U.S.: Speculation Not Pushing Oil Prices

Energy Secretary Says Insufficient Production, Not Financial Games, Are Behind Soaring Fuel Costs

(CBS/AP)  The U.S. energy secretary said Saturday that insufficient oil production, not financial speculation, was driving soaring crude prices.

Secretary Samuel Bodman's comments on the eve of an energy summit in the Saudi port city of Jeddah set the stage for a showdown between the U.S. and conference host Saudi Arabia, which has largely blamed speculation in the oil markets for record prices.

The U.S. and many other Western nations have put increasing pressure on Saudi Arabia, the world's top oil exporter, to increase production. Saudi officials have been hesitant to do so, arguing that soaring prices have not been caused by a shortage of supply.

Bodman disputed that assertion Saturday, saying oil production has not kept pace with growing demand, especially from developing countries like China and India.

"Market fundamentals show us that production has not kept pace with growing demand for oil, resulting in increasing prices and increasingly volatile prices," Bodman told reporters. "There is no evidence that we can find that speculators are driving futures prices" for oil.

He said commodities markets have experienced a huge influx of money from financial investors in recent years, but they have been following the market upward rather than driving the increase in the price of oil.

Saudi Arabia called the unusual meeting in Jeddah between oil producing and consuming nations as a way to show that it was not deaf to international cries that high oil prices have caused social and economic turmoil.

"There is likely to be a lot of finger pointing at the energy and oil summit in Jeddah this weekend," said CBS News Foreign Affairs Analyst Pamela Falk, who was in Saudi Arabia with the U.N. Secretary General earlier this week, "but the expectation is that there will be the formal announcement of an increase in production by the Saudi government and that there is pressure on other oil producing nations to follow suit, without OPEC's endorsement."

The Gulf nation has also become increasingly concerned that record oil prices could hinder growth in the U.S. and other major industrialized economies, potentially leading to a decline in oil demand and a sharp drop-off in prices.

"What has become clear in the past month," said Falk, "is that speculation in the oil market does play a role, as do taxes on oil in many countries, but the first step to lowering prices at the pump is to increase supply to respond to increasing demand.

"Next steps, both in the U.S. and in oil producing countries, will be to look at energy alternatives, additional oil exploration, and to possibly regulate the oil traders," Falk reports, "but what is clearly the focus of the Jeddah summit is oil production increases, and the world is watching."

Many on Wall Street see an attempt to equalize the supply and demand picture - to discourage the buying impulse among speculators, who many blame for driving the price up, reports CBS News corresponent Priya David.

"All of these moves are a coordinated effort to try to calm the oil markets, calm the price and to make the speculators think twice about the odds of success to try to get the price of crude to go up further in the coming weeks," said Jim Awad, chairman of W.P. Asset Management.
Jim Awad

But some are not convinced the meeting will have substantive results.

"The odds are less than 50-50 that this meeting alone will be successful in driving the price of oil down," said Awad.

While Saudi Arabia has been reluctant to drastically increase production, it has announced several small increases recently that it says were made to satisfy increased customer demand. The country has consistently said that it will produce enough oil to ensure the market is supplied.

The kingdom increased oil production by 300,000 barrels a day in May, and a Saudi official confirmed Saturday that the country would add another 200,000 barrels a day in July. The official spoke on condition of anonymity because of the sensitivity of the information.

Saudi Oil Minister Ali al-Naimi also confirmed the increase ahead of the conference. But neither announcement has done much to stem the run-up in the price of oil, which closed near US$135 on Friday.

Saudi assistant oil minister, Prince Abdulaziz bin Salman, told a news conference Saturday that the delegates were "congregating to achieve results" and try to draw "a collective way forward for how to attend to this situation."

"This situation as we see it today as it exists needs everybody's attention simply because it no longer is a luxury to talk about it or ... to keep bouncing back and forth blame," he added.

The prince said that Saudi Arabia has been working with several international organizations to put together a background paper to focus Sunday's discussions and reiterated that the kingdom was ready to meet demand from its customers and foster stable prices.

He said it would be "wrong" to judge the success of the meeting by oil prices the day after it ends.

Many countries around the world have experienced social unrest by populations angry that rising fuel prices have driven significant increases in the cost of food and other basic goods.

Bodman said that every 1 percent increase in the demand for oil requires a 20 percent rise in price to balance the market. Demand in China, India and the Middle East has been soaring in recent years as the countries consume more energy to fuel economic growth.

Rising demand in the developing world has coincided with historically low levels of spare oil production capacity, which fell below two million barrels per day among OPEC countries in May for the first time since the third quarter of 2006, according to the International Energy Agency.

Bodman made clear that the responsibility for reducing oil prices did not simply fall on the shoulders of producing nations, saying consuming countries must increase energy efficiency and invest in the development of alternative fuels. But he saved his strongest words for oil producers like Saudi Arabia, who he said must step up long-term investment in production and spare capacity.

"The incentive (for investing) is simply reasonable prices so that we're not faced with having to drop everything and race to Jeddah for a meeting that was called on a week's notice," said Bodman.

Saudi Arabia is completing a US$50 billion plan to increase capacity to 12.5 million barrels a day but has signaled it would not go beyond that.

CNBC said Saturday that Saudi Arabia's current capacity is 11.3 million barrels per day, quoting al-Naimi's adviser, Ibrahim al-Muhanna. Previous estimates by the International Energy Agency put current Saudi capacity at about 10.7 million barrels per day. The kingdom currently produces about 9.5 million barrels per day.

Associated Press Writers Sebastian Abbot and Donna Abu Nasr contributed to this report.

[ianlou]

Bush and co. Mantra:

The Price Gouging will continue until Morale (theirs) Improves.

[ofbyfor1]

HAVE A HEART--

My nephew, Brian, underwent his first heart transplant at the age of 6 months in 1992. Good news is that he is now 16 years old and like most boys his age, he is a HUGE baseball fan (Yankees). Bad news is that he recently (6-19-08) had to undergo a second transplant surgery. So far, everything seems to be going well.

CAN YOU DO A GOOD DEED FOR BRIAN?

We''ve been asking if there is anything we can do for Brian. It seems like there''s so little we CAN do, either for Brian or his family. The one thing we were told by his mom was that he has been hoping that John Damon is selected for the MLB All-Star Team (American League - NY Yankees - Outfield). Let''s help him out!

Put a smile on this kid''s face! Go to www.mlb.com and hit ''All-Star Game ''08 coverage-VOTE NOW'' in the upper right corner. In the window that appears, fill in your name, email, etc. and hit ''VOTE NOW''. You will see a roster of names listed by position for American League players.

''J. Damon'' is in the Outfield section, 3rd down in the left column. Leave all other positions and National League blank if you choose. Make sure you hit ''Submit Vote'' on the National Link page. You can vote up to 25 times, but all votes must be received by midnight 7-2-08.

Pass this on to your friends and THANK YOU!!!

[payasyougo]

"Congress Urges Oil Speculation Crackdown"

Lawmakers Say Urgent Action Is Needed To Curb Speculation Driving Historic Fuel Prices

WASHINGTON, June 23, 2008 article in CBSNEWS.com

--------------------------------

Government is so big now it is arguing every side.

[neobrian-2009]

Jowindbag,.jowand,...ULTRA-IDIOT !!!
Trying to make ANY Sense from this chick is like listening to King W tell the Truth,..NOT GOING To HAPPEN !!

[rafterman1]

===You want the same goverment running oil that has killed Social Security, you''''ll be paying 8.00 a gallon within 2 years which is what Democrats want.===
Posted by jowand

Find me one Democrat who wants to pay $8 a gallon. Don''t talk stupid. The only ones who want that are the oil executives.

===because Democrats will not allow drilling where there are known reserves.===
Posted by jowand

A great lie. There''s an article on CNN that says "the industry is drilling on just a fraction of areas it already has access to. Oil companies "should finish what''s on their plate before they go back in line," one industry analyst told CNNMoney.com"

It says we ight get 5 million barrels a day if they drilled on these unused areas.

http://money.cnn.com/2008/06/23/news/economy/oil_drilling/index.htm?cnn=yes

[neobrian-2009]

WHAT ???
I read where Joe Barton,R,TEXAS,.Is On ''The OVERSIGHT Committee" A RE-CON From TEXAS on this committee is like employing a junkie at a Pharmacy ! Pay him to Steal to Support his Habit!,..Pay A Re-Con ( From TEXAS ) to tell us,..It`s Not the Oil people`s Fault,..We are just tryin to make a living ,...Yea Right ! By DESTROYING the Economy and the families of OUR Nation ! BAN RE-CONS,Period ! THEY Are " Walking,Talking EVIL-BOTS " SLIMY GREEDY Creatures From a Burning Oil Furnace of HE LL !

[trillion1]

Oh, the idiots with the old ''supply and demand'' joke. Refineries aren''t even producing 90% in most cases. No stations are running out of gas. And can the bs about ''the world markets''. Prices keep going up, people continue to be gouged and yet...IT''S NO ONE''S FAULT.

[yongamerica]

Then explain to the world:
How come the price of oil doubles in price in one year?

Why US oil companies have leases on 65 million acres of land for oil exploration and exploitation and haven''t drilled one well yet?

Why is there a speculator loophole in the laws?

Why has the dollar been devalued to half its value at the end of Clinton''s administration?

Why do CEO''s of unprofitable US corporations still get mega million dollar bonuses?

Why is it cheaper to buy corn based food products from China than the US?

[jowand]

I have an ideas. Lets have an independant group investigate high gas prices and report back to the american people. If we find it is speculators, find out which ones and we''''ll execute them on TV. If we do that a few times and speculation is the cause I bet the price falls quickly.

Posted by killtheliars at 04:16 PM : Jun 23, 2008

Speculators don''t control prices, supply and demand does. Too many house on the market the price does down, too little oil and the price goes up.
Shoot yourself in the mouth before you shoot yourself in the head, it will be quieter that way.

[jowand]

It''''s going to take government control of this resource to bring it back under control. After all we produce at least 50% of our own oil let''''s nationalize this resource before they desdtroy our economy and our lives.

The world''''s oil mafia is large and in charge and they ain''''t gonna let go. They''''ll make Osama look like the hired thug he was own 911, because they bought and paid for it. Really not that much of a stretch is it?
Bush is such a great and wonderful man and christian and president!
Posted by talkingham at 03:59 PM : Jun 23, 2008

You want the same goverment running oil that has killed Social Security, you''ll be paying 8.00 a gallon within 2 years which is what Democrats want. They want everyone riding mass transit although they won''t. Every industry and business using oil and oil bi-products is raising prices because we don''t have enough oil in the US, because Democrats will not allow drilling where there are known reserves. Alternative energy is a joke it is so uneconomical to develop and use. You want to blame someone, blame the Democrat Party.

[lorinkundert]

What a load of BS, like we believe anything this Government says.

[davidlar2]

Speculation isn''t illegal and I don''t want to live in a country where the economy is so tightly controlled by the government to make it illegal. I also don''t want to live in a country with different corporate tax rates for different industries (higher tax on oil companies than on agribusiness companies for example). That is textbook economic inefficiency that leads to unintended consequences.

The problem is, why is money poring into oil and other commodities and not into stocks, bonds, savings, real estate, ....? Hint: look at the Federal Reserve Bank and interest rates below the rate of inflation. The Federal Reserve Bank is causing this problem and going after investors looking for a return on their money is not going to solve the root problem.

The Soviet economic system may sound great to those lefties who blog here and have never lived in a socialist country. As someone who has, I find the desire for "populist" solutions to be a little shocking.

[killtheliars]

I have an ideas. Lets have an independant group investigate high gas prices and report back to the american people. If we find it is speculators, find out which ones and we''ll execute them on TV. If we do that a few times and speculation is the cause I bet the price falls quickly.

[talkingham]

It''s really quite simple. The more gas they sell you at $4 or $5 or $6 per gallon the more they make. You think you''re gonna see a major price rollback now that they have the price this high, then you are an idiot. They simply have us by the Bush balls and they know it.

It''s going to take government control of this resource to bring it back under control. After all we produce at least 50% of our own oil let''s nationalize this resource before they desdtroy our economy and our lives.

The world''s oil mafia is large and in charge and they ain''t gonna let go. They''ll make Osama look like the hired thug he was own 911, because they bought and paid for it. Really not that much of a stretch is it?
Bush is such a great and wonderful man and christian and president!

[jowand]

It''s supply and demand, if there was more oil on the market the price would come down. Big question is why isn''t there more oil on the market, who are the people stopping the supply going up; it isn''t the oil companies. A clue, you''ll probably vote for one of these idiotic lyers in November.

[yongamerica]

BULLONEY

Price of oil does not double in 1 year because of a sudden increase in demand.

Cheney''s energy program he and the energy executives crafted early on has come to fruition and everyone in his country club is getting richer from speculation.

[primilioneah]

If the speculators are buying future oil at $140.00 now why are the gas retailers not waiting until say 2010 in order to charge the $4.00 plus price. This is all lies these people are there to make money and none of them is going to bid $80.00 for future deliveries, if they do then I''ll believe they are not the cause of all these gas price hike.

[triplet-man]

It is the unregulated ICE (Intercontinental Commerce Exchange) speculators driving the NEW forms of unregulated trade on our markets. This form of "foreign" exchange (unregulated by US) is UP 51% from last year. How strange that it co-incides with this crazy DOUBLEING of the price per barrel of oil.

Has world wide demand doubled? No
So why has the price per barrel of oil?



I work for an oil company and I know for a fact, the demand is not high enough to support the current price of gasoline. Our inventories are full and the units are currently slowed because we can''''t even sell what we are making. The problem is not a lack of supply from Saudi Arabia.

[davidlar2]

This is government spin. Bernanke and the Federal Reserve Bank have a lot to do with the price of oil. The price of oil in dollars is determined not just by supply and demand of oil but also of dollars.

The Fed has reduced the interest rate to a value significantly below the rate of inflation, devalued the dollar, stoked further inflation, and cut off other possible investment opportunities (savings, stocks).

That the dollar to Euro exchange rate is significantly correlated to the price of oil in dollars (with a slope much greater than 1 suggesting an amplified effect through speculation) is not something you would expect if the price of oil were being driven largely by supply and demand.

I bet if the Federal Reserve Bank does ever start acting responsibly and raise interest rates, especially if above those in the European Central Bank, we will see the price of oil fall dramatically.

[taotxzen]

I will give you a hint. Watch the price of oil - gas if they hit Iran. The more they destablize the oil markets the easier it is to justify higher prices at the pump.