GASOLINE PRODUCTION SCUTTLED
Oil Refineries Closed After Fire-sales
By Wayne Jett © March 11, 2012
Gasoline prices hit historic highs as America languished in winter depression. During the week ended March 2, demand for gasoline ran about 7.8% lower than a year earlier, its worst performance so far in the so-called “recovery.” Gas prices at the pump, however, made historic highs in many locations, far above $4 per gallon. Do principles of supply and demand no longer apply in U. S. markets?
Supply and demand principles operate in U. S. markets for gasoline, but abnormal and destructive results are produced by mercantilist influence and actions. Government policymakers have permitted – probably even encouraged – destruction of competition in the oil refining industry. With sharply limited competition, refiners still operating have reduced production and raised prices, profiting greatly at low output. Targeted victims, as usual, are American productive (middle) class users of energy – mortal enemies of the ruling elite.
In 2008, trading of crude oil “swaps” in U. S. “dark markets” (in which there was no reporting or monitoring of trading) set the world price of crude oil at the well-head. Prices rose to $147 per barrel. As crude hit $147, gasoline prices in the U. S. topped out at about $4 per gallon and diesel fuel was slightly higher.
On March 1, 2012, crude oil spiked to $110 per barrel for the first time since 2008 on news of sabotage of an oil pipeline in Saudi Arabia. Then prices dropped back to the $105 range as oil inventories increased near highs of the past five years. Yet, with oil priced at least 25% cheaper than its 2008 high, gasoline prices surpassed their 2008 peaks by rising to $5 per gallon and higher.
Crude oil now costs 25% less than 2008’s peak of $147. But gasoline does not cost 25% less than the 2008 peak of $4 per gallon. If it did, gasoline now would be $3 rather than $5 per gallon. Today’s prices are two-thirds higher than even the extreme experience of 2008 indicates they should be.
The “Bust-Out” of Oil Refiners
With crude oil at $106 and gasoline prices at record highs, profits of gasoline refiners must be at all-time highs. Yet, as recently as late 2011, U. S. oil refineries were for sale at fire-sale discounts of 80% or more. Clearly, something is badly amiss. Potential investors viewed refineries as unattractive – leaving them to be sold nearly as salvage. Mere months later, those salvage heaps turned into virtual gold mines. How does the “efficient market” miss stupendous investment opportunities looming so close at hand?
In 2008-2011, gasoline production in the U. S. was made unprofitable. This was done by driving the price of crude oil high enough to crash the global economy, including demand for gasoline in the U. S. Major oil companies abandoned the business. Refineries sold cheaply, and some have been closed. Meanwhile no new refineries were permitted or built.
The consequences of these events for American prosperity are highly consequential. Gasoline is so scarce any chance of economic recovery is a nullity, if a chance existed at all since 2008. Worse, further economic contraction is a certainty, as it is already underway. A symptom: 2011 was the first year since 1984 no new bank was formed in the U. S.
Investigate Here, Now
A complete explanation of how the current crisis occurred should be obtained by careful investigation with use of subpoena power. High prices of gasoline fit Obama administration policies which favor reduced use of carbon-based fuels and transition to “green” alternative fuels at presently uncompetitive prices. If, indeed, record high gasoline prices have been orchestrated with assistance of federal officials, this should be exposed and rectified with greatest urgency.
House minority leader Nancy Pelosi recently deplored “skyrocketing prices, oil companies … raking in record profits as they close refineries” and urged an immediate “crack down on speculators” to protect middle class consumers. When Pelosi had the chance to do precisely that as Speaker of the House in 2009 and 2010, she stripped from financial reform legislation provisions her own Agriculture Committee chairman had proposed to, at least, progress in that direction.
Pelosi’s posturing provides a skimpy fig leaf to Democrats running for re-election in 2012, but Energy secretary Stephen Chu is less experienced with political imagery. Chu owns no car, and doesn’t even pretend to support policy which seeks lower gasoline prices. Chu wishes to “invest in clean energy, reduce our dependence on foreign oil, address the global climate crisis, and create millions of new jobs.”
Those “millions of new jobs,” intended to be “green,” have not materialized, while a million existing jobs have been lost due partly to high energy prices. Chu has presided over sharp reductions in U. S. oil and gasoline production. In essence, Obama and Chu favor higher – not lower – gasoline prices. Small business is being crushed.
Current House Speaker John Boehner says: “The facts are that they've closed down most of the gulf [and] all the public lands in the inter-mountain West.” Add to that Obama’s refusal to permit the Keystone Pipeline to bring Canadian oil to Houston for refining, and the alarming destruction of gasoline production capacity. This is government malfeasance of epic proportions.
This man-made economic contraction is disguised by both devastating monetary inflation instigated by the Federal Reserve and wasteful deficit spending called “stimulus.” Polite observers walking the halls of the dominant elite say inflation may be higher than you think, while ex-patriot billionaires such as Jim Rogers depict current reality as government "lying."
Severe dollar devaluation has caused economic depression in Europe, making sales into U. S. markets nearly impossible. But one should not leap to conclude that devaluation is beneficial to Americans. Devaluation has assured higher priced imported goods, thereby contributing to shrinking U. S. living standards. Billionaires of Europe, Asia, Australia, Canada, and Central and South America have been given a giant discount on the purchase of U. S.-based assets.
How are Americans advantaged by selling their companies, land and other property to foreigners for inflated currency? The answer is they are not, and in many ways they are harmed.
The International Scene
The Federal Reserve is driving towards its own demise as the “U. S.” central bank. This is not due to any “self-destructive” tendency, and certainly not because the Fed is motivated by populist notions aimed at benefiting the people.
The Fed was conceived and implemented as the pivotal private central bank within a global network of similar entities. The objective of that global network has been to move towards a time when no national government has effective influence, much less control, over the financial network’s policies and operations.
Other national governments which are less dominated by the financial oligarchs than the U. S. are chafing under the Fed’s oppressive tactics. Increasingly, they avoid the dollar in bilateral trade and call for establishment of a new international monetary system – one not centered upon the dollar and the Fed. Brazil flatly threatens to retaliate in the currency war waged by the Federal Reserve.
Homeland Financial Atrocities
Concurrently, U. S. financial markets deteriorate in transparency. Overall trading volume declines as retail investors abandon trust in fair treatment. Growing portions of the diminishing volume are abandoning public markets in favor of dark, unmonitored trading venues. Why?
The answer must be that terms of trade are better in the dark markets than are available to retail investors in public markets. How much better and in what way? Such unknown conditions are intolerable in financial markets which falsely claim to be the most transparent in the world.
Do not be fooled by the Dow 30 Industrials' flirtation with 13,000 into thinking investors in corporate shares are restored to prosperity. When the Dow last closed above 13,000 on May 19, 2008, gold sold for $900/oz, compared with $1,700/oz presently. Priced in gold, today’s Dow at 13,000 is worth 6,882 in dollar purchasing power of May 19, 2008. This loss of capital value applies as harshly to non-investors who work for dollars and try to save enough to invest, as it applies to investors who retain corporate shares.
U. S. policy is badly warped in every fundamental respect by sociopathic influences of the ruling, mercantilist elite. Leadership in Congress and the executive branch fail miserably to protect and advance vital interests of the American people. Federal elections in November should seek candidates willing to rectify this atrocity. ~