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Jan 06 2017

Pump and Dump

So I’ve been reading and hearing all kinds of dire predictions about rising Gas prices and it’s totally ridiculous. Any rise is just fatter monopolistic margins for Global Carbon Extraction Companies (which, of course, are always the beneficiaries of every dollar spent).

Point the first, if we suddenly shut off the taps tomorrow, I mean completely, prices would rise for sure (decrease in Supply == Rarity Value) but we have about a year’s worth of consumption at present rates in reserves, already pumped out of the ground and floating around in Tanks and Tanker Ships.

Secondly, we’re not even talking about that. We’re talking about OPEC, which controls slightly less than 40% of World Production (at the moment). Major OPEC producers Libya and Nigeria are exempted from the agreement. Iraq, Iran, and Saudi Arabia have every incentive to cheat. Russia is not a member of OPEC. In the United States (a net exporter of petroleum believe it or not) Companies invested in Shale Oil production are under severe pressure to pay off their outstanding loans or go bankrupt.

What gives OPEC (meaning basically the Middle Eastern Oil producing countries that tap into the Infracambrian-Carboniferous sequence, the Permian-Cretaceous sequence, and the Cenozoic foreland sequence (GEOExPro)), the ability to set prices is that Oil is cheap to produce, typically less than $5 a Barrel. This means you can run the Rockefeller strategy of underpricing your competitors to gain Monopoly advantage.

But, as I argued in Economics Class against my Professor and Peers (this is why I only got a B- even though I was both brilliant and prescient), if your price goes high enough to induce competition (which it inevitably does you greedy bastard, how else do you discover the boundaries?), that competition, having invested to overcome your competitive barriers, is determined to recoup (the sunk cost fallacy) its investment. If you are not disciplined in playing Prince’s Restraint and financed enough to endure the losses (Saudi Arabia wasn’t, though it thought it was) you are vulnerable to the Pauper’s Attack (Light Blues, Purples, Oranges (the best), and Dark Blues (surprisingly)).

And why did I have to take Economics anyway? Bunch of politically driven rattle shaking Shamen posing as “Social” Scientists with meaningless cocktail napkin graphs and equations posing as Math. Give me an honest profession like History or Stenography!

Finally, and this is the good news, there is no indication that Oil prices will rise nearly high enough ($70 per Barrel or more) to make exploiting some of the most environmentally problematic sources (Tar Sands, Arctic, Deep Sea) economically feasible. Selling something for less than it costs you to make or extract it is a sure recipe for bankruptcy.

So Gas is going to cost around $2.50 a Gallon for the foreseeable future.

Deal with it.

Pump and Dump

Artificially inflating the price of an owned stock through false and misleading positive statements.

The Oil Supply Glut Is Here To Stay In 2017
By Irina Slav, Naked Capitalism
January 6, 2017

It has become painfully obvious that the much-hyped OPEC agreement to reduce global oil production by close to 2 million bpd won’t have the effect that its initiators had hoped for. True, crude has jumped above US$50 but failed to pass the US$55 barrier and move closer to US$60, which would have solved a lot of problems for some of the world’s biggest producers.

This price increase, however, has spurred optimism among some producers and motivated them to plan output ramp-ups, which will in turn dampen the upward potential of crude more effectively than growing doubts about top producers’ willingness to stick to their commitments under the historical agreement.

To further complicate matters, there is the duration of the cut agreement. As Tom Kloza notes in an interview for CNBC, it might well be over in six months, which is the term that the parties agreed. If someone cheats and/or if prices fail to reach the levels that most participants in the agreement are happy with, chances are that the cut won’t be prolonged into the second half of the year.

All of this means that supply is going to exceed demand for yet another year–the fourth in a row, in fact, as 2013 was the last year when demand was higher than supply. And this does not bode well for price trends over the next 12 months.

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