Just What You Would Expect

I always wake up early when I return from the Eastern part of the country because I get on their time zone clock and then come back and stay on it for a few days. It makes me get up earlier and be more productive. I read in the Journal's business pages this morning that Exxon Mobile net profit last quarter was $10 billion. In one quarter! Then a little bit later I get some really good stuff from a friend of mine in Washington that will interest all of you. He is an expert on Energy in the west. This report is from the Senate Permanent Subcommittee on Investigations. The report was just issued.

“Although it is difficult to quantify the effect of speculation on prices, there is substantial evidence that the large amount of speculation in the current market has significantly increased prices. Several analysts have estimated that speculative purchases of oil futures have added as much as $20-$25 per barrel to the current price of crude oil, thereby pushing up the price of oil from $50 to approximately $70 per barrel. Additionally, by purchasing large numbers of futures contracts, and hereby pushing up futures prices to even higher levels than current prices, speculators have provided a financial incentive for oil companies to buy even more oil and place it in storage. A refiner will purchase extra oil today, even if it costs $70 per barrel, if the futures price is even higher.

“As a result, over the past two years crude oil inventories have been steadily growing, resulting in U.S. crude oil inventories that are now higher than at any time in the previous eight years. The last time crude oil inventories were this high, in May 1998 – at about 347 million barrels – the price of crude oil was about $15 per barrel. By contrast, the price of crude oil is now about $70 per barrel. The large influx of speculative investment into oil futures has led to a situation where we have high crude oil prices despite high levels of oil in inventory.”