small, independent oil and gas producers, if they didn’t have this there’d be even less exploration in America than there is today.” This isn’t a problem because they probably could not get a permit from the government anyway.
In the mean time Exxon Mobil plans to spend about a billion dollars a day to explore for oil and that will probably be in other countries because the United States is an increasingly hostile place to do oil business. Yet you can give away "free" taxpayer money to GE that paid no taxes to produce inefficient energy source. Steal from the rich oil companies and give to the poor struggling alternative energy companies. Robin Hood would be proud.
Meanwhile the price of commodities are being held hostage on the whims of the Fed. QE2 is one of the most bullish things to ever happen to oil and it may be coming to and end. Even Jean Claude Trichet seems to be getting it by saying that he shares the view that a strong dollar is in the best interest of the United States. While Mr. Trichet says that, “At the moment I do not see any significant materializing of second-round effects and I do not see un-anchoring of inflation expectations," Mr. Trichet told the Helsinki Sanomat and Kauppalehti newspaper. In other words he doesn’t see food and energy driving inflation expectations yet at the same time the comments about the dollar seem to suggest that he is concerned about how the imbalance between the euro and the dollar are driving up commodity prices.
In China governmental control of commodities is starting to get too difficult to handle. Last week Chinese oil giant Sinopec stopped exporting oil products to maintain domestic supplies amid disruption concerns caused by Middle East unrest and Japan's earthquake. This week Dow Jones says that China will limit alcohol and bio-fuel projects that use grain and edible oils as raw materials in an effort to secure grain supply. The government will also limit corn starch projects with corn processing capacity of less than 300,000 metric tons a year and soybean crushing projects outside major producing areas, the National Development & Reform Commission said in industrial guidelines published on its website.
In the meantime slaughter in Syria by the government against protestors is raising risks in the region. Syria could spread its terror throughout the region. The war goes on in Libya. Yemen leaders come to an agreement but the violence continues. CNN reports that, “Iran threatened a tit-for-tat response Tuesday after Bahrain declared an Iranian embassy official in Manama persona non grata and gave him 72 hours to leave the country. On Monday Bahrain ordered Hujatullah Rahmani, the second secretary in the Iranian embassy, to leave because of his alleged links to a Kuwaiti spy ring, the Bahrain News Agency said. Bahrain also said Iran should stop its, "irresponsible behavior" and not interfere in the country's internal affairs, the news agency said. Iran’s Foreign Ministry spokesman Ramin Mehmanparast responded Tuesday, saying Bahrain's actions are "not based on realities." The spokesman said Iran reserved the right to take retaliatory measures against Bahrain, Iran's state-run Press TV said. Relations between the two countries have been tense in recent months as Bahrain contends with an anti-government movement that it said is being fueled by Tehran.
These risks are risks to oil as well!