Well I said in the morning the futures were irrationally exuberant and so they were.
I suppose traders are never going to learn that $109 oil is bad for the overall markets and commodity traders really don't seem to understand that every $1 per barrel they increase the price of oil costs global consumers $85M more per day and, while that may not seem like a big number by itself, $85M times $50 per barrel of increases since last Q1 works out to $4.25Bn A DAY that is not being spent at the Gap, or at TGT or at the movies or at Home Depot…
Is this so hard to understand? Where do energy traders think the next $1Bn a day is coming from? Last year they had the consumer all to themselves as they raped and pillaged the planet but now the Food traders have caught onto the scam (see 3/29 Weekend Reading) and they want $1Bn a day too! Before you know it a Billion here and a Billion there and you're talking some real money!
In order for oil to go from $110 to $120 a barrel, global consumers must come up with $1Bn a day but now that agriculture is tied into it, it's more like $1.5Bn a day and now that energy costs are breaking the backs of corportations, who are forced to pass the costs on, it's about $2Bn a day. Even if we generously assume that 2Bn people on this planet equally share this burden, that's still $1 per day per person in your family that has to go up in smoke for every $10 increase in the price of oil.
With a median income in the US of $26,036, for one half the people in this country who take home less than $400 per week, that $1 per day is 2% of their net income. The last 5 $10 increases have cost the "below average" American workers 10% of their net income already yet commodity traders think they can squeeze another 10% without breaking the camel's back, but they are wrong – the back of the consumer is already breaking and it is irrational to continue buying commodities with the expectation that they can keep rising.
The truth is that the US consumer is not the "average" citizen of the World. We consume 25% of the world's energy so the very scary figures I just gave you are CONSERVATIVE as they apply to gas-guzzling US consumers. How much is too much, well credit card default and bankruptcy trends indicate we passed too much quite some time ago.
Oil and Food are not optional items, if people can't afford them it should be considered a crisis by the Administration not some joke that happens to poor people. On TV yesterday, the President said "People are worried about the cost of fuel – that's why we have to keep taxes low." Can he possibly be that clueless? Does the man really believe that sending out checks for $600 (10 tanks of gas) while running up $168Bn in additional debt in order to SUPPORT $110 oil is a solution?
IT IS THE PROBLEM, NOT THE SOLUTION!
Also part of the problem is George Bush's maniacal filling of the Strategic Petroleum Reserve over the objections of Congress.
Democrats on the Senate Energy and Natural Resources Committee charged. "There's a carnival of speculation in the markets. Prices for both crude oil and gasoline are bouncing around at high levels, yet we're taking oil off the market and into the ground," said Sen. Byron L. Dorgan (D-ND) during the committee's Feb. 2 6 hearing on US oil inventory policies and the SPR.
In a bill he introduced on Feb. 6, Dorgan calls for suspension of SPR purchases for a year, restoring them only if oil prices fall below (a negotiable) $50/bbl. Money now being spent on SPR fill could be better used, he said, for domestic ultradeep and unconventional drilling research, which the administration repeatedly "zeros out" and which he keeps having to put back into DOE's budget. "We can expect some push-back from the administration," he told reporters. "I understand that a substantial portion of this is coming from the Vice-President's office."
So the DEMOCRATS keep trying to fund additional drilling and the Vice President keeps killing it!
Aside from being the single largest buyer of oil in the history of this planet, with 300M barrels of oil purchased by George Bush, using $21Bn of your tax dollars to put oil in the ground at an average rate of 850,000 barrels a week since he's been elected (5% of US consumption, 10% of our imports), George has also set the modern military record for consumption, running a now 5-year war that consumes an additional 400,000 barrels of oil a day in fuel, another 2% of total US consumption (each deployed US soldier consumes an average of 15 gallons of fuel per day – so the surge IS working!).
In fact, 100% of the US increase in fuel consumption since 2001 has entirely been attributed to George W. Bush's personal filling of the SPR and his war in Iraq!
How long do we plan to keep putting up with this? Can we afford to stay this course for another 8 months? The markets say no, something must be done about the price of oil or this economy will break and no amount of tax cutting is going to fix it!
