Refineries and oil terminals are full, yet prices are rising

Asia News ^ | April 20, 2006 | Maurizio d’Orlando

[NYer]

Capital movements due to fears over a possible US-Iran war, financial speculation or market meltdown are driving crude prices upward.

Milan (AsiaNews) – Capital movements on commodity exchanges, not low supply are pushing oil prices upward. Brent crude has reached US$ 74 a barrel because of lowered refinery use and a backup in crude inventories that has left many a super tanker waiting to unload. Oil storage has become a problem since facilities are full in the Persian Gulf, Europe, the Americas and even Asia. Even Israel, which built huge embargo-busting oil depots to allow the country to survive every contingency, cannot store more oil. The same is true for South Africa which inherited vast oil storing facilities from its former apartheid regime and now readily leases out its terminals in Saldanha Bay through its national oil company PetroSa. 

Yet, if US summer demand for gasoline and energy thirst in Asia, especially in China, are likely to punch a hole in supplies, why are large quantities of oil going unsold or not being stored, and prices not dropping? Oil prices are rising because investment funds are pouring liquidity into commodity exchanges trading in oil. This vast flow of capital needs an explanation. There are in fact three possible reasons to account for the situation.

First, it might be a speculative surge that will quickly drop. Secondly, it could be that some financial circles have insider information concerning US government intentions and military options towards Iran—this might explain rising gold prices now at US$ 640 per ounce. Thirdly, it might finally be that many financial groups are investing in commodities like oil to cushion themselves against a possible, 1929-like meltdown of the international financial system. Symptomatic of the danger is the dismal state of General Motors, the major US carmaker, and the potential impact on US financial institutions of further interest rate hikes.

[itsahoot]

I'm a little upset about the high gas prices.

I remember gasoline at 12¢ a gallon. Then there used to be price wars...sigh.

[sully777]

SPECULATION not supply and demand is driving the market. And it's killing the economies of the world. I've said it a hundred times in the last year: Oil guys that I've talked to say oil should be trading at about 29-33 per barrel with the Katrina-Rita problems.

[RipSawyer]

Collusion? There's no collusion! You don't sound very happy that gas is $3+ per gallon! I'm sorry, that means you are a commie. I mean, come one, you can choose not to buy gas. Unless you want to have a job or buy anything that was treansported.

I have noticed that there are certain Freepers whose definition of communist, socialist, collectivist, big government lover, etc. amounts to anyone who disagrees with their drivel. They seem to be the same people who are incapable of responding to what you have actually said, preferring instead to respond to whatever ridiculous thing they wish to pretend that you have said.

[Dog Gone]

This article is so stupid.

I'll give but one example:

Thirdly, it might finally be that many financial groups are investing in commodities like oil to cushion themselves against a possible, 1929-like meltdown of the international financial system.

That would cause oil prices to plummet. You'd hardly invest in oil with the world heading into a depression.

[Dog Gone]

Problem is, this industry has become monopolistic.

Maybe the US auto industry is monopolistic. 2 1/2 major suppliers who completely control how many automobiles they offer to the market.

The US oil industry has literally thousands of producers, all competing with each to get every drop of oil they can into the market as fast as they can.

Your conclusion could hardly be more wrong.

[Bulwark]

Which violates free markets principles a la Adam Smith* and immediately identifies oil companies as acting in the manner of a monopoly.

Hey, I'm not disagreeing with you one bit. I'm just trying to explain their motivations, which you figure out after you've worked in energy for a few years.

[JasonC]

That is bulls spreading bull stuff. Yes refining capacity is tight, not it isn't tight enough to even widen the "crack spread" appreciably. It is crude that is moving up in price, and there is no shortage of crude. Stockpiles are at record levels and up 10-15% year over year. While demand is only 1-2% higher. Everybody is building stockpiles to speculate on the price run up, and holding them for that reason. It is security, the Iran situation, not oil market fundamentals.

[JasonC]

The gas blend story de jour is a crock. It wasn't operating for the last 2 years when prices still skyrocketed. It is just another in the endless series of minutae points the bulls pull out to justify ridiculous run ups. The real reason is security and everyone speculating on the security issues effecting the price. Including entire countries and hostile governments, I might add. On oil market fundamentals, the price would be nowhere near these levels. There is no way demand can equal supply up here - that is why crude stockpiles have built continually -at 10% annual rates - over the whole recent price spike.

The only other factor operating is general weakness of paper currencies and the dollar in particular, aka inflation. Which shows up as higher gold prices, higher silver prices, higher house prices, etc. That is the dollar sinking, not each commodity rising. It makes it much easier to push through price increases in any individual market. Its underlying cause is easy money from all the world's central banks. The monetary spigots have been wide open since the US stock market crash 5 years ago. Some of that is showing up in prices.

[OKIEDOC]

I've said all along that oil is being run up by the speculators.

With out competition the major oil companies have no worries.

These majors have become monopolies in our own time.

How many new refiners have we started since Katrina?

How many new known fields have we started to drill such as ANWAR, Florida and California Coasts?

How many wind farms have been allowed in Murdering Ted Kennedy's back yard?

I don't blame Bush but I do blame the Democrats and their environmental and animal extremists that control the party.

I blame the Republicans in congress for not playing hardball with the partisan Democrats.

[Emmet Fitzhume]

Good explanation.

Now, what is the answer?

[Wiser now]

Spec money coming in from somewhere, indeed.
Could George Soros be assuring a Dem. victory in November?