Is the price of oil really rising?

I'm frankly amazed people don't realize this, but while the media trumpets the rise in the price of oil on the speculative futures markets, the actual cost of producing oil remains the same. Does it really cost $30 or $40 more to pump a barrel of oil out of the ground in Texas, or Saudi Arabia, than it did two months ago? Does it really cost more to store that barrel of oil, than it did two months ago? Has the cost of hiring roughnecks, roustabouts, and other workers gone up? Has the price of drilling pipe and drill bits gone up? Have the prices of pumps, gaskets, seals, valves, and pipe gone up? No, the actual costs of production are not really impacted by "uncertainty about what effect the unrest in the Middle East will have."

$100 Oil? Blame Speculators and the Bank Lobby, Consumer Advocate Says

Oil prices fell Tuesday after Kuwait's oil minister said OPEC may hold an "urgent meeting" to discuss the cartel's response to escalating warfare in Libya, where output has fallen by as much as 1 million barrels a day, Bloomberg reports.

Still, crude remains well above $100 per barrel as the rolling protests in the Middle East have raised the specter of another supply shock.

But North America is "awash in a sea of crude reserves, both public and commercial, says Tyson Slocum director of the energy program at Public Citizen, a non-profit organization. "There's no supply-demand fundamentals that are justifying this huge price spike."

Concerns about unrest in Saudi Arabia are overblown, says Slocum, who believes the odds of a disruption to Saudi supplies are "unbelievably low."

Rather than geopolitics, Slocum says "speculators on Wall Street" are to blame for the recent spike in energy prices. "This is a case where speculators are driving the market rather than end users like refiners. [Speculators] use any excuse to push prices up beyond supply-demand fundamentals."

While it's impossible to specifically quantify the impact speculators have on prices, commodity speculation has risen dramatically in recent years thanks to the popularity of commodity-focused ETFs and institutional benchmarks like the S&P Goldman Sachs Commodity Index (GSCI). The net long position of non-commercial speculators hit an all-time high this month, according to the Commodity Futures Trading Commission.

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Speculators Gone Wild?
At the risk of becoming involved in the ongoing Paul Krugman/Yves Smith debate regarding the influence of speculators on commodity prices, I direct readers to Colin Barr at CNN Money:

The surge of speculative money into the oil futures pits shows that big financial players are expecting the price of WTI crude to surge well above the recent $105 or so seen last week. If they are right, it will bring $4 gasoline a step closer….

…"It does not get any clearer which way Wall Street is trying to take oil," says Stephen Schork, who writes the Schork Report energy markets newsletter in Villanova, Pa.

Schork notes that speculators now own nearly six times as many barrels of oil – 268,622 futures contracts representing nearly 269 million barrels – as can be stored at the WTI trading hub in Cushing, Okla. And since the CFTC numbers released Friday only go through last Tuesday, they likely underestimate the degree of speculative fervor building in the energy markets.

Money appears to be flooding into energy markets to chase a sure thing, with potentially severe consequences for a global economy still on the mend.

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Libya, Gas Prices, and the Big Payday at Your Expense
by Michael Collins on Mon, 03/07/2011

The average price for a gallon of gas rose 30% from $2.69 in July 2010 to $3.49 as of March 6. Most of that 30% has come in just the last few days.

We're about to embark on another period of let the markets take care of it. The Money Party manipulators are again jerking citizens around in the old bottom-up wealth redistribution program. Their imagineers are writing the storyline right now.

The conflict in Libya is causing the spike in oil prices over the past ten days or so according to the media script. Take a look at the chart to the right. Can you find Libya among the top fifteen nations supplying the United States with crude oil?

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