$132/barrel and rising. Who's behind it.

[rn79870]

NEW YORK (CNNMoney.com) -- Amid increasing public outcry over record-shattering oil and gas prices, senators on Wednesday hauled industry executives in to testify about the recent runup.

The Senate Judiciary Committee called the hearing to explore the skyrocketing price of oil, which earlier in the day crossed $132 a barrel for the first time. The committee questioned executives from Exxon Mobil (XOM, Fortune 500), ConocoPhillips Co. (COP, Fortune 500), Shell Oil Co. (RDSA), Chevron (CVX, Fortune 500) and BP (BP).

"Normal supply and demand says prices should be around $55 to $60 a barrel," said Sen. Patrick Leahy, D-Vt., chairman of the committee. "Prices should not skyrocket like this in a properly functioning, competitive market."

Congress - a House committee has set a similar hearing for Thursday - is tapping into growing public anger over rising oil and gas prices. Before the hearing even began, a heckler in the crowd shouted: "Stop ripping off the American public - bring these oil prices down."

But the oil executive said prices are being driven by global market and geopolitical forces largely beyond their control.

"We cannot change the world market," said Robert Malone, chairman and president of BP America Inc. "Today's high prices are linked to the failure both here and abroad to increase supplies, renewables and conservation."

Malone's remarks were echoed by John Hofmeister, president of Shell.

"The fundamental laws of supply and demand are at work," said Hofmeister. The market is squeezed by exporting nations managing demand for their own interest and other nations subsidizing prices to encourage economic growth, he said.

In addition, Hofmeister said access to resources in the United States has been limited for the past 30 years. "I agree, it's not a free market," he said.

Indeed, Peter Robertson, vice chairman of Chevron, said that the industry needs to make "massive investment" in oil exploration and development of new technologies.

Robertson, urging conservation, cautioned Congress against further taxing oil companies or undoing some of the mergers of the 1990s.

"Americans need companies that can effectively compete for access to new resources," he said. "Punitive measures that weakened us in the face of international competition are the wrong measures."

John Lowe, executive vice president of ConocoPhillips, said Congress should enact a balanced energy policy. Such a policy could include measures to encourage alternative energy sources, remove the ethanol tariff, promote energy conservation, cut regulations around refining and improve access to oil in the United States.

"We musk work together to find a real solution," said Lowe. "U.S. oil companies should be viewed not as scapegoats, but as assets."

Congress: Familiar ground for execs

The hearing marked the second time in as many months that top oil industry officials have been called before Congress.

In April, roughly the same line up defended their firms before a House committee. The hearing was ostensibly called to ask the executives why they needed some $18 billion in federal subsidies in light of their record profits, but quickly delved into a Q&A on bigger questions in the energy business.

Lawmakers criticized the firms for not investing enough in finding new oil and developing renewable resources and told them, in thinly disguised terms, that they'd be forced to enact extra profit taxes if Big Oil continued to post such large earnings.

The oil men said they're making business decisions in the best interest of their shareholders. They repeated their often-stated position that the best way to lower prices and bring more oil to market is to open up wide swaths of the U.S. that are currently off-limits to drilling.

Although lawmakers don't vote on energy issues strictly along party lines, Democrats generally want to increase taxes on Big Oil and use the money to fund renewable energy research.

Republicans generally favor opening up the Alaska Wildlife Refuge, large parts of the Rocky Mountains, and areas off the east and west coast that have been closed to drilling since the 1970s following a public backlash after several big oil spills.

The parties are widely apart on the issues - a Republican effort to expand drilling recently failed in the Senate - and a compromise is not expected soon.

But both the Democrat and Republican proposals are long-term solutions that would have little impact on the nation's energy picture for several years, if not decades.

In the short run, experts say there's little politicians can do to bring down the price of gas.

Recent proposals to suspend the gas tax from the Democratic presidential contender Hillary Clinton and presumed Republican nominee John McCain were roundly criticized for leaving the government with a cash shortfall while possibly encouraging more driving, and by extension higher prices.

A measure to stop filling that nation's Strategic Petroleum Reserve was enacted last week with wide bipartisan support, but has done nothing so far to stem surging crude prices.

Are you feeling the pinch of gas prices? Tell us how gas prices are affecting you and what you're doing to cope. Send us your photos and videos, or email us to share your story. (Emph/color mine)From: http://money.cnn.com/2008/05/2...n=yes

I think it's time for the Nico-naughts to start writing their representatives and demanding that we reopen the issues of oil exploration in the US. The Dem. position clearly fails in the above example, and the Rep. position gets ignored. Washington, you need to get a hint.

[Encryptshun]

http://money.cnn.com/2008/05/1...51615

I know that various "economic thinktanks" (whoever those eggheads are) say that I shouldn't, but I'm still flat-earthing my way across the gas speculation bubble theory.

[rn79870]

Quote »Washington overcame a significant obstacle yesterday in its attempt to sue Opec for behaving as an oil cartel and keeping the price of fuel artificially high.

The House of Representatives overwhelmingly approved legislation to bring a lawsuit against Opec members because they have collectively set the price of oil and limited oil supplies.

The price of oil is at an all-time high of about $129 a barrel and has been in part responsible for surging inflation in the United States, Britain and across Europe.

President Bush is opposed to the legislation because he believes that it will trigger retaliatory measures by Opec member countries such as Saudi Arabia against American business interests.

While the Bill has still to be passed by the Senate, the size of the majority in the House of Representatives — 324 votes in favour versus 84 against — is sufficient to stop Mr Bush from vetoing any new legislation.

Should the Senate approve the Bill, a new American task force would be created as part of the Justice Department to investigate energy markets to root out manipulation and unwarranted speculation. [/quote]Any step in the right direction is a step towards resolution. The dollar hasn't fallen 30% in the last month, yet they continue to claim it is responsible for the rise in crude prices.

http://business.timesonline.co...7.ece

[AZhitman]

In the short run, experts say there's little politicians can do to bring down the price of gas.

Well Duh.

Government has no place in the discussion.

The Courts, however, are MANDATED to ensure that the free market is protected and that Capitalism is not compromised by political intervention.

Alternatives are out there, but politicians on both sides are glad-handing judges into keeping those alternatives under the rug, allowing Big Oil to dominate (monopolize) the market.

I encourage EVERYONE to support those companies that support TRUE alternative energy sources... Progressive Insurance is sponsoring the Automotive X-Prize. Show your support by getting a quote - they're stepping into a political minefield, and I applaud them for their support of this competition.

Click it and read: http://www.progressiveautoxprize.org/

[ishkabibble]

It's so stupid that Congress drags oil execs up to the Hill to explain high oil prices. They have little to do with it.

The situation will sort itself out eventually. The higher the prices go, the quicker the alternatives will come about.

[smockers83]

Taxing the oil companies more will only make oil more expensive.

[Leuthesius]

Right. But Congress has to make it look like its doing the people's work.

Open our lands to drilling. We have more oil underneath American soil than anywhere else in the world.

[krimsonviper]

is the reason why we dont drill on our land because it causes sink holes?

[rn79870]

Sink holes are of little concern with off shore drilling.

[Encryptshun]

Sink holes are of little concern with off shore drilling.

Yeah, no doubt. Anyone who disputes this should watch "Cloverfield". Sink holes should be the LEAST of our concerns....

[krimsonviper]

i meant it for like on land that we inhabit, not off shore

[AZhitman]

is the reason why we dont drill on our land because it causes sink holes?

No.

We don't drill much on our land because pantywaist enviro-whackos think the Spotted Freaking Owl (which supposedly evolved out of the muck) is INCAPABLE of adapting to living a few miles away.

[AZhitman]

It's so stupid that Congress drags oil execs up to the Hill to explain high oil prices. They have little to do with it.

Much agreed.

The situation will sort itself out eventually. The higher the prices go, the quicker the alternatives will come about.

Possibly.

The problem is, there is a lot of politically-fueled opposition to SUSTAINABLE and REALISTIC alternative fuels. Ethanol is NOT one of them, but look how quickly the politicians jumped on that bandwagon, effectively FORCING it on the public.

Until the government gets the hell out of the way, the market will remain influenced in a negative fashion.

[mtcookson]

We don't drill much on our land because pantywaist enviro-whackos think the Spotted Freaking Owl (which supposedly evolved out of the muck) is INCAPABLE of adapting to living a few miles away.

I all of the sudden just got this strange urge to go bird hunting...

[AZhitman]

Let's let the evolutionists take a crack at this one.

[Encryptshun]

^ Did someone say my name?

IMHO, evolution would address the issue at hand thus:

1) Humans' will and technology evolve, outstripping the natural instinct to maintain an equilibrium with their surrounding environment.2) Humanity becomes an evolutionary challenge for other species to overcome.3) Spotted Owl = pwnt4) Humanity laffs and laffs and then gets crushed by a meteor.5) Roaches lawlz @ hoomanz.

[WDRacing]

Ethanol is NOT one of them

I posted this in another thread about gas prices, but it got no attention. Perhaps because so little is known about it. Everyone knows I like some Hemp...but that doesn't change the facts.

Hemp can be grown without THC, which is the active content that makes it illegal. It's reaches harvesting height in 65-90 days. The entire plant can be used. Hemp can be made into synthetic lubricant, can be made into any fabric for cloths and the remainder can be turned into Ethanol. By selling the plant in it's various forms the profit margin allows for the costly refining process to turn it into ethanol. Therefore removing the need for Gov subsidies.

This type of free market will once again allow the smaller companies to take part in the fuel bussiness. Over all it will create many more jobs for the American people and take from Big Oil.

WD

[HashiriyaS14]

The United States imports foreign oil almost exclusively for gasoline for use in vehicles. We don't really use it in electricity, and thus getting cars off gas is the key to getting the US independent of foreign tyrants.

That said, the solution to getting cars off gas is NOT to generate power onboard via some other method. Cars just need to be electric and use power that's actually been generated somewhere else, so the key is battery technology.

It's always going to be more efficient to generate your power offsite somewhere with greater economies of scale. Constraining your power production hardware to something that can fit aboard a vehicle always struck me as a little silly.

Besides, batteries can be engineered down smaller than fuel tanks can. They can be smaller and lighter. 15 gallons of ethanol will always displace 15 gallons and weigh the same, but a battery that stores "x" amount of juice doesn't have a definite lower limit on it's size and will continue to become much smaller and lighter as research goes on.

It's all about pure electric cars, or at least it will be eventually. Then we can concentrate on stuff like marine hydroelectric, nuclear, solar farms, et cetera.

[ishkabibble]

they will need to figure out how to recharge cars in 5 minutes before the tech gets adopted by the mass market.

[HashiriyaS14]

they will need to figure out how to recharge cars in 5 minutes before the tech gets adopted by the mass market.

Eh, as long as you can charge overnight I think it'd be fine, people will get used to plugging their cars in every night.

Well, I think that in the near term the solution will be vehicles like the Volt, which do "city driving" almost entirely on electric power but then need to resort to gasoline for longer trips.

In urban areas, most people drive less than 50 miles per day roundtrip as most people just drive their commute. If I had a Volt with 40 mile electric range, I could get by all week with zero gasoline usage.

Well, I actually already do since I take metro, but I could DRIVE and get by with zero gasoline usage.

None of this shxt would work for people in rural areas with super long drives, but the fact is that it's going to get more and more expensive to live in rural areas anyway due to energy costs. Increased urbanization is the trend for the next 50 years, everyone had better get used to it.

EDIT: The proof for the above statement is in the dollars. I work in real estate private equity and we're seeing HUNDREDS OF MILLIONS OF DOLLARS chasing urban projects with almost zero investor interest in "sprawl" development or satellite communities. People are moving back into cities in droves, gentrification is happening rapidly, prices are rising, and investors and developers are moving quickly to react to this demand.

The new indicators of a hot project are things like proximity to public transit, walking distance to attractions and restaurants, and other factors that demonstrate people's decreasing willingness to drive.

[mtcookson]

Nuclear batteries... imagine never having to charge or fill up your car for nearly a decade or more.

If only nuclear energy wasn't so looked down on, there would probably be a lot more nuclear technology, like a nuclear battery, that could be used in cars.

[krimsonviper]

what i dont understand is if the big oil companies dont control the prices, then why are people in san fran. paying more for their gas than i am being just an hour away. I think its BS no matter what they say

[WDRacing]

The United States imports foreign oil almost exclusively for gasoline for use in vehicles. We don't really use it in electricity, and thus getting cars off gas is the key to getting the US independent of foreign tyrants.

That said, the solution to getting cars off gas is NOT to generate power onboard via some other method. Cars just need to be electric and use power that's actually been generated somewhere else, so the key is battery technology.

It's always going to be more efficient to generate your power offsite somewhere with greater economies of scale. Constraining your power production hardware to something that can fit aboard a vehicle always struck me as a little silly.

Besides, batteries can be engineered down smaller than fuel tanks can. They can be smaller and lighter. 15 gallons of ethanol will always displace 15 gallons and weigh the same, but a battery that stores "x" amount of juice doesn't have a definite lower limit on it's size and will continue to become much smaller and lighter as research goes on.

It's all about pure electric cars, or at least it will be eventually. Then we can concentrate on stuff like marine hydroelectric, nuclear, solar farms, et cetera.

Methane will be available forever at almost no cost. We simply lack infrastructure to support it's use. Just my .02 to add on to your already awsome idea's Hash...lol.

[HashiriyaS14]

what i dont understand is if the big oil companies dont control the prices, then why are people in san fran. paying more for their gas than i am being just an hour away. I think its BS no matter what they say

Because that's retailer mark-up. The big oil companies don't own gas stations, small independent businesspeople do. These people know that buyers in richer urban areas will pay more for gas than others will, so prices are higher.

In general, I don't believe that there WILL be any short-term alleviation of gas price woes. Americans will just need to start driving smaller cars and shorter distances, more like people do in Europe or Japan. We're going to have to start living more like the rest of the world does.

Where's my new Fiat 500???

NOTE: Theoretically, WD's idea is a very good one. We can produce essentially limitless methane, although I'm not sure what the costs of production would be or if it would cashflow out well.

[Encryptshun]

^ Retailer markup, but taxes are a HUGE part of the pump-price. Here in Cook County, IL, we pay about 35% tax per gallon. Down in Chicago proper they pay about 40%. Illinois average is 25%.

[HashiriyaS14]

I never thought about this before, but with the recent growth of the hedge fund and what not, oil futures can be traded as a hedge against inflation and the dollar. If the dollar drops, oil goes up. Hedging itself can all be speculation and is one of the worst ways to invest.

I've been saying the same thing as that CNN article around here for months now. Everything is ultimately driven by speculators as all consumers of oil purchase it via futures on the open market.

I wouldn't say that it's because of hedge funds, lots of different entities buy and sell oil futures. The name "hedge fund" is misleading anyway, as they are generally pure speculators and often don't even attempt to masquerade as if they're actually pursuing a real hedging strategy against anything in particular.

[smockers83]

"Excessive speculation on energy trading facilities is the fuel that is driving this runaway train in crude oil prices today," said Gerry Ramm, president of Inland Oil Company.

Others tried to quantify the scope that speculation has had on crude costs.

"We're paying, some believe, as high as a 50% premium to the pockets of speculators that are operating in markets that are completely unpoliced," said Michael Greenburger, a University of Maryland professor and former CFTC official. "At least 70% of the US crude oil market is driven by speculators and not people with commercial interests."

Mark Cooper, director of research at consumer rights organization Consumer Federation of America, said $40 of oil's current price is "baloney" and can be chalked up to speculation, though Soros called that an exaggeration.

Soros said the increasing cost of discovering new oil reserves, diminished supply, foreign subsidies on petroleum product prices, and speculation have all contributed to higher prices - a "bubble" that may not burst until prices become so high that they drag the economy into a recession.

"Only when a recession is well and truly in place is a decline in consumption likely to outweigh the other factors."

I never thought about this before, but with the recent growth of the hedge fund and what not, oil futures can be traded as a hedge against inflation and the dollar. If the dollar drops, oil goes up. Hedging itself can all be speculation and is one of the worst ways to invest.

[smockers83]

I've been saying the same thing as that CNN article around here for months now. Everything is ultimately driven by speculators as all consumers of oil purchase it via futures on the open market.

Same here. Once the commodity futures market was deregulated and opened wholly to speculation, oil went up. The article went on to say that the Enron loophole needs to be fixed and that some regulation needs to be placed on the market.

Here's thing with speculation in oil. Traders hear one thing that could affect supply. A month later, same thing. Speculation goes up from the first time to the second time without ever falling. Or even traders plan for future events, like hurricanes, further upping the price due to speculation on something that hasn't even happened yet. This speculation thing doesn't stop. Each new event adds to the price due to speculation without ever correcting itself. The only way oil really goes down is when there is no speculation and hard data says supply has increased, whether increased production or stock piles have grown...something of that nature.

[HashiriyaS14]

Here's thing with speculation in oil. Traders hear one thing that could affect supply. A month later, same thing. Speculation goes up from the first time to the second time without ever falling. Or even traders plan for future events, like hurricanes, further upping the price due to speculation on something that hasn't even happened yet. This speculation thing doesn't stop. Each new event adds to the price due to speculation without ever correcting itself. The only way oil really goes down is when there is no speculation and hard data says supply has increased, whether increased production or stock piles have grown...something of that nature.

I disagree with this somewhat.

Oil prices represent a speculative bubble, just like housing prices a few years ago or Yahoo's share price in 1999. Prices are currently well above what is actually logical based on supply and demand, and it WILL eventually correct itself. The problem with this is that prices could hit $200/barrel before that happens, doing really serious damage to world markets and economies. I am generally a big advocate of the "invisible hand", however in this case I do agree that we could stand to put some sort of regulation in place.

Maybe something like what the Nikkei has, wherein the market will shut down if the price moves farther than "x" in either direction in a single day, and then not open again until the next day. It's a good measure to control volatility.

That said, prices likely WILL continue to rise, maybe all the way to $200/barrel, even with controls like these in place. They will just rise a little slower. These regulations also won't stop the eventual bubble burst either, but they will ensure that when prices fall, they will fall slower also.

I'm not saying that we'll ever get back to $1.50/gal for gas, but I do think that current price levels are unrealistic. Oil supplies have not dried up proportionally to the price increase, not even close.

The alarmism is good for one thing though, and that's that politically, it's forcing additional dollars to chase renewable sources, which is good for our long-term situation.

[Eikon]

Good thread you guys!

I agree that the speculation of traders has artificially increased prices on oil. But they are not the end cause of the rise in gas prices. They are simply ahead of the curve a bit.

As China, India, and other developing countries continue to boom, the worldwide demand for gas will continue to mushroom.

I think one of the biggest factors right now is the diminishing return of the US dollar. Oil is traded in US $$$, and the devaluation of that dollar has a direct correlation to the price of crude oil.

I think there are a few bright sides to this whole issue though. 1.) The toyota Camry and Corolla that I own will increase in value as our population demands more fuel efficient vehicles. 2.) Our society will become more responsible with their energy consumption because it now directly effects their pocket book in a more meaningful fashion. 3.) Our society will push much harder to develop new energy sources which will reduce the costs of energy, and hopefully reduce our dependency on foreign oil. 4.) Speaking of reducing our dependence on foreign oil... It didn't make sense to refine oil from Canada or go after what we have in the Rocky Mountains because that process was so expensive compared to the "cheap" oil from the middle east. Now however, those new sources of North American oil make sense to go after. So the process has already begun. Give it a couple years to get that oil to market and we'll see great improvement in both oil costs and foreign relations and world politics.

Did you know we have more oil in Colorado and Utah than they do in all the middle east??!!! It's just hard to get out of the ground.