There is an update on this article.
The US consumer is getting his head handed to his body on a silver platter. The oil folks are screwing him and the bankers are screwing him.
First, the oil folks are screwing the consumer as West Texas Crude (WTI) is being exported from the gulf just as refinery capacity is declining in the US due to LOW demand. This is a De beers like control of the oil prices. PA refineries shut down just as the WTI exporting ramped up.
So, why is this WTI being exported as our gas prices explode at the pump? Well, pretty simple. The WTI folks want to cash in on the Brent price of crude. The Brent price of crude, an inferior grade of crude, is based on massive speculation. I have written many times that the seedbed of speculation is the UK, the Square Mile.
Wall Street has fed off this speculative push since the UK Big Bang in 1986, brought on the the greedy lady that some call the iron lady, Margaret Thatcher.
The speculation of Brent is exactly what is motivating the WTI folks as they greedily and unpatriotically seek to cash out by narrowing the difference of price. WTI folks want to make the money off of crude that the Brent folks make, and this now can be manipulated by diverting supply to the world market.
This increasing of oil exporting by the United States is clearly not in the national interest, as the US has been hurt by dependency on foreign oil for decades. Why would we want to be even more dependent on foreign oil? Is this so we have to stay in the middle east? Is it just pure greed on the part of the oil people?
Speculation affected WTI in the oil spike of 2008. Now, a combination of Brent speculation and the engineering of supply and demand in the US is causing WTI to spike to catch up to Brent. For people to say that it is not speculation this time is to miss the whole picture. The whole edifice is built on speculation.
This idea that we can produce oil and lower the price by increased supply and cutting free of energy dependence is simply not working. It was likely never the intent of the oil companies and speculators to allow a drop in price. Only the financial panic forced a drop in price which was out of the control of the financial community.
Update: Some folks have tried to make a case that crude sent to the refineries in the Gulf of Mexico will not be exported. But just because that oil is not exported as crude does not mean it won’t be exported as gasoline and by products. Here is the thing; refineries in the gulf are already export driven, export oriented.
“Existing markets for Canadian heavy crude, principally PADD II [U.S. Midwest], are currently oversupplied, resulting in price discounting for Canadian heavy crude oil. Access to the USGC [U.S. Gulf Coast] via the Keystone XL Pipeline is expected to strengthen Canadian crude oil pricing in [the Midwest] by removing this oversupply. This is expected to increase the price of heavy crude to the equivalent cost of imported crude. The resultant increase in the price of heavy crude is estimated to provide an increase in annual revenue to the Canadian producing industry in 2013 of US $2 billion to US $3.9 billion.”
Second, the consumer is really going to get screwed by the banks. Bank of America is pulling out of the mortgage lending business in a big way. I warned about this in many articles relating to the desire on the part of the banks to pull back and force the United States government to backstop almost every loan.
Backstopping loans is what the banks want. They want to bypass Fannie and Freddie, and have fellow private bankers take over the securitization market. In order for it to work, the private banks will get some kind of guarantee down the road from the US government. This is the Bernanke plan as well. So far, Citibank and Bank of America are pulling out of the mortgage market. This is by design.
The result will be that interest rates will probably go up and real estate values will crash. That way the banks can get properties back at a discounted rate. They lend as the prices appreciate and collect back properties when prices decline. And the American people will pay for this down the line.
Beware of a possible decline in housing values going forward, until the backstop is achieved. The banks are like the oil companies and speculators, they learned from De Beers. If they withhold their services, as big oil withholds production, they find they get what they want.
Once the banks get their properties back, and a guarantee on privately issued mortgages like they want, the chances of another housing bubble, at least a mini housing bubble, could be great. The UK, seedbed of speculation, has created 4 measurable housing bubbles in 40 years. That is one every 10 years. And Wall Street sits at the feet of those speculators and bubble makers.
With the banks and the energy giants and the speculators all on the same page, when will the damage to MainStreet stop?
For further study:
Oil Declines in New York (This has since been reversed but the article proves an element of speculation.)