Oil Hoarding

The oil now pouring into the gulf was not meant to be used for energy for the United States. The well had been drilled, proved good, and was being plugged when the spill occurred. This putting oil aside for later use has been seen before and it is used for speculation, maximizing profits by developing the well when prices are high. Oil hasn’t been so profitable lately.

In 2008, oil was being stored too. In Fortune magazine, economics writer John Birger wrote in December of 2008;

‘What’s different now is the structure of the futures market, which is giving big investors an incentive to buy and hold huge sums of crude. Specifically, the November 2009 price of oil is considerably higher ($12 a barrel higher, to be precise) than the spot price – a scenario futures traders call a "contango" market. (The opposite scenario – spot prices higher than futures prices – is known as "backwardation.")

"The steepening of the contango has opened up carry-trade arbitrage opportunities that are slow to be closed due to constrained credit conditions," Goldman Sachs wrote in a recent research report. Translation: this is a great time for investors to be hoarding oil.

The price being down means the oil company will hold on to its new production until it can get more. There is more involved than just putting off production to make a better market, of course. Plugging the well, which resulted in the disaster now occurring, was done poorly and with inadequate protections for the public while that public was being gouged.

The terms that were contracted by the MMS were also poorly written for a public interest, which the appointees of the administration from Hell did not serve. Under the contract it offered, MMS would not even collect royalties for the U.S. taxpayer until after the oil itself was pumped and sold;

The contract:

"royalties on production shall be due and payable monthly on the last day of the month next following the month in which the production is obtained, unless the Lessor designates a later time. When paid in amount, such royalties shall be delivered at pipeline connections or in tanks provided by the Lessee. Such deliveries shall be made at reasonable times and intervals and, at the Lessor’s option, shall be effected either (i) on or immediately adjacent to the leased area, without cost to the Lessor, or (ii) at a more convenient point closer to shore or on shore, in which event the Lessee shall be entitled to reimbursement for the reasonable cost of transporting the royalty substance to such delivery point."

(via http://www.projectshiningcity.org/fp380.php)

It’s your country, and your dollars from royalties, but pumping the oil doesn’t occur until the oil company chooses – and your money doesn’t get paid to you until the oil company chooses, as well. The oil companies have paid their representatives well to keep you from profiting from their efforts; you are going to pay through the nose under this kind of contract.

There’s more: Under existing law, the incentives to drill in deep water are higher, because Big Oil lobbied your congress to incentivize deeper drilling. Under the concept that it is more dangerous, therefore more is potentially lost by deep water oil production, the oil companies got better paid to endanger the environment.

As reported by the Christian Science Monitor in Mises Economics Blog; "the government specifically passed laws that gave the oil companies incentives to drill far offshore — that is, in deeper water where risk is presumably higher."

Oil production in the gulf is touted to be great for the U.S., increasing our own domestic production. To the contrary, it is so poorly handled under existing law that it produces maximum risk at minimum return for the U.S. Not just a temporary ban should be exerted on further production in the Gulf of Mexico – a total ban should be issued, until the U.S. public is served instead of threatened by that drilling and that production.

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