Wednesday, June 18, 2008

Oil futures and speculators; oil companies push to use R3M technology for exploration

Today, there may have been some indication that speculation is a more important factor in oil prices than many “market fundamentalists” admit.

According to Patrice Hill in a story on p A10 (Business) in The Washington Times today, there is a report from the Commodity Futures Trading Commission to the Senate Energy and Natural Resources Committee to the effect that over 70% of the futures contracts in oil take advantage of a particular loophole for “swap dealers.” Furthermore Wall Street firms are able to pose as “commercial” rather than “financial” participants in the futures markets. The story is called “Speculators accused of dictating oil prices: Investors defy demand with control of futures contracts,” link here.

Nevertheless, the pressure on politicians to allow the expansion of domestic drilling, offshore and on the North Slope in previously restricted areas, is quite compelling. John McCain particularly is starting to call for this. Would oil markets back down if more drilling permits off shore were issued? Is this price spike a ploy to force more drilling? I wonder.

Consider, for example, that ExxonMobil now discusses R3M technology and “ears to the ground” which it says enables it to find productive deposits with less drilling and potentially less environmental impact. But the company insists that it must be allowed to deploy the technology in new areas. The link is here.

In addition to the USA Today reports on the cutbacks in the airline industry, a report on ABC “World News Tonight” last night (Tuesday) seemed to suggest that the days of discount flying for middle class people may soon come to an end, and that we could return to an environment that we had until the middle or later part of the 1960s where only the most well off could afford to fly, and usually on business.

ABC News has a story about oil prices and Congress today by Bill Mayerowitz, link here.

Update: June 25, 2008
Alaska Exxon Valdex oil spill liability case

The Supreme Court reduced ExxonMobil's liability for the Exxon Valdez spill in 1989. The Washington Post story (online June 25) is by William Branigin, and is here. The award was reduced from $2.5 billion to about $500 million. XOM shares rose slightly today as a result. The case is called Exxon Shipping Co. et al. v. Baker et al., and the slip opinion at the Supreme Court website is here.

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