Energy Politics

Time Magazine is claiming it has proof that the price of oil can be rigged. Just as prices are falling, Time has come out with an expose of what they claim to be clear signs of market manipulation.

While carefully couching their language to make sure they’re not on record as saying prices are in fact being manipulated, writers Ari Officer and Garrett Hayes all but point out the ways companies can control the market to raise prices when they so choose.

They claim: “The futures market that serves as a price discovery mechanism for the physical oil market is open only to the elite. We trust these elites to determine the prices, but who are they? Who are the so-called experts? Hedge funds, oil companies, OPEC — the very people who profit from massive, consistent increases in prices. Notice a conflict of interest?”

While I agree that seemingly little power is in the hands of oil consumers, the article sidesteps the issue that this whole situation is being created by the consumers as well. Just who would these “elites” be offering oil to if people didn’t want it?

Also: “It is in every oil supplier’s best interest for prices to go up. Oil is a finite commodity. The world will eventually become more efficient and develop alternative energy sources. In the meantime, suppliers want to squeeze out as much profit as possible from their limited resources. Even if they know that the price of oil is too high (to the point of reducing demand) it is not in their interest to correct it. By setting prices in the smaller but more “trusted” futures market, oil producers realize multiplied gains on their physical oil sales.”

Again, weird paranoid stuff, but it is true that oil suppliers, if by suppliers they mean oil producing countries, would want as much money as possible while they can still get it. But if “oil suppliers” is a code-word for big oil companies, they’re mistaken. Even ExxonMobil, which just posted record quarterly profits, would like to avoid out-of-control oil prices as this in turn raises their production costs.

“The American market system, purportedly a free market despite its flaws and gross inefficiencies, has opened this vulnerability. The oil suppliers may tighten the noose, but we tied it around our throats long ago. Hiding behind the wall of anonymity, the perpetrators profit and achieve their own ends, bringing down America in the process.”

Okay, the article DOES make room for allowing American consumer behavior for being the ultimate source of demand, but then they come out with this strange “bringing down America in the process” allegation. What is this, some James Bond movie?

–Stephen Payne, Editor, Oil and Gas Investor This Week; www.OilandGasInvestor.com; spayne@hartenergy.com

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