Victory means exit strategy, and it's important for the President to explain to us what the exit strategy is.    The Honorable Governor of Texas, George W. Bush

I hate quotations. Tell me what you know.    Ralph Waldo Emerson

Thursday, November 17, 2005

It's in the Hole, or Life at Wyndfall CC

There's been lots of talk recently about BIG OIL and price gouging. Sooner or later you know the Senate had to stick it's two cents in and round up a whole bunch of CEO's out of golf carts in Palm Springs to come and sort of testify as to whether they might have twisted the knife a bit.

Well, the whole experience was apparently unsatisfactory to our Governor Doyle, who has decided to subpoena the same guys to visit Milwaukee in a couple of weeks. Good luck with that. Today's 7 AM guest on WPR was Erin Roth, executive director, Wisconsin Petroleum Council, who had a few things to say on the subject.

And a fine defense of windfall profits it was, that given by Mr. Roth. Those big shot CEO's had nothing on our guy. No, he had every club in the bag, his game hot to go. Even at this early hour he stepped right up to the first tee with the big dog and tthhwackkk!!!, "supply and demand", right on down the middle.

Is it then?

retail pricesupplied gasoline by the gazillions
Aug 01, 20052.209,483
Aug 08, 20052.319,408
Aug 15, 20052.519,471
Aug 22, 20052.599,406
Aug 29, 20052.599,027
Sep 05, 20053.038,636
Sep 12, 20052.888,819
Sep 19, 20052.668,836
Sep 26, 20052.718,840
Oct 03, 20052.898,783
Oct 10, 20052.758,961
Oct 17, 20052.578,981
Oct 24, 20052.439,045
Oct 31, 20052.309,246
Nov 07, 20052.219,151
These are figures from the DOE. It's true that it's not hard to figure out where the hurricane stuff began. Clearly there is a supply (as in produced that week) drop; 8% by the second week and then easing to something more like 6%. Prices in the first week were up 36% (these are midwestern average prices). Oh, our boy will tell you all about this as he glides down the fairway.

But then you might have to point out to him that his ball has found the rough, as inspection of last year's supply runs for this same period―it is the end of summer, after all―reveals a drop in supply during the first two weeks of September of 5%.

In fact, nearly every year reveals a supply drop somewhere near this time frame as companies tighten inventories in anticipation of the autumn lull.

So the supply situation doesn't seem all that unusual, certainly not to the tune of 36% retail price increases. Demand? Inventories of gasoline increased during the last three months of September while prices continued to hover around $2.75. This is not about supply and demand, my friend, at least on a retail front.

No problem; our boy takes out his new hybrid escape club and, crack!!!, "free markets", high and long for the green. but he doesn't seem to mean the market where you actually buy your gas. So what gives?

Well, you know the whole idea of free markets is that eventually everything comes out in the wash. If I may mix metaphors―and who's going to stop me?―all this kind of works at the speed of a lava lamp in real life, which is simply not fast enough for financial types to achieve financial nirvana. The solution is markets within markets within markets. These futures markets tend to drive spot gasoline markets, and spot gasoline markets drive gasoline pricing. The DOE says this isn't a big part of the pricing picture, but short-term it can have a big effect, especially when driven by an emotional event. That's when we can get hung out to dry. (Okay, metaphorically speaking I've gone full circle: new paragraph)

Ostensibly, the big guys are just along for the ride on this one, to the tune of about 23 billion profit last quarter. The refiners reap the windfalls from prices driven by a bubble on a futures market; that's nothing they control, or so they say. With all this newspeak about fragile supply one naturally questions our golfer if some of these profits will go back into increasing production capability. He pulls out his Cleveland Wedge and fffluff!!, "EPA and NIMBY's messin' every thing up," while nestling the ball right up under the hole for a gimme.

Okay, fine, you got your windfall this time. But while senators and governors are grandstanding we're going to start looking into this futures market. We want to know who these traders are and just how intertwined they might be with BIG OIL. We want to know if BIG OIL has been conspiring to rig the futures market. We want to know just how "free" this little market setup is. We want to know if BIG OIL, the futures market, and the administration are going to turn out to be one and the same.

Mr. Roth gets all huffing and dismissive and says its not like BIG OIL can get up one morning and turn on a switch for higher prices, and that may or may not be fundamentally true.What we want to know is just how easy it is for them, given the opportunity of a Sept. 11 or Katrina, to pour gasoline on the fires of misfortune and hardship.

2 Comments:

At 9:31 AM, Blogger W.C. Varones said...

Why not a windfall tax on homebuilders?

 
At 4:39 PM, Blogger Bullock said...

With W at the wheel, any collusion is possible. I keep on about alternate fuels, my favorite is biodiesel and some small refineries are being built.
But, I realize if and when it starts to take hold because it makes so much sense, the main names won't be Exxon and BP, it will be Archer Daniels or Cargill or someother mega agribusiness titan at the wheel.

That's the most dangerous part of a car, you know.
The nut behind the wheel.

 

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