So, 60 minutes did a piece on oil last night and, well, oops..
First here is the piece.
For those who do not want to watch it here are the crib notes. A Wall St. cabal controls oil markets that Enron set up to manipulate prices. There is a little more but not much…
Let’s look at some of the claims…
Production: Here is the EIA world oil production chart:
For those who want it, here is the link
One thing you’ll notice, production, unlike the claims of the piece, did indeed fall. In fact, as price rose during 2007, both US, Persian gulf and worldwide oil production was below 2006 levels. As the super spike began in 2008, the Pershing Gulf region increased production roughly 10% to capture the high prices. What is alarming is that US production again fell (could not capture high prices) and worldwide production gained only 6%.
Let’s look at demand: (million of barrel per day world demand)
2004 – 82.41
2005 – 83.82
2006 – 84.95
2007
Q1- 85.84
Q2- 84.88
Q3- 85.54
Q4- 86.94
2008
Q1- 86.07
Q2- 85.27
Again, here is the link
So, despite what the 60 Minutes piece said, world demand for oil waned only slightly during the spike period and production was only then ramping up. Let’s not forget, in Q2 2007 demand fell only to accelerate again to record highs 6 months later.
What happened after? Demand destruction. The global recession we are entering eviscerated demand and with the recent increase in production, the price that peaked in July 2007, collapsed. The problem is production has also, but that is a story for the next oil spike.
What did the EIA say in June 2008?
Here is how the EIA modeled oil prices based on “fundamentals”, again in June 2008.
Now, was oil priced correctly at $147 a barrel in July 2008? No. There was some speculative excess but to suggest that what happen in 2007-2008 was “speculators” lacks in any basis of fact. Is oil priced correctly at $40 a barrel today? No. Far too low. Good, I’m buying…
For 60 Minutes to imply that supply /demand had very little to do with the oil price increases in 2007 and early 2008 is counter to what the EIA was saying. It does make a nice little story to blame it all the villain of the day, Wall St. and to bring back to ghost or Enron, but it is still shoddy work on their part. Now, it isn’t as bad as forging documents to try to steal a Presidential Election, but is is just as dishonest..
Here is the most recent outlook from the EIA (12/9/2008)
Disclosure (“none” means no position):Long oil through DXO, DBO
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3 replies on “60 Minutes on Oil…Did Anyone Actually Do Any Checking? $$”
Todd, good work rebutting some of the stupidity of 60 Minutes. To rebut it all would take far too long.
But I think it’s time to admit the MSM has jumped the shark. They lack basic economic knowledge, let alone the ability to understand the energy market and the role of speculators in a free market, without resorting to base attacks that are unchanged since the days of cave men. 60 Minutes economics reporting: so stupid a caveman could do it.
Its of my opinion that it is BOTH….Peaking oil combined with demand…HOWEVER, there is no doubt that Alternative asset managers and pension funds were given the option to treat commodities as a asset class through swaps contracts carried by Investment banks who have the status of market maker which exempted them from position limits. This was a very lucrative business for them. It enabled investors to use their prime brokerage balance sheet to get directional exposure without ever having to take delivery. This is a fact. So to me it is of no coincidence that at the very moment that banks began to de-lever their balance sheet, the first thing they did was force huge collateral posted by clients to keep the positions on/OR close out the position completely and that form of "Credit" will not come back. No coincidence that all this happened by the time of that fateful weekend of the collapse of the Investment banks. That to me is a potent reason why crude is having a hard time retracing back towards $100. I actually commend MSM. All he is saying is if your going to treat commodities as an ASSET class, as is in the Yale/Harvard model then it should be treated like other asset classes and have filing requirements. That would make things more transparent. Watch how fast CALPERs will trim down its exposure of crude when their pensioners find out that their little side bet cannibalized the other 95% of the portfolio (Equity & Fixed income).
Omg, those greedy speculators! (of which I am one)
What a communist, socialist piece of garbage (60 minutes).
Notice how they NEVER mentioned the Fed cutting the rate faster than Grant took Richmond? Notice how they NEVER mentioned the crappy ETF’s that are giving funds too much money to skew proper, good speculation. Notice how they NEVER mentioned the weakness of the dollar.
“That was driving the price up”
That’s crap. A speculator CANNOT drive the price up. He can just participate in the market. Every human being on the planet could be in the market – and it WOUDLN’T AFFECT THE PRICE.
I swear to god, this 60 minutes piece is like some communist thinktank piece.